This summary is based on the third quarter fiscal 2007 earnings call conducted by Valero Energy Corporation (VLO) on November 6, 2007.
Chairman of the Board, Chief Executive Officer: William R. Klesse
Chief Financial Officer, Executive Vice President: Michael S. Ciskowski
Chief Operating Officer, Executive Vice President: Richard J. Marcogliese
Key Investors Issues
- The earnings per share dropped to $2.09 as against $2.55 in the previous year.
- Quarterly revenue rose from $21 billion in last year to $22.5 billion.
- Fiscal year to date, earnings from continuing operations dropped to $4 billion from $4.2 billion in the corresponding period of previous year.
Third Quarter Fiscal 2007 Financial Highlights
The third quarter earnings came in at $1.34 per share from continuing operations and 75 cents per share from discontinued operations.
Excluding the effect on diluted earnings per share related to the company’s $94 million settlement payment for the accelerated share repurchase program, which was 16 cents per share, and a $91 million pretax gain, or 10 cents per share after taxes resulting from the repayment of a loan by a foreign subsidiary, the third quarter 2007 diluted earnings per share from continuing operations were $1.40.
The third quarter 2007 operating income was $1.2 billion compared to $2.3 billion reported in the same period last year.
The $1.1 billion reduction in operating income was primarily due to lower throughput margin per barrel of $9.94, which is down $3.23 per barrel versus the third quarter of 2006. The key driver of the lower margin was the higher price for light sweet crude oils and smaller discounts for sour crude oils and other feed stocks. On average, the firm’s feed stocks were approximately $3 per barrel more expensive versus WTI and reduced operating income by more than $700 million as compared to the third quarter of 2006.
Additional factors that negatively affected operating income include substantially lower throughput margins in the West Coast region, which reduced operating income by approximately $110 million; lower margins for many of the company’s other products, such as asphalt, lube oils, and petrochemical feed stocks; the impact of Hurricane Humberto on the company’s Port Arthur refinery; as well as operational issues at the company’s Port Arthur, Aruba, and Ardmore refineries.
The refinery throughput volumes averaged over to 2.8 million barrels per day, or 50,000 barrels per day higher than the second quarter.
Refinery operating expenses, excluding non-cash costs, were $3.96 per barrel. The 9 cents per barrel increase over the second quarter was primarily due to an unfavorable adjustment arising from sales tax accruals that were charged during the quarter. This was partially offset by lower energy costs and higher throughput volumes.
General and administrative expenses, excluding corporate depreciation, were $152 million.
The $25 million decrease from the second quarter was mainly due to additional charges incurred in the prior quarter, four charitable contributions, and the cancellation of a services agreement with New Star Energy.
- Total depreciation and amortization expense was $343 million.
Interest expense net of capitalized interest was $123 million.
The $40 million increase in net interest expense versus the second quarter was primarily due to an increase in average borrowings and an increase in interest on taxes arising from sales tax accruals.
The effective tax rate on continuing operations was 28.7% in the third quarter.
This was below the prior quarter due to the use of state tax credits and a greater-than-expected proportion of earnings from the Aruba refinery, which pays no income taxes.
- The capital spending was $619 million, which includes $108 million of turnaround expenditures. For 2007, the firm expects total capital spending to be around $3 billion.
