Morningstar | VLO Updated Forecasts and Estimates from 29 Apr 2019
Valero Energy's first-quarter adjusted earnings slumped to $141 million from $431 million last year as an especially weak refining environment took its toll, reducing refining operating income to $479 million from $811 million the year before. Narrower heavy sour discounts and weak gasoline margins were the primary culprits along with lower throughput volumes due to maintenance. The ethanol segment also performed poorly with operating income falling to $3 million from $45 million last year due to lower ethanol prices. Valero broke out reporting for its renewable diesel program for the first time this quarter, showing adjusted operating income rising to $49 million from $35 million last year.The weaker performance resulted in a slowdown in share repurchases during the quarter. While Valero did return 55% of adjusted cash flow during the quarter, in line with its target of 40%-50%, it repurchased only $36 million in shares, with dividends constituting the bulk of cash returns at $375 million.
The weaker quarter comes as no real surprise, given the narrow spreads and poor gasoline margins observed during the quarter. As a result, our fair value estimate and moat rating are unchanged. We anticipate a recovery in conditions as the year progresses. Gasoline inventories have already fallen as a result of lower industry utilization spurring a recovery in margins as we enter the summer driving season. Heavy sour crude spreads might remain under pressure in the near term, given the lack of supply, but we anticipate a widening later in the year as IMO 2020 approaches. This should also give distillate margins a boost heading into next year. The improved macro environment should translate into improved results for Valero and an increase in cash return to shareholders. Given its high-quality asset base, attractive valuation, and shareholder return policy, Valero continues to rate as one of the best opportunities in the sector, in our view.
For more, see our latest sector report of April 15, "Independent Refiners: Market Takes Its Foot Off the Gas."
Valero Energy is an international manufacturer and marketer of transportation fuels and petrochemical products. The company's segments include: Refining, which includes its refining operations, the associated marketing activities, and logistics assets that support its refining operations; Ethanol, which includes its ethanol operations, the associated marketing activities, and logistics assets that support its ethanol operations; and Renewable Diesel, which includes the operations of its joint ventture, Diamond Green Diesel Holdings LLC, which owns and operates a renewable diesel plant in Norco, LA.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.