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Valero Has Huge Quarter

It sees refining margins staying strong.
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(VLO) - Get Valero Energy Corporation Report

fourth-quarter earnings rose 178% from a year ago as the company feasted on the wide spreads between crude and refined fuel prices.

Valero earned $1.35 billion, or $2.17 a share, in the quarter, compared with $485 million, or 95 cents a share, a year ago. Adjusted earnings were $2 a share in the most recent quarter, 6 cents better than the Thomson First Call consensus estimate. Sales rose 68% to $25.89 billion.

The latest quarter includes a $485 million earnings contribution from Premcor, which Valero acquired in September. Fourth quarter operating income for the company's refining segment was $2.1 billion, compared to $884 million for the same period in 2004, boosted in part by refinery outages resulting from Hurricane Katrina.

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Within refining, Valero collected $11.91 of profit per barrel in the fourth quarter, up from $7.78 a year ago, while throughput volume rose 35% from a year ago to 3.02 million barrels a day.

The company expects its strong margins to continue.

"So far in the first quarter, we've seen a continuation of solid refined product margins and wide sour crude discounts. Compared to last year, gasoline demand is up around 1% and distillate demand is up about half of a percent. On a days-of-supply basis, gasoline is currently at an all-time low for this time of year.

"With respect to distillate, despite the warm weather in January, days-of-supply is at normal levels for this time of year, primarily due to tight low-sulfur diesel supplies. And, keep in mind that this year's spring turnaround season is projected to be one of the heaviest on record. So, looking at the forward curve, gasoline and distillate margins are headed higher. As far as sour crude discounts are concerned, we expect them to continue to be wide for the foreseeable future. "

"Looking at refining fundamentals for 2006, we feel very confident that refined product supplies are going to remain tight given the likelihood of continued economic growth, both in the U.S. and abroad, limited new refining capacity coming online this year and the anticipated impact of regulatory changes on transportation fuels," Valero said.