VOL. 124 | NO. 83 | Wednesday, April 29, 2009
Valero Q1 Profit Jumps 18 Pct But Revenue Tumbles
JOHN PORRETTO | AP Energy Writer
HOUSTON (AP) - Valero Energy Corp. said Tuesday its first-quarter profit rose more than 18 percent, easily beating Wall Street expectations as higher margins for turning crude into gasoline offset weak demand for a variety of refined products.
Still, because of the uncertain economy, the nation's largest independent oil refiner said it was scaling back spending even as it noted gasoline demand could begin to improve in the next few months.
"We're working diligently to manage our financial health in this weak economy," Mike Ciskowski, Valero's chief financial officer, said in a conference call with analysts. "Realizing that we're not immune from the effects of a recession, we are reducing operating costs, overhead costs and capital spending."
Retail gasoline prices have changed little in the past month and remain far lower than they were a year ago. The average national price for unleaded gasoline was $2.048 a gallon on Tuesday, up only marginally from $2.045 a month ago, according to auto club AAA, Wright Express and Oil Price Information Service. A year ago the price of unleaded stood at $3.603, on its way above $4 a gallon.
Many analysts say gasoline is not likely to get higher than $2.25 a gallon at the peak of the summer driving season, in part from huge stockpiles.
San Antonio-based Valero said its net income for the January-March period amounted to $309 million, or 59 cents a share, up from the $261 million, or 48 cents per share, it earned a year ago.
The most-recent result topped the average estimate of Wall Street analysts surveyed by Thomson Reuters, who were expecting earnings of 50 cents per share.
Revenue, however, fell 51 percent to $13.82 billion from a year ago as the recession ate into demand for energy.
Last year at this time, crude prices were well into a historic run toward $150 per barrel, which led to slimmer margins for refiners like Valero. Those margins reflect the difference between the cost of crude that the company has to buy and what the company makes on refined products such as gasoline.
This year, with crude prices near five-year lows, Valero said margins improved on gasoline, as well as fuel oil, asphalt and petroleum coke. Also, as energy costs remained low in the first quarter, refining expenses declined.
A downside for earnings was lower diesel and jet fuel margins. The company said a recovery in demand for those products could take longer than gasoline because they're tied more closely to economic activity.
In an effort to conserve cash, Valero said it was cutting its 2009 capital spending budget to $2.5 billion from its earlier estimate of $2.7 billion.
But the company is investing in other areas.
Earlier this month, Valero entered the biofuel business, snapping up six plants from bankrupt ethanol producer Verasun Energy Corp. It will close on a seventh plant soon, said Bill Klesse, Valero's chief executive. The total cost is $477 million.
"We have established a sizable, strategic position within the ethanol business," Klesse said. "Looking forward, we expect ethanol demand to grow under the federal mandate and catch up with production capacity by 2010."
Valero shares rose 34 cents to $21.08 in Tuesday trading. They've traded in a range of $13.94 to $53.94 in the past year.
AP Energy Writer Deborah Jian Lee in New York contributed to this report.
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