SAN ANTONIO -- Retailing proved to be a bright spot in Valero Energy Corp.'s third-quarter earnings report released yesterday. While reporting a total net loss of $219 million, or $0.39 per share, for the quarter, the company's "retail business had the highest third-quarter and year-to-date operating income in company history," according to CEO Bill Klesse.
The $219 million loss, excluding special items, compares to net income of $1.0 billion, or $1.91 per share, for the third quarter of 2008, excluding special items. On a GAAP basis, the company reported a net loss of $489 [image-nocss] million, or $0.87 per share, for the third quarter of 2009, compared to third quarter 2008 net income of $1.2 billion, or $2.18 per share.
Special items in the third quarter 2009 include an asset impairment loss of $417 million before taxes, or $0.48 per share after taxes, related primarily to the permanent shutdown of the gasifier complex at the company's Delaware City refinery. The third quarter 2008 special items include a gain of $305 million on the sale of the Krotz Springs, La., refinery and $43 million of asset impairment losses before taxes, which together amount to $0.27 per share after taxes.
The third quarter 2009 operating loss was $579 million vs. $1.8 billion of operating income in the third quarter of 2008. Excluding the special items discussed above, the third quarter 2009 operating loss was $162 million compared to $1.6 billion of operating income in the third quarter of 2008. The decline in operating income, excluding special items, was primarily due to lower margins on diesel and jet fuel, and smaller discounts on sour crude oil and other feedstocks.
"Refining margins in the third quarter continued to suffer from a combination of weak demand for refined products and high inventories," Klesse said. "Given the difficult refining conditions, we took further action in the third quarter to improve our profitability. First, we extended the plantwide shutdown of the Aruba refinery. At the Delaware City refinery, we streamlined operations by closing the gasifier complex and idling the coker. In October, we began a focused effort to reduce costs at our Paulsboro refinery."
As to operating expenses, Klesse said the company's efforts to reduce costs are paying off. "Comparing the first nine months of 2008 vs. 2009, our refinery operating expenses excluding depreciation and amortization were down more than $700 million. Much of this was due to lower energy and natural-gas prices, but over $200 million was due to our ongoing cost-reduction efforts.
"Similar to last quarter, our retail and ethanol segments had outstanding results," he added. "Our retail business had the highest third-quarter and year-to-date operating income in company history on strong U.S. retail fuel margins and solid performance in Canada. Our ethanol business earned $49 million of operating income in the third quarter, more than double the second quarter results, as we increased run rates at all seven ethanol plants and captured very good margins. In October, ethanol margins have continued at strong levels."
Regarding cash flows in the third quarter of 2009, the company's capital spending was $521 million, of which $52 million was for turnaround and catalyst expenditures. The company paid $84 million in dividends on its common stock and ended the third quarter with $1.6 billion in cash and temporary cash investments.
"Our liquidity and balance sheet remain in great shape, and we will continue to focus on improving profitability by lowering costs and optimizing our system," Klesse said. "As we strive to lower costs and become even more competitive, we expect the improving world economy will drive demand growth for our products and support a recovery in refining margins and sour crude discounts. We view 2009 as a trough period for refined product demand, and we look forward to an upturn in fundamentals and demand in 2010."
Valero Energy Corp. is a Fortune 500 company based in San Antonio with approximately 22,000 employees and 2008 revenues of $119 billion. The company owns and operates 16 refineries throughout the United States, Canada and the Caribbean with a combined throughput capacity of approximately three million barrels per day, making it the largest refiner in North America. Valero is also a leading ethanol producer with seven ethanol plants in the Midwest with a combined capacity of 780 million gallons per year, and is one of the nation's largest retail operators with approximately 5,800 retail and branded wholesale outlets in the United States, Canada and the Caribbean under the Valero, Diamond Shamrock, Shamrock, Ultramar, and Beacon brands.
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