VOL. 123 | NO. 212 | Wednesday, October 29, 2008
Valero Net Income Falls 9 Percent; Spending Cut
By JOHN PORRETTO | AP Business Writer
HOUSTON (AP) - Valero Energy Corp., the largest U.S. independent oil refiner, said Tuesday its third-quarter profit fell 9 percent from a year ago, but its results were better than Wall Street forecasts.
The San Antonio-based company also said it was reducing capital spending by another $800 million, citing the uncertain economic environment and volatility in the refining sector. The company has now reduced capital spending by $1.5 billion from the $4.5 billion that was originally budgeted.
Its shares jumped 8 percent, or $1.25, to $16.36 in early trading. They've traded in the wide range of $14.59 to $73.68 in the past year.
Valero said net income for the July-September quarter amounted to $1.15 billion, or 2.18 a share, compared to $1.27 billion, or 2.09 a share, a year ago. Valero had fewer outstanding shares in the most-recent quarter.
Excluding a gain from the July sale of a Louisiana refinery, income from continuing operations was $982 million, or $1.86 a share. Third-quarter revenue grew nearly 52 percent to $35.9 billion.
Analysts surveyed by Thomson Reuters had expected earnings on average of $1.54 per share on revenue of $35.79 billion.
In its earnings release, Valero noted its results in the third quarter of 2007 had a one-time, after-tax gain of $426 million from the sale of its refinery in Lima, Ohio.
Margins – the difference between the cost of crude and other feedstocks and what the company makes on refined products – were extremely volatile in the quarter.
Gasoline margins were low in July, when crude prices hit record highs, but began to improve in August as oil prices began their downward spiral. Margins for distillate products, such as diesel and jet fuels, were robust throughout the quarter, the company said.
Also, margins for many secondary products – asphalt, heavy fuel oil and petroleum coke, among them – rose in the quarter as the cost of crude fell faster than the prices for those products.
"This favorable margin relationship continues as crude prices continue to fall," Valero chairman and chief executive Bill Klesse said in a statement.
Crude oil prices have fallen 58 percent since reaching a record $147.27 on July 11.
Valero operates 16 refineries and 5,800 retail and wholesale outlets in the United States, Canada and the Caribbean.
The company had to shut down four of those refineries along the Gulf Coast for parts of August and September because of hurricanes Gustav and Ike, "but we were fortunate to avoid major damage," Klesse said.
Given the current economic downturn, Valero said it now expects capital spending to amount to $3 billion this year, down 33 percent from its original budget. For 2009, it expects capital spending to be about $3.5 billion, down $500 million from its previous guidance.
"You can expect us to maintain our balanced approach by investing in growth projects, paying off debt, buying back stock and increasing dividends, but clearly we intend to hold much more cash than in the past," Klesse said.
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