Valero Energy Posts Higher 2Q Profit

Valero Energy 2nd-Quarter Results Rise, Beat Street's Estimate on Improved Refining Margins

Strong demand for gasoline and diesel in the U.S. pushed Valero Energy Corp.'s second-quarter profit up more than 18 percent to an all-time high, as North America's largest refiner beat Wall Street expectations Tuesday.

Net income after paying preferred dividends grew to $2.25 billion, or $3.89 per share, up from $1.9 billion, or $2.98 per share, a year ago.

Revenue dipped to $24.20 billion from $25.59 billion in the prior-year period.

Analysts surveyed by Thomson Financial were looking for profit of $3.76 per share on average. Estimates typically exclude one-time items.

"Gasoline and diesel demand in the U.S. has been excellent, and growing worldwide demand has increased competition for refined products," said Bill Klesse, chairman and CEO. "On the supply side, the industry has suffered from higher than normal unplanned refinery downtime."

The company said production also has been affected by more complicated refinery operations, and by tightness in markets for skilled labor and equipment.

"These factors have contributed to the lowest inventory levels we've seen in years for gasoline and distillate on a days-of-supply basis," Klesse said.

Valero, which operates 17 refineries in the U.S., Canada and Aruba, also said it intends to buy back about $2 billion of its stock this year.

"Their earnings were very good. They exceeded expectations really due to the strong margin environment we had," said Ann Kohler, an energy analyst at Caris & Co.

Shares fell $2.06, or 3 percent, to $67.01 Tuesday.

"Margins today are significantly below where they were only two weeks ago," Fadel Gheit, senior energy analyst for Oppenheimer & Co., said in explaining the fall. "History is history, what happened yesterday doesn't matter today."

The San Antonio-based company also closed the sale of its Lima, Ohio, refinery after the second quarter ended and anticipates $1.8 billion in proceeds from the sale after taxes and expenses.

Valero said it is looking into a proposed refinery in Panama as an opportunity for growth in that market but emphasized that it is merely exploring the possibility.

The company said turnaround activity at its refineries will be light during the third quarter but will pick up during the final quarter, with maintenance at four of the company's refineries lasting from 30 to 45 days.

For the first six months of the year, Valero's net income was $3.39 billion, or $5.68 a share, versus $2.74 billion, or $4.29 a share, a year ago.