Petroleum refiner Valero Energy Corp. (VLO: Quote) on Tuesday reported a 12 percent increase in profit for the second quarter from last year, with both earnings and revenue beating analysts' expectations. Valero also said it plans to separate its retail business from the rest of the company. Following the announcement, the company's shares are up more than 5 percent in the regular trading session.
The San Antonio, Texas-based company's operating income for the second quarter rose to $1.36 billion from $1.29 billion in the year-ago quarter.
The increase in operating income was primarily due to higher throughput margins in the U.S. Mid-Continent, U.S. West Coast, and North Atlantic refining regions. In addition, the company recorded a 342,000 barrel-per-day increase in refinery throughput volume, mainly from the addition of the Pembroke and Meraux refineries.
These were partially offset by lower U.S. Gulf Coast gasoline margins and smaller discounts for medium and heavy sour crudes.
Valero's refining segment operating income rose 9 percent from the year-ago period to $1.36 billion.
The retail segment reported a 27 percent increase in operating income to $172 million, mainly due to higher fuel margins and volumes in U.S. retail operations.
The ethanol segment's operating income for the quarter fell 92 percent to $5 million, mainly due to lower gross margins as excess industry ethanol inventories held margins at low levels. In July, Valero significantly reduced ethanol production rates as margins were negative due to rapidly rising corn prices and continued high inventories of ethanol.
Valero's second-quarter net income was $831 million or $1.50 per share, up from $744 million or $1.30 per share in the prior-year quarter.
On average, 18 analysts polled by Thomson Reuters expected the company to earn $1.43 for the quarter. Analysts' estimates typically exclude one-time items.
Operating revenues for the quarter rose 11 percent to $34.66 billion from $31.29 billion in the same period last year and beat analysts' consensus estimate of $32.62 billion.
Looking ahead to fiscal 2012, Valero raised its estimate for total capital spending to about $3.6 billion from the prior guidance of $3.5 billion. The increase in capital spending is due mainly to the acceleration of certain projects originally scheduled for completion in 2013.
For fiscal 2013, Valero projects capital spending in a range of $2.0 billion to $2.5 billion, down from the outlook for 2012.
Valero said it is now reviewing several potential separation transactions, including a tax-efficient distribution of the retail business to Valero shareholders. Credit Suisse Securities (USA) LLC is advising Valero in connection with this process.
Bill Klesse, Chairman and CEO of Valero said, "After careful consideration, we believe a separation of our retail business from the remainder of Valero by way of a tax-efficient distribution will create operational flexibility within the businesses and unlock value for our shareholders. As independent companies, both retail and the remaining business will be better-positioned to focus on their industry-specific strategies."
In Tuesday's regular session, VLO is trading at $27.50, up $1.42 or 5.44 percent on a volume of 1.03 million shares.
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by RTT Staff Writer
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