Valero Energy Reports Third Quarter 2020 Results

: Business Wire; Posted On Thursday, 22 October 2020 13:01

Reported net loss attributable to Valero stockholders of $464 million, or $1.14 per share.
Reported adjusted net loss attributable to Valero stockholders of $472 million, or $1.16 per share.
Issued $2.5 billion of Senior Notes for general corporate purposes.
2020 and 2021 capital investments attributable to Valero forecasted at $2.0 billion for each year.
Returned $399 million in cash to stockholders through dividends.

SAN ANTONIO--(BUSINESS WIRE)--Valero Energy Corporation (NYSE: VLO, “Valero”) today reported a net loss attributable to Valero stockholders of $464 million, or $1.14 per share, for the third quarter of 2020 compared to net income of $609 million, or $1.48 per share, for the third quarter of 2019. Excluding the adjustments shown in the accompanying earnings release tables, the adjusted net loss attributable to Valero stockholders was $472 million, or $1.16 per share, for the third quarter of 2020, compared to third quarter 2019 adjusted net income attributable to Valero stockholders of $642 million, or $1.55 per share. Third quarter 2020 adjusted results primarily exclude the benefit from an after-tax lower of cost or market, or LCM, inventory valuation adjustment of $250 million and an after-tax loss of $218 million for an expected LIFO liquidation.

Refining

The refining segment reported a $629 million operating loss for the third quarter of 2020 compared to operating income of $1.1 billion for the third quarter of 2019. Excluding the LCM inventory valuation adjustment, the expected LIFO liquidation adjustment, and other operating expenses, the third quarter 2020 adjusted operating loss was $575 million. Refinery throughput volumes averaged 2.5 million barrels per day in the third quarter of 2020, which was 428 thousand barrels per day lower than the third quarter of 2019.

“As the global economy recovers, we are pleased to see a demand recovery for gasoline, diesel and jet fuel in the third quarter” said Joe Gorder, Valero Chairman and Chief Executive Officer. “Our unmatched execution, while being the lowest cost producer, and ample liquidity continue to position us well to manage a low margin environment.”

Renewable Diesel

The renewable diesel segment reported $184 million of operating income for the third quarter of 2020 compared to $65 million for the third quarter of 2019. After adjusting for the retroactive blender’s tax credit, renewable diesel operating income was $123 million for the third quarter of 2019. Renewable diesel sales volumes averaged 870 thousand gallons per day in the third quarter of 2020, an increase of 232 thousand gallons per day versus the third quarter of 2019. The third quarter of 2019 results and volumes were impacted by the planned downtime of the Diamond Green Diesel (DGD) plant for maintenance. DGD set a record for sales volumes in the third quarter of 2020.

Ethanol

The ethanol segment reported $22 million of operating income for the third quarter of 2020, compared to a $43 million operating loss for the third quarter of 2019. Third quarter 2020 adjusted operating income was $36 million. Ethanol production volumes averaged 3.8 million gallons per day in the third quarter of 2020, which was 206 thousand gallons per day lower than the third quarter of 2019. The increase in operating income was attributed primarily to higher margins resulting from lower corn prices.

Corporate and Other

General and administrative expenses were $186 million in the third quarter of 2020 compared to $217 million in the third quarter of 2019. The effective tax rate for the third quarter of 2020 was 47 percent, which was primarily impacted by an expected U.S. federal tax net operating loss that will be carried back to 2015 when the U.S. federal statutory tax rate was 35 percent.

Investing and Financing Activities

Capital investments totaled $517 million in the third quarter of 2020, of which $205 million was for sustaining the business, including costs for turnarounds, catalysts and regulatory compliance. Excluding capital investments attributable to our partner’s 50 percent share of DGD and those related to other variable interest entities, capital investments attributable to Valero were $393 million.

Net cash provided by operating activities was $165 million in the third quarter of 2020. Included in this amount was a $246 million favorable impact from working capital, as well as our joint venture partner’s share of DGD’s net cash provided by operating activities, excluding changes in its working capital. Excluding these items, adjusted net cash used by operating activities was $177 million.

Valero returned $399 million to stockholders through dividends in the third quarter of 2020, resulting in a year-to-date total payout ratio of 165 percent of adjusted net cash provided by operating activities. The year-to-date total payout ratio is higher than our long-term target due to the adverse economic impact of COVID-19.

Valero continues to target a long-term total payout ratio between 40 and 50 percent of adjusted net cash provided by operating activities. Valero defines total payout ratio as the sum of dividends and stock buybacks divided by net cash provided by operating activities adjusted for changes in working capital and DGD’s net cash provided by operating activities, excluding changes in its working capital, attributable to our joint venture partner’s ownership interest in DGD.

“The guiding principles underpinning our capital allocation strategy remain unchanged,” said Gorder. “There has been absolutely no change in our strategy, which prioritizes our investment grade ratings, sustaining investments and honoring our dividend.”

Liquidity and Financial Position

Valero ended the third quarter of 2020 with $15.2 billion of total debt and finance lease obligations and $4.0 billion of cash and cash equivalents. The debt to capitalization ratio, net of cash and cash equivalents, was 36 percent as of September 30, 2020.

Strategic Update

Capital investments attributable to Valero are forecasted at $2.0 billion per year in 2020 and 2021, of which approximately 60 percent is for sustaining the business and approximately 40 percent is for growth projects. Approximately 40 percent of Valero’s 2020 and 2021 growth capital is allocated to expanding the renewable diesel business.

The new St. Charles Alkylation Unit, which is designed to convert low-value feedstocks into a premium alkylate product, is on track to be completed in the fourth quarter of this year. The Diamond Pipeline expansion and the Pembroke Cogen project are expected to be completed in 2021 and the Port Arthur Coker project is expected to be completed in 2023.

Valero and its joint venture partner in DGD continue to pursue growth in the low-carbon renewable diesel business. The DGD plant expansion is still expected to be completed in 2021, and as previously announced, DGD continues to make progress on the advanced engineering and development cost review for a potential new 400 million gallons per year renewable diesel plant at Valero’s Port Arthur, Texas facility. If the project is approved, operations are expected to commence in 2024, increasing DGD’s production capacity to over 1.1 billion gallons annually.

“We remain steadfast in the execution of our strategy, pursuing excellence in operations, investing in earnings growth with lower volatility and honoring our commitment to shareholder returns,” said Gorder.

Conference Call

Valero’s senior management will hold a conference call at 10 a.m. ET today to discuss this earnings release and to provide an update on operations and strategy.

About Valero

Valero Energy Corporation, through its subsidiaries (collectively, “Valero”), is an international manufacturer and marketer of transportation fuels and petrochemical products. Valero is a Fortune 50 company based in San Antonio, Texas, and it operates 15 petroleum refineries with a combined throughput capacity of approximately 3.2 million barrels per day and 14 ethanol plants with a combined production capacity of approximately 1.73 billion gallons per year. The petroleum refineries are located in the United States (U.S.), Canada and the United Kingdom (U.K.), and the ethanol plants are located in the Mid-Continent region of the U.S. Valero is also a joint venture partner in Diamond Green Diesel, which operates a renewable diesel plant in Norco, Louisiana. Diamond Green Diesel is North America’s largest biomass-based diesel plant. Valero sells its products in the wholesale rack or bulk markets in the U.S., Canada, the U.K., Ireland and Latin America. Approximately 7,000 outlets carry Valero’s brand names. Please visit www.valero.com for more information.

Valero Contacts

Investors:

Homer Bhullar, Vice President – Investor Relations, 210-345-1982

Eric Herbort, Senior Manager – Investor Relations, 210-345-3331

Gautam Srivastava, Manager – Investor Relations, 210-345-3992

Media:

Lillian Riojas, Executive Director – Media Relations and Communications, 210-345-5002

Safe-Harbor Statement

Statements contained in this release that state the company’s or management’s expectations or predictions of the future are forward-looking statements intended to be covered by the safe harbor provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The words “believe,” “expect,” “should,” “estimates,” “intend,” “target,” “will,” “plans,” and other similar expressions identify forward-looking statements. It is important to note that actual results could differ materially from those projected in such forward-looking statements based on numerous factors, including those outside of the company’s control, such as delays in construction timing and other factors, including but not limited to the impacts of COVID-19. For more information concerning factors that could cause actual results to differ from those expressed or forecasted, see Valero’s annual reports on Form 10-K, quarterly reports on Form 10-Q, and other reports filed with the Securities and Exchange Commission and available on Valero’s website at www.valero.com.

COVID-19 Disclosure

The global pandemic has significantly reduced global economic activity and resulted in airlines dramatically cutting back on flights and a decrease in motor vehicle use. As a result, there has also been a decline in the demand for, and thus also the market prices of, crude oil and certain of our products, particularly our refined petroleum products. Many uncertainties remain with respect to COVID-19, including its resulting economic effects and any future recovery, and we are unable to predict the ultimate economic impacts from COVID-19, how quickly national economies can recover once the pandemic subsides, or whether any recovery will ultimately experience a reversal or other setbacks. However, the adverse impact of the economic effects on us has been and will likely continue to be significant. We believe we have proactively addressed many of the known impacts of COVID-19 to the extent possible and will strive to continue to do so, but there can be no guarantee that these measures will be fully effective. For more information, see our quarterly reports on Form 10-Q and other reports filed with the Securities and Exchange Commission.

Use of Non-GAAP Financial Information

This earnings release and the accompanying earnings release tables include references to financial measures that are not defined under U.S. generally accepted accounting principles (GAAP). These non-GAAP measures include adjusted net income (loss) attributable to Valero stockholders, adjusted earnings (loss) per common share – assuming dilution, refining margin, renewable diesel margin, ethanol margin, adjusted refining operating income (loss), adjusted renewable diesel operating income, adjusted ethanol operating income (loss), adjusted net cash provided by operating activities, and capital investments attributable to Valero. These non-GAAP financial measures have been included to help facilitate the comparison of operating results between periods. See the accompanying earnings release tables for a reconciliation of non-GAAP measures to their most directly comparable U.S. GAAP measures. Note (g) to the earnings release tables provides reasons for the use of these non-GAAP financial measures.

VALERO ENERGY CORPORATION EARNINGS RELEASE TABLES FINANCIAL HIGHLIGHTS (millions of dollars, except per share amounts) (unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Statement of income data
Revenues	$	15,809	$	27,249	$	48,308	$	80,445
Cost of sales:
Cost of materials and other (a) (b)	14,801		24,335		43,832		72,396
Lower of cost or market (LCM) inventory valuation adjustment (c)	(313)		—		(19)		—
Operating expenses (excluding depreciation and amortization expense reflected below)	1,117		1,239		3,268		3,629
Depreciation and amortization expense (d)	602		556		1,737		1,645
Total cost of sales	16,207		26,130		48,818		77,670
Other operating expenses	25		10		30		14
General and administrative expenses (excluding depreciation and amortization expense reflected below)	186		217		532		625
Depreciation and amortization expense	12		11		37		39
Operating income (loss)	(621)		881		(1,109)		2,097
Other income, net (e)	48		34		107		68
Interest and debt expense, net of capitalized interest	(143)		(111)		(410)		(335)
Income (loss) before income tax expense (benefit)	(716)		804		(1,412)		1,830
Income tax expense (benefit)	(337)		165		(614)		376
Net income (loss)	(379)		639		(798)		1,454
Less: Net income attributable to noncontrolling interests (b)	85		30		264		92
Net income (loss) attributable to Valero Energy Corporation stockholders	$	(464)	$	609	$	(1,062)	$	1,362

Earnings (loss) per common share	$	(1.14)	$	1.48	$	(2.62)	$	3.28
Weighted-average common shares outstanding (in millions)	407		412		407		415

Earnings (loss) per common share – assuming dilution	$	(1.14)	$	1.48	$	(2.62)	$	3.28
Weighted-average common shares outstanding – assuming dilution (in millions) (f)	407		413		407		416
See Notes to Earnings Release Tables.

VALERO ENERGY CORPORATION EARNINGS RELEASE TABLES FINANCIAL HIGHLIGHTS BY SEGMENT (millions of dollars) (unaudited)
	Refining		Renewable Diesel		Ethanol		Corporate and Eliminations		Total
Three months ended September 30, 2020
Revenues:
Revenues from external customers	$	14,727	$	305	$	777	$	—	$	15,809
Intersegment revenues	2		40		58		(100)		—
Total revenues	14,729		345		835		(100)		15,809
Cost of sales:
Cost of materials and other (a) (b)	14,103		128		670		(100)		14,801
LCM inventory valuation adjustment (c)	(296)		—		(17)		—		(313)
Operating expenses (excluding depreciation and amortization expense reflected below)	989		23		105		—		1,117
Depreciation and amortization expense (d)	538		10		54		—		602
Total cost of sales	15,334		161		812		(100)		16,207
Other operating expenses	24		—		1		—		25
General and administrative expenses (excluding depreciation and amortization expense reflected below)	—		—		—		186		186
Depreciation and amortization expense	—		—		—		12		12
Operating income (loss) by segment	$	(629)	$	184	$	22	$	(198)	$	(621)

Three months ended September 30, 2019
Revenues:
Revenues from external customers	$	26,145	$	212	$	891	$	1	$	27,249
Intersegment revenues	2		50		57		(109)		—
Total revenues	26,147		262		948		(108)		27,249
Cost of sales:
Cost of materials and other	23,432		164		847		(108)		24,335
Operating expenses (excluding depreciation and amortization expense reflected below)	1,100		18		121		—		1,239
Depreciation and amortization expense	518		15		23		—		556
Total cost of sales	25,050		197		991		(108)		26,130
Other operating expenses	10		—		—		—		10
General and administrative expenses (excluding depreciation and amortization expense reflected below)	—		—		—		217		217
Depreciation and amortization expense	—		—		—		11		11
Operating income (loss) by segment	$	1,087	$	65	$	(43)	$	(228)	$	881

See Operating Highlights by Segment. See Notes to Earnings Release Tables.

VALERO ENERGY CORPORATION EARNINGS RELEASE TABLES FINANCIAL HIGHLIGHTS BY SEGMENT (millions of dollars) (unaudited)
	Refining		Renewable Diesel		Ethanol		Corporate and Eliminations		Total
Nine months ended September 30, 2020
Revenues:
Revenues from external customers	$	45,327	$	850	$	2,131	$	—	$	48,308
Intersegment revenues	6		150		160		(316)		—
Total revenues	45,333		1,000		2,291		(316)		48,308
Cost of sales:
Cost of materials and other (a) (b)	41,769		393		1,984		(314)		43,832
LCM inventory valuation adjustment (c)	(19)		—		—		—		(19)
Operating expenses (excluding depreciation and amortization expense reflected below)	2,912		63		293		—		3,268
Depreciation and amortization expense (d)	1,607		33		97		—		1,737
Total cost of sales	46,269		489		2,374		(314)		48,818
Other operating expenses	29		—		1		—		30
General and administrative expenses (excluding depreciation and amortization expense reflected below)	—		—		—		532		532
Depreciation and amortization expense	—		—		—		37		37
Operating income (loss) by segment	$	(965)	$	511	$	(84)	$	(571)	$	(1,109)

Nine months ended September 30, 2019
Revenues:
Revenues from external customers	$	77,109	$	686	$	2,648	$	2	$	80,445
Intersegment revenues	12		174		162		(348)		—
Total revenues	77,121		860		2,810		(346)		80,445
Cost of sales:
Cost of materials and other	69,769		577		2,396		(346)		72,396
Operating expenses (excluding depreciation and amortization expense reflected below)	3,197		54		378		—		3,629
Depreciation and amortization expense	1,539		38		68		—		1,645
Total cost of sales	74,505		669		2,842		(346)		77,670
Other operating expenses	13		—		1		—		14
General and administrative expenses (excluding depreciation and amortization expense reflected below)	—		—		—		625		625
Depreciation and amortization expense	—		—		—		39		39
Operating income (loss) by segment	$	2,603	$	191	$	(33)	$	(664)	$	2,097

See Operating Highlights by Segment. See Notes to Earnings Release Tables.

VALERO ENERGY CORPORATION EARNINGS RELEASE TABLES RECONCILIATION OF NON-GAAP MEASURES TO MOST COMPARABLE AMOUNTS REPORTED UNDER U.S. GAAP (g) (millions of dollars, except per share amounts) (unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Reconciliation of net income (loss) attributable to Valero Energy Corporation stockholders to adjusted net income (loss) attributable to Valero Energy Corporation stockholders
Net income (loss) attributable to Valero Energy Corporation stockholders	$	(464)	$	609	$	(1,062)	$	1,362
Adjustments:
Last-in, first-out (LIFO) liquidation adjustment (a)	326		—		326		—
Income tax benefit related to the LIFO liquidation adjustment	(108)		—		(108)		—
LIFO liquidation adjustment, net of taxes	218		—		218		—
Change in estimated useful life (d)	30		—		30		—
Income tax benefit related to the change in estimated useful life	(6)		—		(6)		—
Change in estimated useful life, net of taxes	24		—		24		—
LCM inventory valuation adjustment (c)	(313)		—		(19)		—
Income tax expense related to the LCM inventory valuation adjustment	63		—		3		—
LCM inventory valuation adjustment, net of taxes	(250)		—		(16)		—
2019 blender’s tax credit attributable to Valero Energy Corporation stockholders (b)	—		33		—		112
Income tax expense related to 2019 blender’s tax credit	—		—		—		(3)
2019 blender’s tax credit attributable to Valero Energy Corporation stockholders, net of taxes	—		33		—		109
Loss on early redemption of debt (e)	—		—		—		22
Income tax benefit related to loss on early redemption of debt	—		—		—		(5)
Loss on early redemption of debt, net of taxes	—		—		—		17
Total adjustments	(8)		33		226		126
Adjusted net income (loss) attributable to Valero Energy Corporation stockholders	$	(472)	$	642	$	(836)	$	1,488

Reconciliation of earnings (loss) per common share – assuming dilution to adjusted earnings (loss) per common share – assuming dilution
Earnings (loss) per common share – assuming dilution (f)	$	(1.14)	$	1.48	$	(2.62)	$	3.28
Adjustments:
LIFO liquidation adjustment (a)	0.53		—		0.53		—
Change in estimated useful life (d)	0.06		—		0.06		—
LCM inventory valuation adjustment (c)	(0.61)		—		(0.04)		—
2019 blender’s tax credit attributable to Valero Energy Corporation stockholders (b)	—		0.07		—		0.26
Loss on early redemption of debt (e)	—		—		—		0.04
Total adjustments	(0.02)		0.07		0.55		0.30
Adjusted earnings (loss) per common share – assuming dilution (f)	$	(1.16)	$	1.55	$	(2.07)	$	3.58

See Notes to Earnings Release Tables.

VALERO ENERGY CORPORATION EARNINGS RELEASE TABLES RECONCILIATION OF NON-GAAP MEASURES TO MOST COMPARABLE AMOUNTS REPORTED UNDER U.S. GAAP (g) (millions of dollars) (unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Reconciliation of operating income (loss) by segment to segment margin, and reconciliation of operating income (loss) by segment to adjusted operating income (loss) by segment
Refining segment
Refining operating income (loss)	$	(629)	$	1,087	$	(965)	$	2,603
Adjustments:
2019 blender’s tax credit (b)	—		4		—		13
LIFO liquidation adjustment (a)	326		—		326		—
LCM inventory valuation adjustment (c)	(296)		—		(19)		—
Operating expenses (excluding depreciation and amortization expense reflected below)	989		1,100		2,912		3,197
Depreciation and amortization expense	538		518		1,607		1,539
Other operating expenses	24		10		29		13
Refining margin	$	952	$	2,719	$	3,890	$	7,365

Refining operating income (loss)	$	(629)	$	1,087	$	(965)	$	2,603
Adjustments:
2019 blender’s tax credit (b)	—		4		—			13
LIFO liquidation adjustment (a)	326		—		326		—
LCM inventory valuation adjustment (c)	(296)		—		(19)		—
Other operating expenses	24		10		29		13
Adjusted refining operating income (loss)	$	(575)	$	1,101	$	(629)	$	2,629

Renewable diesel segment
Renewable diesel operating income	$	184	$	65	$	511	$	191
Adjustments:
2019 blender’s tax credit (b)	—		58		—		198
Operating expenses (excluding depreciation and amortization expense reflected below)	23		18		63		54
Depreciation and amortization expense	10		15		33		38
Renewable diesel margin	$	217	$	156	$	607	$	481

Renewable diesel operating income	$	184	$	65	$	511	$	191
Adjustment: 2019 blender’s tax credit (b)	—		58		—		198
Adjusted renewable diesel operating income	$	184	$	123	$	511	$	389

See Notes to Earnings Release Tables.

VALERO ENERGY CORPORATION EARNINGS RELEASE TABLES RECONCILIATION OF NON-GAAP MEASURES TO MOST COMPARABLE AMOUNTS REPORTED UNDER U.S. GAAP (g) (millions of dollars) (unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Reconciliation of operating income (loss) by segment to segment margin, and reconciliation of operating income (loss) by segment to adjusted operating income (loss) by segment (continued)
Ethanol segment
Ethanol operating income (loss)	$	22	$	(43)	$	(84)	$	(33)
Adjustments:
LCM inventory valuation adjustment (c)	(17)		—		—		—
Operating expenses (excluding depreciation and amortization expense reflected below)	105		121		293		378
Depreciation and amortization expense (d)	54		23		97		68
Other operating expenses	1		—		1		1
Ethanol margin	$	165	$	101	$	307	$	414

Ethanol operating income (loss)	$	22	$	(43)	$	(84)	$	(33)
Adjustments:
LCM inventory valuation adjustment (c)	(17)		—		—		—
Change in estimated useful life (d)	30		—		30		—
Other operating expenses	1		—		1		1
Adjusted ethanol operating income (loss)	$	36	$	(43)	$	(53)	$	(32)

See Notes to Earnings Release Tables.

Contacts

Investors:
Homer Bhullar, Vice President – Investor Relations, 210-345-1982
Eric Herbort, Senior Manager – Investor Relations, 210-345-3331
Gautam Srivastava, Manager – Investor Relations, 210-345-3992

Media:
Lillian Riojas, Executive Director – Media Relations and Communications, 210-345-5002

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