Valero Energy Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Comparisons are with Q1 2023 unless otherwise noted. Valero operates Refining, Renewable Diesel, and Ethanol segments.
Financial performance and position
- Revenue: $31.759 billion, down 12.8% from $36.439 billion. Lower petroleum-product prices were the main driver.
- Profit: Operating income was $1.679 billion versus $4.043 billion; net income attributable to Valero stockholders was $1.245 billion versus $3.067 billion. Diluted EPS was $3.75 versus $8.29.
- Cash flow: Operating cash flow was $1.846 billion, down from $3.170 billion. Investing used $637 million and financing used $1.644 billion; cash decreased $507 million to $4.917 billion.
- Margins and segments: Refining segment margin, a non-GAAP measure, was $3.534 billion versus $5.900 billion. Renewable Diesel margin was $345 million versus $349 million; Ethanol margin was $195 million versus $189 million. Segment margins are non-GAAP measures and should be considered with GAAP results.
- Debt and liquidity: Debt and finance lease obligations totaled $10.897 billion, including $853 million current. Reported liquidity was $10.009 billion, comprising $4.712 billion of available cash (excluding cash reserved for consolidated VIEs) and $5.297 billion of available capacity under committed facilities. Valero says it expects sufficient funding for operating needs and commitments.
- Capital returns and investment: Valero spent $1.023 billion on treasury-stock purchases and paid $356 million in dividends. Consolidated capital investments were $661 million; Valero-attributable investments, a non-GAAP measure, were $619 million.
Material changes versus Q1 2023
- Operating income fell $2.364 billion, primarily reflecting lower Refining results. Management attributed the decline mainly to weaker gasoline and distillate margins, narrower crude and other feedstock differentials, and lower throughput.
- Refining throughput averaged 2.760 million barrels per day, down 170,000 barrels per day. Refining operating income was $1.745 billion versus $4.057 billion.
- Renewable Diesel operating income was $190 million versus $205 million, while sales volumes increased to 3.729 million gallons per day from 2.988 million. Lower product prices were largely offset by lower feedstock costs and higher volumes.
- Ethanol operating income was $10 million versus $39 million; adjusted operating income was $39 million in both periods. Lower corn costs supported margin, offset by lower ethanol and co-product prices.
- Operating cash flow declined by $1.324 billion. The prior-year period also included a $11 million gain on early debt retirement; Q1 2024 included no such gain.
Outlook, risks, and notable items
- Management cited strong global demand and constrained supply as support for Q1 refining margins. For Q2, it expects seasonal gasoline and diesel demand, improving jet fuel demand, and tight U.S. and European light-product inventories to support high refinery utilization. It expects renewable diesel demand to remain consistent with current levels and ethanol demand to follow seasonal patterns.
- Management highlighted uncertainty in crude differentials and market volatility, including possible effects from OPEC+ production cuts, pipeline capacity changes, refinery utilization, sanctions, and conflicts affecting shipping and freight.
- Valero expects approximately $2.0 billion in 2024 capital investments attributable to Valero, approximately $1.6 billion for sustaining the business, with the balance for growth. About half of growth investment is allocated to expanding low-carbon businesses. DGD’s sustainable aviation fuel project is expected to start operations in Q4 2024, ahead of its prior schedule, at a total estimated cost of $315 million; half is attributable to Valero.
- California SBx 1-2 could impose a maximum refining-margin penalty or restrictions on refinery maintenance and turnarounds. The state had not established a maximum margin or imposed such penalties or restrictions as of the filing. Valero warns that adverse effects could lead to material impairment or asset-retirement charges; timing and impact remain uncertain.
- Other exposures include commodity, compliance-credit, and currency volatility; environmental and regulatory requirements; operational disruptions; and market, geopolitical, and financing risks. Valero reported no material changes to its previously disclosed risk factors, no new reportable legal proceedings, and effective disclosure controls.
- During Q1, IEnova converted $457 million of Central Mexico Terminals borrowings into additional equity, increasing noncontrolling interests. Valero also repaid $167 million of senior notes at maturity.
Important facts for investors to verify
- Whether refining margins, throughput, and feedstock differentials recover or weaken further, given their dominant influence on earnings.
- Whether the $2.0 billion capital-investment plan and DGD SAF project remain on schedule and within estimated cost.
- How California SBx 1-2 rulemaking develops, particularly any margin penalties or constraints on refinery maintenance.
- Whether operating cash generation can sustain planned capital spending, dividends, and discretionary buybacks while maintaining liquidity.
- The company’s debt and finance lease obligations, and the distinction between consolidated cash and the $4.712 billion included in reported available liquidity; $3.7 billion of cash was held by foreign subsidiaries.