Valero Energy Corp. (VLO)
Q4 2009 Earnings Call
January 27, 2010 11:00 am ET
Ashley Smith - VP, IR
Mike Ciskowski - EVP & CFO
Bill Klesse - President, CEO & Chairman of the Board
Gene Edwards - EVP, Corporate Development & Strategic Planning
Rich Marcogliese - EVP and COO
Jeff Dietert - Simmons
Evan Calio - Morgan Stanley
Mark Gilman - Benchmark Company
Alexander Inkster - Sanford Bernstein
Doug Terreson - ISI
Paul Sankey - Deutsche Bank
Ann Kohler - Caris
Previous Statements by VLO
» Valero Energy Corp. Q3 2009 Earnings Call Transcript
» Valero Energy Corporation Q2 2009 Earnings Call Transcript
» Valero Energy Q1 2009 Earnings Call Transcript
Good morning and welcome to Valero Energy Corporation's fourth quarter 2009 earnings conference call. With me today are Bill Klesse, our Chairman and CEO; Mike Ciskowski, our CFO; Rich Marcogliese, our COO; Gene Edwards, our Executive Vice President of Corporate Development and Strategic Planning; and Joe Gorder our Executive Vice President of Marketing and Supply as well as Kim Bowers, our Executive Vice President and General Counsel.
If you have not received the earnings release, and would like a copy, you can find one on our website at Valero.com. Also, attached to the earnings release are tables that provide additional financial information on our business segments. If you have any questions after reviewing these tables, feel free to contact me after the call.
Before we get started, I would like to direct your attention to the forward-looking statement disclaimer contained in the press release. In summary, it says that statements in the press release and on this conference call that state the company's or management's expectations or predictions of the future are forward-looking statements intended to be covered by the Safe Harbor provisions under federal securities laws. There are many factors that could cause actual results to differ from our expectations, including those we described in our filings with the SEC.
Now I'll turn the call over to Mike.
Thanks, Ashley, and thank you for joining us today. As noted in the release, we reported a fourth quarter 2009 loss from the continuing operations of $155 million or $0.28 per share. This number excludes the $7 million in after-tax costs for severance and early retirement at the Paulsboro refinery and $20 million in after-tax asset impairment losses. Our GAAP results for the fourth quarter was a loss from continuing operations of $182 million or $0.32 per share.
I should note that the loss from discontinued operations shown in the financial tables relates to the Delaware City assets that were shut down in the fourth quarter. In the fourth quarter, the $1.2 billion after-tax charge consists of $66 million operating loss after taxes and an asset impairment and other shutdown charges of $1.1 billion after tax.
The fourth quarter 2009 operating loss was $179 million, excluding the special items already noted, versus $1.3 billion of operating income in the fourth quarter of 2008, which excludes the goodwill impairment taking last year. The key drivers of the decline in operating income was smaller discounts on sour crude oil and other feed stocks combined with lower margins on diesel and jet fuel. To put the smaller discounts in perspective, Maya discounts versus WTI decreased 50% year-over-year. Comparing the same periods for benchmark gold coast margins versus WTI, the ULSD margins decreased 66% year-over-year.
Also contributing to the decrease in operating income was the unfavorable effect from a year-end LIFO detriment of $66 million before taxes in 2009 versus a favorable effect from a LIFO increment of $327 million before taxes in 2008. The fourth quarter refinery throughput volume averaged at 2.1 million barrels per day which is inline with our guidance since Delaware City is a 113,000 barrels per day of throughput is excluded. However, fourth quarter 2009 volumes from continuing operations were 371,000 barrels per day below the fourth quarter of 2008, mainly due to lower utilization rates across our refinery systems caused by lower demand, planned downtime for maintenance at our Wilmington and Paulsboro refineries and the continued to idle status of our lubber requirement.
Refinery cash operating expenses in the fourth quarter of 2009 were $4.03 per barrel or $0.16 per barrel lower than the fourth quarter 2008 results due mostly to lower energy costs, but our focus on other cost reductions has also been successful. Comparing to full year 2008 versus 2009, our refinery operating expenses excluding depreciation and amortization were down $900 million. Much of this was due to lower energy and natural gas prices, but we estimate more than $215 million was due to our aggressive cost reduction efforts.
Looking at our other business segments, retail has continued to produce strong results with operating income in the fourth quarter of 2009 at $61 million, which is less, though, than the $163 million in the fourth quarter of 2008, mainly due to lower fuel margins in the US, which were partially offset by lower selling expenses.
For the full year 2009, retail earned at $293 million of operating income, making it the second best year for retail. Our ethanol segment had an excellent fourth quarter with $94 million of operating income, which is nearly, double the $49 million reported in the third quarter of 2009. The continued strong performance was due to higher margin and increased production volumes from the prior quarter.