Valero Energy Corporation (NYSE: VLO) today reported record first quarter net income of $849 million, or $1.32 per share, which compares to $534 million, or $0.96 per share, in the first quarter of last year. As of March 31, 2006, the company’s debt-to-capitalization ratio, net of cash, was 23.5 percent, compared to 24.8 percent as of December 31, 2005.
First quarter 2006 operating income for the company’s refining segment was $1.5 billion, compared to $0.9 billion for the same period last year. The significant increase in operating income was primarily due to stronger gasoline and distillate margins and higher throughput volumes due to the acquisition of Premcor Inc. in September 2005.
“We had the highest first quarter earnings in the company’s history, and the outlook for the rest of the year is even better,” said Bill Klesse, Valero’s Chief Executive Officer. “Heavy turnaround activity, implementation of more restrictive sulfur regulations on gasoline and diesel, increased use of ethanol in the reformulated gasoline pool and limited capacity expansions due to the high cost of environmental regulations are resulting in tighter supplies of refined products and outstanding margins.
“What’s impressive about our first quarter was that we achieved record earnings with a very high level of turnaround activity in our system. We had major turnarounds at our Memphis, Aruba, Corpus Christi, Krotz Springs, and Texas City refineries during the quarter, which limited the financial results we were able to achieve at those facilities. The first quarter clearly demonstrated the advantages of having a large, geographically diverse, complex refining system. Looking ahead to the second quarter, the only significant turnaround activity we have is at Quebec, Aruba and Paulsboro.
“The second quarter is off to an outstanding start. Gulf Coast gasoline and diesel margins are at record levels for April. The forward curve is showing these record margins continuing through the summer. Sour crude oil discounts also remain terrific with the heavy Maya crude oil discount averaging more than $14 per barrel for April and medium sour crude oils, such as Mars, averaging more than $6 per barrel discount. Given that 60 percent of our feedstocks are purchased at discounts to benchmark sweet crude oil prices, these discounts play a significant role in our earnings. With our leverage to these outstanding product margins and sour crude oil discounts, the second quarter is shaping up to be the highest earnings quarter in Valero’s history.
“Looking at refining fundamentals for the rest of the year, we feel very confident that the refining environment will remain strong. The combination of growing refined product demand, despite higher price levels globally, and regulatory pressures on supply should support continued strength in refined product margins. Sour crude oil discounts should continue to be wide due to ample supplies of sour grades and higher demand for sweet crudes as refiners try to meet lower sulfur specifications and increase yields of high-value clean products,” Klesse said.
Regarding the company’s cash flow, capital spending for the first quarter was approximately $975 million, of which $200 million was for turnaround expenditures. For the year, the company anticipates capital spending of approximately $3.5 billion. In addition, the company paid off $221 million of long-term debt and purchased 10.7 million shares of its common stock during the first quarter.
“We continue to execute our strategy of investing our cash flow to increase shareholder value. The strategic capital investments we are making are designed to improve our competitive position in the future. For example, many of these projects will further reduce feedstock costs, improve yields of high-value clean products, increase reliability and lower operating costs. As for acquisitions, we continue to look at opportunities in the market, but remain committed to our proven strategy of buying assets at attractive prices that are immediately accretive to earnings and give us superior growth opportunities. Financially, this year we expect to purchase approximately five percent of our outstanding common stock under existing board-approved plans and continue to evaluate modest dividend increases.
“We are obviously very bullish about our future. Quarter after quarter, we continue to demonstrate our earnings and cash flow potential. We are in an outstanding business environment and expect it to continue well into the foreseeable future,” Klesse said.
Valero’s senior management will hold a conference call at 11 a.m. ET (10 a.m. CT) today to discuss this earnings release and provide an update on company operations. A live broadcast of the conference call will be available on the company’s website at www.valero.com.
Valero Energy Corporation is a Fortune 500 company based in San Antonio, with approximately 22,000 employees and annual revenues of more than $80 billion. The company owns and operates 18 refineries throughout the United States, Canada and the Caribbean with a combined throughput capacity of approximately 3.3 million barrels per day, making it the largest refiner in North America. Valero is also one of the nation’s largest retail operators with more than 5,000 retail and branded wholesale outlets in the United States, Canada and the Caribbean under various brand names including Valero, Diamond Shamrock, Shamrock, Ultramar, and Beacon. Please visit www.valero.com for more information.
Statements contained in this release that state the company's or management's expectations or predictions of the future are forward-looking statements intended to be covered by the safe harbor provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The words “believe,” “expect,” “should,” “estimates,” and other similar expressions identify forward-looking statements. It is important to note that actual results could differ materially from those projected in such forward-looking statements. For more information concerning factors that could cause actual results to differ from those expressed or forecasted, see Valero’s annual reports on Form 10 K and quarterly reports on Form 10 Q, filed with the Securities and Exchange Commission and on Valero’s website at www.valero.com.