Valero Sees Loss on $650M Charge - Analyst Blog

By Zacks Equity Research,

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Valero Energy Corporation ( VLO ) expects to report a loss in the upcoming first quarter of 2012, considering a $605 million charge related to the closure of Aruba oil refinery.

The San Antonio, Texas-based company anticipates its first quarter 2012 loss to range between 75 cents and 85 cents a share after taking into consideration a charge of about $1.10 a share related to the refinery closure. Excluding the charge, Valero expects its profit from continuing operations to be 25 cents to 35 cents a share.

In the preceding quarter, Valero Energy has posted adjusted loss from continuing operations of 21 cents per share, narrower than the Zacks Consensus Estimate of a loss of 25 cents and worse than last year's earnings from continuing operations of 32 cents. The year-over-year decline could be due to unfavorable refining margins, particularly in the Gulf Coast region.

During fourth quarter 2011, throughput volumes experienced a 24% year-over-year growth to 2.71 million barrels per day. However, company-wide throughput margins decreased $1.84 per barrel year over year in the reported quarter, due to poor margins for gasoline and petrochemical feedstocks as well as low discounts for medium and heavy sour feedstocks , Mars and Maya crude oils. Margins also registered a significant downfall across all regions, except the Mid Continent.

Valero, the largest independent refiner and marketer of petroleum products in the U.S., expects its series of growth projects, recent acquisitions and operational improvement to be the key drivers of free cash flow generation in 2012. The company has accelerated its investment level to reap benefits from the current high trend of oil price and timid gas price environment.

The projects will be mostly completed by the end of 2012 and are expected to drive a significant improvement in earnings in 2013. Major capital investment, primarily in hydrocracker units at Port Arthur and St. Charles this year should be a key driver for future growth beginning in 2013. These projects position Valero to increase diesel production and diversify its market exposure.

However, we maintain our Neutral recommendation for the company. Being the largest independent refiner in the country, Valero remains particularly exposed to the ongoing unfavorable macro backdrop. Again, Valero remains exposed to the weakness in refining margins resulting from reduced demand for gasoline and diesel fuel. Other risks include natural disasters, unplanned plant disruptions and changes in environmental regulation.

Valero, which competes with Tesoro Corp. ( TSO ), retains a Zacks #3 Rank, which is equivalent to a short-term Hold rating.

TESORO CORP ( TSO ): Free Stock Analysis Report
VALERO ENERGY ( VLO ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: TSO , VLO

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