Valero Energy Corporation (VLO)

VLO 
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Valero Energy Corp. (VLO)

Q1 2010 Earnings Call

April 27, 2010 11:00 AM ET

Executives

Ashley Smith - VP of IR

Bill Klesse - Chairman and CEO

Rich Marcogliese - COO

Mike Ciskowski - CFO

Joe Gorder - EVP, Marketing and Supply

Analysts

Doug Terreson - ISI

Jeff Dietert - Simmons

Doug Leggate - Bank of America/Merrill Lynch

Edward Westlake - Credit Suisse

Paul Cheng - Barclays Capital

Mark Gilman - The Benchmark Company

Paul Sankey - Deutsche Bank

Blake Fernandez - Howard Weil

Franklin Russo - RBC Capital Markets

Chi Chow - Macquarie Capital

Alexander Inkler - Sanford Bernstein

Ann Kohler - Caris & Co

Daniel Burke - Johnson Rice

Presentation

Operator

Good morning my name is Angelic and I will be your conference operator today. At this time I would like to welcome everyone to the Valero Energy first quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions). Mr. Smith, you may begin.

Ashley Smith

Thank you, Angelic. Good morning and welcome to Valero Energy Corporation’s first quarter 2010 earnings conference call. With me today are Bill Klesse, our Chairman and CEO; Mike Ciskowski our CFO; Rich Marcogliese our COO; Gene Edward ,our Executive Vice President of Corporate Development and Strategic Planning; Joe Gorder, our Executive Vice President of Marketing and Supply and 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 please 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've described in our filings with the SEC.

Now I will turn the call over to Mike.

Mike Ciskowski

Thanks Ashley and thank you for joining us today. As noted in the release we reported a first quarter 2010 loss from continuing operations of $101 million or $0.18 per share. I should note that the $12 million aftertax loss from discontinued operations shown in the financials tables relates to the Delaware City assets that were shut down in the fourth quarter. The first quarter 2010 operating loss was $32 million versus $593 million of operating income in the first quarter of 2009. The decline in operating income was mainly due to lower margins on most of our refined products in all four of our operating regions.

Looking at our highest volume region, Benchmark Gulf Coast, ultralow sulfur diesel margins versus WTI decreased 41% from $12.61 per barrel in the first quarter of 2009 to $7.49 per barrel in the first quarter of 2010. While Gulf Coast gasoline margins versus WTI decreased 12% from $8.14 per barrel in the first quarter of 2009 to $7.13 per barrel in the first quarter of 2010.

The hardest hit region was the West Coast where gasoline margins versus WTI fell 45% and diesel margins versus WTI fell 38% in the first quarter of 2010 when compared to the first quarter of the last year. So far in April, margins have improved versus the first quarter in most of our regions, for example the Gulf Coast ultralow sulfur diesel margin versus WTI has increased 33% to $9.95 per barrel while the Gulf Coast gasoline margins versus WTI increased to 20% to $8.58 per barrel.

On the West Coast, diesel margins versus WTI increased to 40% to $11.83 per barrel while the gasoline margins have remained relatively flat. Our first quarter 2010 refinery throughput volume averaged to 2.1 million barrels per day which is in line with our guidance. However compared to the first quarter of 2009, volumes were down 254,000 barrels per day mainly due to the continued idle status of the Aruba refinery.

Our first quarter 2010 results were negatively impacted by downtime at some of our key refineries. We estimate the lost income from the first quarter downtime was just over $200 million. Refinery cash operating expenses in the first quarter of 2010 were $4.41 per barrel in line with our guidance, but were $0.41 per barrel higher than the first quarter of 2009 results due mostly to the lower throughput volumes.

Looking at other business segments, retail had a record first quarter with operating income at $71 million which is $15 million higher than the first quarter of 2009 primarily due to higher fuel margins in both the US and Canadian operation. Our ethanol segment had $57 million of operating income in the first quarter which was our second best quarter since we entered the ethanol business.

I should also point out that we purchased 3 additional plants in the first quarter taking our total to 10 plants with 1.1 billion gallons per year of capacity. Like our previous acquisition these are large plants located in the corn belt and we bought them at deep discounts to replacement costs. Two of the plants were idle, but we have restarted them and ten plants are now operating.

Read the rest of this transcript for free on seekingalpha.com