Valero Energy Corporation — Q1 2022 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2022, compared with Q1 2021. Valero operates Refining, Renewable Diesel and Ethanol segments. Management said demand for most products had returned to near pre-pandemic levels by the latter half of 2021 and remained there in Q1 2022.
Financial performance
Amounts are in millions of dollars except per-share data, volumes and percentages.
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $38,542 | $20,806 |
| Operating income (loss) | $1,384 | $(666) |
| Net income (loss) attributable to Valero stockholders | $905 | $(704) |
| Diluted earnings (loss) per share | $2.21 | $(1.73) |
| Cash provided by (used in) operations | $588 | $(52) |
- Revenue rose $17.7 billion, primarily reflecting higher petroleum-product prices. Cost of materials and other increased $16.0 billion, largely due to higher crude and feedstock costs.
- Refining operating income was $1,451 million versus a $592 million loss; the segment’s non-GAAP refining margin was $3,211 million versus $1,498 million. Higher diesel and gasoline margins and throughput contributed to the improvement.
- Renewable Diesel operating income was $149 million versus $203 million; its non-GAAP segment margin was $226 million versus $244 million. Higher feedstock costs and unfavorable hedge effects more than offset higher sales volumes and prices.
- Ethanol operating income was $1 million versus a $56 million loss; its non-GAAP segment margin was $157 million versus $121 million. Higher ethanol prices and lower operating expenses helped, partly offset by higher corn costs.
- The company-wide operating margin was approximately 3.6% of revenue in Q1 2022; this simple ratio is calculated from reported GAAP revenue and operating income.
Cash flow, debt and liquidity
- Operating cash flow of $588 million included an unfavorable $722 million working-capital change, primarily from higher receivables and inventories, partly offset by higher accounts payable.
- Investing cash outflow was $841 million, including $843 million of capital investments. Capital investments attributable to Valero, a non-GAAP measure, were $718 million, versus $479 million in Q1 2021.
- Financing cash outflow was $1,228 million. Valero paid $401 million in dividends and reported $144 million of treasury-stock purchases; management described $545 million returned to stockholders. Open-market stock-program purchases were $126 million in the quarter.
- Cash and cash equivalents fell to $2,638 million from $4,122 million at year-end 2021. Reported liquidity was $7,333 million, including $4,852 million of available capacity under specified committed facilities and $2,481 million of cash excluding cash held by consolidated VIEs.
- Debt and finance lease obligations totaled $13,161 million at March 31, 2022, compared with $13,870 million at December 31, 2021. Valero issued $650 million of 4.000% senior notes due 2052 and repurchased and retired approximately $1.4 billion principal amount of notes. Early retirement produced a $50 million charge, including $48 million in premiums. Management said debt reduction and refinancing reduced long-term debt by $750 million.
- Current assets were $23,313 million and current liabilities were $19,785 million. The filing does not provide a separately stated current ratio.
Changes, outlook and risks
- The earnings turnaround primarily reflected stronger refining results. Q1 2021 results had included an estimated $579 million of excess energy costs associated with Winter Storm Uri, including $525 million attributed to Refining and $54 million to Ethanol.
- Management’s Q2 2022 commentary was qualitative, not formal numerical guidance: gasoline and diesel demand was expected to follow seasonal patterns; jet-fuel demand was recovering more slowly and remained below pre-pandemic levels; crude discounts were expected to remain near then-current levels while restrictions on Russia, Iran or Venezuela remained; renewable diesel margins were expected to remain consistent with then-current levels; and ethanol margins were expected to improve seasonally.
- Russia’s invasion of Ukraine and resulting sanctions and changes in energy trade flows drove significant commodity-price increases and volatility. Valero said it did not anticipate significant future feedstock-sourcing disruptions from the U.S. ban on Russian energy imports, but noted that high fuel prices could weaken demand. The financial effects remained uncertain.
- Valero also identified continuing uncertainty from COVID-19, commodity-price and refining-margin volatility, feedstock availability and costs, compliance-credit prices and environmental regulation, operational disruptions, and capital-project execution. The filing says Q1 operating results are not necessarily indicative of full-year results.
- Environmental rules and potential future compliance costs may affect liquidity. Valero reported that a group of violation notices concerning its Benicia Refinery was resolved with the Bay Area Air Quality Management District in Q1; it stated an adverse outcome in the reported environmental proceeding was not expected to materially affect financial condition, results or liquidity.
- Management expected approximately $2.0 billion of 2022 capital investments attributable to Valero, with about 60% for sustaining the business and 40% for growth strategies; approximately half of growth capital was allocated to lower-carbon businesses.
Important facts for investors to verify
- Whether strong refining margins and throughput persist, given Q1’s substantial exposure to volatile commodity prices and changing trade flows.
- Whether working-capital investment reverses or continues to constrain operating cash flow as receivables, inventories and commodity prices change.
- Whether renewable diesel feedstock costs, hedge effects, and policy or tax-credit conditions permit the expanded DGD capacity to sustain returns.
- Progress against the 2022 capital-investment plan and its lower-carbon growth allocation, alongside dividends and any discretionary share repurchases.
- Debt maturities and liquidity needs, including the expected acquisition of $300 million of GO Zone Bonds at their June 2022 mandatory tender date, as described in the filing.