Low Refinery Margins Hit Valero Hard
Low refinery margins wreaked havoc on
Valero Energy's
(VLO) - Get Report
first-quarter performance, sending its earnings plunging 76% from the previous year.
Valero earned $261 million, or 48 cents a share, in the latest quarter, compared with $1.1 billion, or $1.77 a share, in the same period a year ago. Valero's earnings included a pretax benefit of $101 million related to insurance funds recovered from a fire at its McKee refinery in 2007.
The company generated operating revenue of $27.9 billion, up from $18.7 billion last year. However, cost of goods sold and operating expenses jumped to $26.7 billion from $16.4 billion in the first quarter of 2007.
Valero's margins declined year over year as the price it had to pay for oil and other feedstocks grew faster than the prices of its refined products such as gasoline, asphalt, fuel oils and petrochemicals.
"The average price of West Texas Intermediate crude oil increased by about $40 a barrel, whereas the average wholesale price of gasoline increased by about $34 a barrel, causing benchmark gasoline margins to narrow by $6 a barrel, or 59%," from a year ago, the company said in a press statement.
Despite a difficult quarter, Valero CEO Bill Klesse says that the company's future outlook is positive. "More recently, gasoline margins have shown moderate improvements as inventories have fallen and demand has increased as it normally does this time of year," Klesse said. He added that "the refining business has always been seasonal, volatile and cyclical."
Shares of Valero were recently down 2.5% at $51.61. Fellow refiner
Tesoro
(TSO)
was gaining 2.8%.
Elsewhere in the energy sector,
Exxon Mobil
(XOM) - Get Report
was fractionally higher.
Chevron
(CVX) - Get Report
rose 2.9%, and
ConocoPhillips
(COP) - Get Report
was up 1.6%.
Royal Dutch Shell
(RDS.A)
and
BP
(BP) - Get Report
, both of which had strong earnings reports, were climbing nearly 5%.