A month has gone by since the last earnings report for Valero Energy (VLO). Shares have lost about 24.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Valero Energy due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Valero Energy Earnings and Revenues Beat Estimates in Q4
Valero Energyposted fourth-quarter 2019 income of $2.13 per share, significantly beating the Zacks Consensus Estimate of $1.60. However, quarterly earnings decreased from the year-ago figure of $2.19 per share.
Total revenues fell from $28,730 million in the prior-year period to $27,879 million in the quarter under review. However, the top line surpassed the Zacks Consensus Estimate of $27,586 million.
The better-than-expected results can be attributed to lower cost of sales and processing of a record number of Canadian low-cost heavy crude. Higher ethanol prices also supported the results. This was partially offset by lower refining margin and higher corn prices.
Full-year 2019 revenues amounted to $108.3 billion, down from the 2018 figure of $117 billion.
Segmental Performance
Operating income from the Refining segment declined to $1,419 million from $1,468 million in the year-ago quarter. However, the figure beat the Zacks Consensus Estimate of $1,263 million due to wider sour crude oil differentials. Moreover, weakness in high-sulfur residual feedstocks fuelled its performance. Notably, the company processed record 180,000 barrels per day (BPD) of Canadian heavy crude oil through 2019. Also, it exported 343,000 BPD of gasoline and distillate on an average, in 2019.
In the Ethanol segment, the company reported operating income of $36 million against a loss of $27 million in the year-ago quarter. Moreover, the reported figure beat the Zacks Consensus Estimate of a profit of $14.9 million. The upside can be attributed to higher ethanol prices, partially offset by increased corn prices.
Valero created a new segment during the first quarter, namely Renewable Diesel, which incorporated the operations of a consolidated joint venture, Diamond Green Diesel. Gross operating income from the segment was $541 million compared with $101 million in the year-ago period. The figure surpassed the Zacks Consensus Estimate of $83 million. The increase was attributed to rise in renewable diesel sales volumes.
Expenses & Operating Income
General and administrative expenses in the Corporate and other segment totaled $243 million compared with the prior-year level of $230 million. Total cost of sales fell to $25,876 million in the quarter from the year-ago period’s $27,184 million.
Quarterly operating income in the quarter rose to $1,739 million from $1,299 million in the year-ago period. However, full-year 2019 operating income fell to $3,836 million from year-ago level of $4,572 million.
Throughput Volumes
During the quarter, refining throughput volumes were 3,018 thousand barrels per day (MBPD), marginally up from the prior-year quarter’s 3,013 MBPD. Refinery throughput capacity utilization in the reported quarter was 96%.
In terms of feedstock composition, sweet crude, medium/light sour crude and heavy sour crude accounted for 55.5%, 8% and 10.9%, respectively, of its total volume. The remaining volumes came from residuals, other feedstock blendstocks and others. The Gulf Coast contributed approximately 58.4% to total throughput volume. Mid-Continent, North Atlantic and West Coast regions accounted for 15.3%, 16.9% and 9.4%, respectively, of the total throughput volume.
Throughput Margins
Refining margin per barrel of throughput decreased to $10.90 from the year-ago level of $11.03. Refining operating expense per barrel was $3.93 compared with $3.96 in the year-ago quarter. Depreciation and amortization expenses increased to $1.89 a barrel from $1.76 in the prior-year quarter.
Share Repurchase
Valero returned $591 million to its shareholders, of which $222 million was used to repurchase around 2.3 million shares of common stock and $369 million was paid as dividends to its shareholders.
Capital Expenditure & Balance Sheet
Fourth-quarter capital expenditure totaled $722 million, of which $445 million was allotted for sustaining the business.
At the end of the quarter, the company had cash and cash equivalents of $2.6 billion, and a total debt of $9.7 billion. Its debt-to-capitalization ratio was 26%.
Outlook
Valero reiterated its capital expenditure view for 2020 at $2.5 billion. Around 40% of the budget will be used for growth projects, while the rest will be directed toward sustaining the business. The Pasadena terminal, and St. Charles alkylation and Pembroke cogeneration units are expected to come online in 2020. Moreover, the company’s Diamond Green Diesel expansion and Port Arthur Coker projects are scheduled to be completed in 2021 and 2022, respectively.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -26.88% due to these changes.
VGM Scores
At this time, Valero Energy has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Valero Energy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Valero Energy Corporation (NYSE:VLO): Free Stock Analysis Report
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