Valero Energy Reports Second Quarter 2021 Results

: Business Wire; Posted On Thursday, 29 July 2021 13:02

Reported net income attributable to Valero stockholders of $162 million, or $0.39 per share.
Reported adjusted net income attributable to Valero stockholders of $197 million, or $0.48 per share.
Returned $401 million in cash to stockholders through dividends.
Declared a regular quarterly cash dividend of $0.98 per share payable in the third quarter.
Advanced the expected completion of the Diamond Green Diesel project at Port Arthur (DGD 3) to the first half of 2023 versus the prior estimate of the second half of 2023.

SAN ANTONIO--(BUSINESS WIRE)--Valero Energy Corporation (NYSE: VLO, “Valero”) today reported net income attributable to Valero stockholders of $162 million, or $0.39 per share, for the second quarter of 2021, compared to $1.3 billion, or $3.07 per share, for the second quarter of 2020. Excluding the adjustments shown in the accompanying earnings release tables, second quarter 2021 adjusted net income attributable to Valero stockholders was $197 million, or $0.48 per share, compared to an adjusted net loss attributable to Valero stockholders of $504 million, or $1.25 per share, in the second quarter of 2020. Second quarter 2020 adjusted results exclude the benefit from an after-tax lower of cost or market, or LCM, inventory valuation adjustment of $1.8 billion.

Refining

The refining segment reported $349 million of operating income for the second quarter of 2021, compared to $1.8 billion for the second quarter of 2020. The second quarter 2021 adjusted operating income was $361 million, compared to an adjusted operating loss of $383 million in the second quarter of 2020, which excludes the LCM inventory valuation adjustment. Refinery throughput volumes averaged 2.8 million barrels per day in the second quarter of 2021, which was 514 thousand barrels per day higher than the second quarter of 2020.

“Our system’s flexibility and the team’s relentless focus on optimization in a weak, but otherwise improving, margin environment enabled us to deliver positive earnings in the second quarter,” said Joe Gorder, Valero Chairman and Chief Executive Officer. “More importantly, cash provided by operating activities more than covered our cash used in investing and financing activities for the quarter, even without the cash benefits from our receipt of the 2020 income tax refund and the proceeds from the sale of a portion of our interest in the Pasadena terminal.”

Renewable Diesel

The renewable diesel segment, which consists of the Diamond Green Diesel (DGD) joint venture, reported $248 million of operating income for the second quarter of 2021, compared to $129 million for the second quarter of 2020. Renewable diesel sales volumes averaged 923 thousand gallons per day in the second quarter of 2021, which was 128 thousand gallons per day higher than the second quarter of 2020.

“Our renewable diesel segment continues to perform exceptionally well,” said Gorder. “The segment once again set records for renewable diesel operating income and sales volumes, highlighting DGD’s ability to process a wide range of discounted feedstocks, combined with Valero’s operational and technical expertise.”

Ethanol

The ethanol segment reported $99 million of operating income for the second quarter of 2021, compared to $91 million for the second quarter of 2020. Excluding the LCM inventory valuation adjustment, the second quarter 2020 adjusted operating loss was $20 million. Ethanol production volumes averaged 4.2 million gallons per day in the second quarter of 2021, which was 1.9 million gallons per day higher than the second quarter of 2020.

Corporate and Other

General and administrative expenses were $176 million in the second quarter of 2021, compared to $169 million in the second quarter of 2020. The effective tax rate for the second quarter of 2021 was 37 percent, which is higher than the second quarter of 2020 due to the remeasurement of our deferred tax liabilities primarily as a result of an increase in the U.K. statutory tax rate that will be effective in 2023.

Investing and Financing Activities

Capital investments totaled $548 million in the second quarter of 2021, of which $252 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 $417 million.

Net cash provided by operating activities was $2.0 billion in the second quarter of 2021. Included in this amount was a $1.1 billion favorable impact from working capital and $132 million associated with our joint venture partner’s share of DGD’s net cash provided by operating activities, excluding changes in DGD’s working capital. Excluding these items, adjusted net cash provided by operating activities was $809 million.

Valero returned $401 million to stockholders through dividends for a payout ratio of 50 percent of adjusted net cash provided by operating activities in the second quarter of 2021.

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.

Liquidity and Financial Position

Valero ended the second quarter of 2021 with $14.7 billion of total debt and finance lease obligations and $3.6 billion of cash and cash equivalents. The debt to capitalization ratio, net of cash and cash equivalents, was 37 percent as of June 30, 2021.

Strategic Update

Valero continues to advance economic projects that lower the carbon intensity of its products. The large-scale carbon sequestration project with BlackRock and Navigator is moving ahead with strong interest from additional parties in the binding open season. Valero is expected to be the anchor shipper with eight of Valero’s ethanol plants connected to this system, producing a lower carbon intensity ethanol product to be marketed in low-carbon fuel markets.

In addition, Valero and its joint venture partner continue to steadily expand DGD’s capacity to produce low-carbon intensity renewable diesel. The DGD plant expansion at St. Charles (DGD 2), which is expected to increase renewable diesel production capacity by 400 million gallons per year, remains on budget and is still on track to be completed and operational in the middle of the fourth quarter of 2021. The St. Charles expansion will also provide the capability to market 30 million gallons per year of renewable naphtha into low-carbon fuel markets. The new DGD plant at Port Arthur (DGD 3), which is expected to increase renewable diesel production capacity by 470 million gallons per year, is also progressing well and is now expected to commence operations in the first half of 2023, increasing DGD’s total annual production capacity to approximately 1.2 billion gallons of renewable diesel and 50 million gallons of renewable naphtha.

Refinery optimization projects that are expected to reduce cost and improve margin capture are progressing on schedule. The Pembroke Cogen project is on track to be completed in the third quarter of 2021 and the Port Arthur Coker project is expected to be completed in 2023.

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

“As demand for low-carbon fuels expands globally, we continue to expand our long-term competitive advantage through innovation in renewables,” said Gorder. “In addition to quadrupling our renewable diesel production capacity in the next couple of years, we are evaluating and developing other renewable fuels opportunities with carbon sequestration, renewable naphtha, sustainable aviation fuel, and renewable hydrogen.”

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 500 company based in San Antonio, Texas, and owns 15 petroleum refineries with a combined throughput capacity of approximately 3.2 million barrels per day and 13 ethanol plants with a combined production capacity of approximately 1.7 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 owns and 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.investorvalero.com for more information.

Valero Contacts
Investors:
Homer Bhullar, Vice President – Investor Relations and Finance, 210-345-1982
Eric Herbort, Senior Manager – Investor Relations, 210-345-3331
Gautam Srivastava, Senior 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 and the accompanying tables 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,” “forecast,” and other similar expressions identify forward-looking statements. Forward-looking statements in this release and the accompanying tables include those relating to our greenhouse gas emissions targets, expected timing of completion and performance of projects, future market and industry conditions, future operating and financial performance and management of future risks. 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 report 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

Some governmental authorities began lifting restrictions intended to prevent the spread of COVID-19 in the latter part of 2020 and this has continued throughout the first six months of 2021 as the distribution of vaccines has helped decrease rates of infection. These actions have contributed to increasing levels of individual movement and travel and a resulting increase in the demand for and market prices of our products. However, some governmental authorities continue to impose, or have recently reimposed, some level of restrictions due in part to new outbreaks, including those related to new variants of the COVID-19 virus. The ongoing distribution of vaccines may result in the continued lifting of restrictions globally and may be seen as a key factor contributing to the ongoing restoration of public confidence, and thus also to stimulating and increasing economic activity. However, the risk remains that vaccines may not be distributed widely on a timely basis, they may not be as effective against new variants of the virus, the distribution of some or all of the vaccines may be paused or withdrawn due to concerns with potential side effects, and/or the level of individuals’ willingness to receive a vaccine may not be as strong or as timely as needed. Based on these and other circumstances that cannot be predicted, the broader implications of the pandemic on our results of operations and financial position remain uncertain and may continue to be significant. We believe we have proactively responded to many of the known impacts of the pandemic on our business to the extent practicable and we strive to continue to do so, but there can be no assurance that these or other measures will be fully effective. For more information, see our annual report on Form 10-K, 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 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 (f) 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 June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Statement of income data
Revenues	$	27,748		$	10,397		$	48,554		$	32,499
Cost of sales:
Cost of materials and other (a)	25,249			9,079			44,241			29,031
Lower of cost or market (LCM) inventory valuation adjustment (b)	—			(2,248		)	—			294
Operating expenses (excluding depreciation and amortization expense reflected below) (a)	1,214			1,027			2,870			2,151
Depreciation and amortization expense	576			566			1,142			1,135
Total cost of sales	27,039			8,424			48,253			32,611
Other operating expenses	12			3			50			5
General and administrative expenses (excluding depreciation and amortization expense reflected below)	176			169			384			346
Depreciation and amortization expense	12			12			24			25
Operating income (loss)	509			1,789			(157		)	(488		)
Other income, net (c)	102			27			147			59
Interest and debt expense, net of capitalized interest	(150		)	(142		)	(299		)	(267		)
Income (loss) before income tax expense (benefit)	461			1,674			(309		)	(696		)
Income tax expense (benefit) (d)	169			339			21			(277		)
Net income (loss)	292			1,335			(330		)	(419		)
Less: Net income attributable to noncontrolling interests	130			82			212			179
Net income (loss) attributable to Valero Energy Corporation stockholders	$	162		$	1,253		$	(542	)	$	(598	)

Earnings (loss) per common share	$	0.39		$	3.07		$	(1.34	)	$	(1.48	)
Weighted-average common shares outstanding (in millions)	407			406			407			407

Earnings (loss) per common share – assuming dilution	$	0.39		$	3.07		$	(1.34	)	$	(1.48	)
Weighted-average common shares outstanding – assuming dilution (in millions) (e)	407			407			407			407

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 June 30, 2021
Revenues:
Revenues from external customers	$	25,968		$	496	$	1,284		$	—		$	27,748
Intersegment revenues	1			76		84			(161		)	—
Total revenues	25,969			572		1,368			(161		)	27,748
Cost of sales:
Cost of materials and other	24,000			281		1,130			(162		)	25,249
Operating expenses (excluding depreciation and amortization expense reflected below)	1,064			31		119			—			1,214
Depreciation and amortization expense	544			12		20			—			576
Total cost of sales	25,608			324		1,269			(162		)	27,039
Other operating expenses	12			—		—			—			12
General and administrative expenses (excluding depreciation and amortization expense reflected below)	—			—		—			176			176
Depreciation and amortization expense	—			—		—			12			12
Operating income by segment	$	349		$	248	$	99		$	(187	)	$	509

Three months ended June 30, 2020
Revenues:
Revenues from external customers	$	9,615		$	239	$	543		$	—		$	10,397
Intersegment revenues	2			57		38			(97		)	—
Total revenues	9,617			296		581			(97		)	10,397
Cost of sales:
Cost of materials and other	8,539			135		501			(96		)	9,079
LCM inventory valuation adjustment (b)	(2,137		)	—		(111		)	—			(2,248		)
Operating expenses (excluding depreciation and amortization expense reflected below)	928			20		79			—			1,027
Depreciation and amortization expense	533			12		21			—			566
Total cost of sales	7,863			167		490			(96		)	8,424
Other operating expenses	3			—		—			—			3
General and administrative expenses (excluding depreciation and amortization expense reflected below)	—			—		—			169			169
Depreciation and amortization expense	—			—		—			12			12
Operating income by segment	$	1,751		$	129	$	91		$	(182	)	$	1,789

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
Six months ended June 30, 2021
Revenues:
Revenues from external customers	$	45,437		$	848	$	2,269		$	—		$	48,554
Intersegment revenues	4			155		144			(303		)	—
Total revenues	45,441			1,003		2,413			(303		)	48,554
Cost of sales:
Cost of materials and other (a)	42,022			468		2,054			(303		)	44,241
Operating expenses (excluding depreciation and amortization expense reflected below) (a)	2,535			60		275			—			2,870
Depreciation and amortization expense	1,077			24		41			—			1,142
Total cost of sales	45,634			552		2,370			(303		)	48,253
Other operating expenses	50			—		—			—			50
General and administrative expenses (excluding depreciation and amortization expense reflected below)	—			—		—			384			384
Depreciation and amortization expense	—			—		—			24			24
Operating income (loss) by segment	$	(243	)	$	451	$	43		$	(408	)	$	(157	)

Six months ended June 30, 2020
Revenues:
Revenues from external customers	$	30,600		$	545	$	1,354		$	—		$	32,499
Intersegment revenues	4			110		102			(216		)	—
Total revenues	30,604			655		1,456			(216		)	32,499
Cost of sales:
Cost of materials and other	27,666			265		1,314			(214		)	29,031
LCM inventory valuation adjustment (b)	277			—		17			—			294
Operating expenses (excluding depreciation and amortization expense reflected below)	1,923			40		188			—			2,151
Depreciation and amortization expense	1,069			23		43			—			1,135
Total cost of sales	30,935			328		1,562			(214		)	32,611
Other operating expenses	5			—		—			—			5
General and administrative expenses (excluding depreciation and amortization expense reflected below)	—			—		—			346			346
Depreciation and amortization expense	—			—		—			25			25
Operating income (loss) by segment	$	(336	)	$	327	$	(106	)	$	(373	)	$	(488	)

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 (f) (millions of dollars, except per share amounts) (unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
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	$	162		$	1,253		$	(542	)	$	(598	)
Adjustments:
Gain on sale of MVP interest (c)	(62		)	—			(62		)	—
Income tax expense related to gain on sale of MVP interest	14			—			14			—
Gain on sale of MVP interest, net of taxes	(48		)	—			(48		)	—
Diamond Pipeline asset impairment (c)	24			—			24			—
Income tax benefit related to Diamond Pipeline asset impairment	(5		)	—			(5		)	—
Diamond Pipeline asset impairment, net of taxes	19			—			19			—
Income tax expense related to change in statutory tax rates (d)	64			—			64			—
LCM inventory valuation adjustment (b)	—			(2,248		)	—			294
Income tax expense (benefit) related to the LCM inventory valuation adjustment	—			491			—			(60		)
LCM inventory valuation adjustment, net of taxes	—			(1,757		)	—			234
Total adjustments	35			(1,757		)	35			234
Adjusted net income (loss) attributable to Valero Energy Corporation stockholders	$	197		$	(504	)	$	(507	)	$	(364	)

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 (e)	$	0.39		$	3.07		$	(1.34	)	$	(1.48	)
Adjustments:
Gain on sale of MVP interest (c)	(0.12		)	—			(0.12		)	—
Diamond Pipeline asset impairment (c)	0.05			—			0.05			—
Income tax expense related to change in statutory tax rates (d)	0.16			—			0.16			—
LCM inventory valuation adjustment (b)	—			(4.32		)	—			0.58
Total adjustments	0.09			(4.32		)	0.09			0.58
Adjusted earnings (loss) per common share – assuming dilution (e)	$	0.48		$	(1.25	)	$	(1.25	)	$	(0.90	)

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 (f) (millions of dollars) (unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2021		2020			2021			2020
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)	$	349	$	1,751		$	(243	)	$	(336	)
Adjustments:
LCM inventory valuation adjustment (b)	—		(2,137		)	—			277
Operating expenses (excluding depreciation and amortization expense reflected below) (a)	1,064		928			2,535			1,923
Depreciation and amortization expense	544		533			1,077			1,069
Other operating expenses	12		3			50			5
Refining margin	$	1,969	$	1,078		$	3,419		$	2,938

Refining operating income (loss)	$	349	$	1,751		$	(243	)	$	(336	)
Adjustments:
LCM inventory valuation adjustment (b)	—		(2,137		)	—			277
Other operating expenses	12		3			50			5
Adjusted refining operating income (loss)	$	361	$	(383	)	$	(193	)	$	(54	)

Renewable diesel segment
Renewable diesel operating income	$	248	$	129		$	451		$	327
Adjustments:
Operating expenses (excluding depreciation and amortization expense reflected below)	31		20			60			40
Depreciation and amortization expense	12		12			24			23
Renewable diesel margin	$	291	$	161		$	535		$	390

Ethanol segment
Ethanol operating income (loss)	$	99	$	91		$	43		$	(106	)
Adjustments:
LCM inventory valuation adjustment (b)	—		(111		)	—			17
Operating expenses (excluding depreciation and amortization expense reflected below) (a)	119		79			275			188
Depreciation and amortization expense	20		21			41			43
Ethanol margin	$	238	$	80		$	359		$	142

Ethanol operating income (loss)	$	99	$	91		$	43		$	(106	)
Adjustment: LCM inventory valuation adjustment (b)	—		(111		)	—			17
Adjusted ethanol operating income (loss)	$	99	$	(20	)	$	43		$	(89	)

See Notes to Earnings Release Tables.

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