Analysis: 2018 was better for Valero than 2017 (if you don’t count Trump’s billion dollar 2017 tax gift)

Repost from Seeking Alpha
[Significant quote: “Valero Energy’s operating income climbed up to $4.7 billion in 2018 from $3.7 billion in 2017. However, due to a $0.9 billion income tax benefit in 2017 versus a $0.9 billion income tax expense in 2018, it appears that the firm’s income generation materially weakened…which isn’t really the case.”  Update: “Valero Keeps Gushing Profits And A 4%+ Dividend Yield.”  For more check out this phone transcript Listening in: Valero on recent earnings, then Q&A with investors.  – R.S.]

Valero Energy Posts A Tremendous 2018

By Callum Turcan, Feb. 3, 2019 8:06 AM ET
Summary

Image result for valeroValero Energy Corporation performed very well in 2018.

Management is committed to rewarding shareholders via buybacks and dividend increases.

Covering the financial and operational performance of Valero Energy’s three main divisions.

Refining giant Valero Energy Corporation (NYSE:VLO) just reported its earnings for the fourth quarter of 2018 that won over some love from Wall Street. Both its earnings and revenue generation beat expectations, which is always a good sign. As of this writing, Valero yields 4.2%, as management boosted the firm’s quarterly payout by 13% in January 2019. This is on top of rewarding investors through $1.7 billion in share buybacks and $1.4 billion in dividend payments last year. Let’s dig in.

Strong refining margins carry the firm higher

Valero Energy’s operating income climbed up to $4.7 billion in 2018 from $3.7 billion in 2017. However, due to a $0.9 billion income tax benefit in 2017 versus a $0.9 billion income tax expense in 2018, it appears that the firm’s income generation materially weakened last year, which isn’t really the case. From 2017 to 2018, Valero Energy’s net income attributable to stockholders fell from $4.1 billion to $3.1 billion. A 4% reduction in its outstanding diluted share count helped offset some of the pain as its EPS dropped from $9.16 to $7.29 on a fully-diluted basis.

When comparing the performance of its refining division on a year-over-year basis, it is clear Valero Energy did quite well in 2018. Its average total throughput volumes for the year climbed by 2% to 2,986,000 bpd, which lifted its product yield by 2% to 3,025,000 bpd.

On top of higher throughput volumes, Valero’s refining margin grew by 10% year-over-year to $10.05 per barrel in 2018. Refining margin means the crack spread Valero received, the difference between its feedstock costs and the price received for its petroleum product production. Strong crack spreads ultimately enabled its refining division’s adjusted operating income per barrel of throughput (the amount of income generated per refined barrel after taking crack spreads and operating expenses into account) to grow by 22% year-over-year to $4.58 per barrel in 2018.

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