Valero Energy Reports Second Quarter 2020 Results

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  Reported net income attributable to Valero stockholders of $1.3 billion, or $3.07 per share.
  


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  Reported adjusted net loss attributable to Valero stockholders of $504 million, or $1.25 per share.
  


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  Returned $400 million in cash to stockholders through dividends and declared a quarterly common stock dividend of $0.98 per share on July 16.
  

Refining

The refining segment reported $1.8 billion of operating income for the second quarter of 2020 compared to $1.0 billion for the second quarter of 2019. Excluding the LCM inventory valuation adjustment, the second quarter 2020 adjusted operating loss was $383 million. Refinery throughput volumes averaged 2.3 million barrels per day in the second quarter of 2020, which was 647 thousand barrels per day lower than the second quarter of 2019.

"While the impact of the pandemic and the ensuing global economic downturn so far this year has been significant, we saw a rapid recovery in demand for refined products as we moved through the quarter," said Joe Gorder, Valero Chairman and Chief Executive Officer.

Renewable Diesel

The renewable diesel segment reported $129 million of operating income for the second quarter of 2020 compared to $77 million for the second quarter of 2019. After adjusting for the retroactive blender's tax credit, renewable diesel operating income was $145 million for the second quarter of 2019. Renewable diesel sales volumes averaged 795 thousand gallons per day in the second quarter of 2020, an increase of 26 thousand gallons per day versus the second quarter of 2019.

Ethanol

The ethanol segment reported $91 million of operating income for the second quarter of 2020, compared to $7 million for the second quarter of 2019. Excluding the LCM inventory valuation adjustment, the second quarter 2020 adjusted operating loss was $20 million. Ethanol production volumes averaged 2.3 million gallons per day in the second quarter of 2020, which was 2.2 million gallons per day lower than the second quarter of 2019. The decrease in adjusted operating income was attributed primarily to lower margins resulting from lower ethanol prices and lower throughput.

Corporate and Other

General and administrative expenses were $169 million in the second quarter of 2020 compared to $199 million in the second quarter of 2019. The effective tax rate for the second quarter of 2020 was 20 percent, which was affected by the results of certain of our international operations that are taxed at rates that are lower than the U.S. statutory tax rate.

Investing and Financing Activities

Capital investments totaled $503 million in the second quarter of 2020, of which $240 million was for sustaining the business, including costs for turnarounds, catalysts and regulatory compliance. Excluding our partner's 50 percent share of Diamond Green Diesel's (DGD) capital investments, Valero's capital investments were approximately $448 million.

Valero returned $400 million to stockholders through dividends in the second quarter of 2020, resulting in a year-to-date payout of 96 percent of adjusted net cash provided by operating activities.

Net cash provided by operating activities was $736 million in the second quarter of 2020. Included in this amount was a $629 million favorable impact from working capital, as well as our joint venture partner's share of DGD's net cash provided by operating activities, excluding changes in its working capital. Excluding these items, adjusted net cash provided by operating activities was $38 million.

Valero continues to target a long-term total payout ratio between 40 and 50 percent of adjusted net cash provided by operating activities. Valero defines total payout ratio as the sum of dividends and stock buybacks divided by net cash provided by operating activities adjusted for changes in working capital and DGD's net cash provided by operating activities, excluding changes in its working capital, attributable to our joint venture partner's ownership interest in DGD.

Liquidity and Financial Position

Valero ended the second quarter of 2020 with $12.7 billion of total debt and finance lease obligations and $2.3 billion of cash and cash equivalents. The debt to capitalization ratio, net of cash and cash equivalents, was 33 percent as of June 30, 2020.

Strategic Update

Valero expects to invest approximately $2.1 billion of capital in 2020, of which approximately 60 percent is for sustaining the business and approximately 40 percent is for growth projects. Approximately 30 percent of Valero's 2020 growth capital is allocated to expanding the renewables business.

The new St. Charles Alkylation Unit, which is designed to convert low-value feedstocks into a premium alkylate product, is on track to be completed in the fourth quarter of this year. The Diamond Pipeline expansion and the Pembroke Cogen project are expected to be completed in 2021 and the Port Arthur Coker project is expected to be completed in 2023.

Valero and its joint venture partner in DGD continue to pursue growth in the low-carbon renewable fuel business. The DGD plant expansion is expected to be completed in 2021, subject to COVID-19 related delays, and as previously announced, DGD continues to make progress on the advanced engineering and development cost review for a potential new 400 million gallons per day renewable diesel plant at Valero's Port Arthur, Texas facility. If the project is approved, operations are expected to commence in 2024, increasing DGD production capacity to over 1.1 billion gallons annually.

"As we focus on the path to recovery with improving product demand, we remain steadfast in the execution of our strategy, pursuing excellence in our operations, investing for earnings growth with lower volatility and honoring our commitment to stockholder returns," said Gorder. "This uncompromising focus on capital discipline and execution has served us well in the current pandemic-imposed downturn, and it should continue to position Valero well through the recovery and beyond."

Conference Call

Valero's senior management will hold a conference call at 10 a.m. ET today to discuss this earnings release and to provide an update on operations and strategy.

About Valero

Valero Energy Corporation, through its subsidiaries (collectively, "Valero"), is an international manufacturer and marketer of transportation fuels and petrochemical products. Valero is a Fortune 50 company based in San Antonio, Texas, and it operates 15 petroleum refineries with a combined throughput capacity of approximately 3.2 million barrels per day and 14 ethanol plants with a combined production capacity of approximately 1.73 billion gallons per year. The petroleum refineries are located in the United States (U.S.), Canada and the United Kingdom (U.K.), and the ethanol plants are located in the Mid-Continent region of the U.S. Valero also is a joint venture partner in Diamond Green Diesel, which operates a renewable diesel plant in Norco, Louisiana. Diamond Green Diesel is North America's largest biomass-based diesel plant. Valero sells its products in the wholesale rack or bulk markets in the U.S., Canada, the U.K., Ireland and Latin America. Approximately 7,000 outlets carry Valero's brand names. Please visit www.valero.com for more information.

Valero Contacts

Investors:
Homer Bhullar, Vice President - Investor Relations, 210-345-1982
Eric Herbort, Senior Manager - Investor Relations, 210-345-3331
Gautam Srivastava, Manager - Investor Relations, 210-345-3992

Media:
Lillian Riojas, Executive Director - Media Relations and Communications, 210-345-5002

Safe-Harbor Statement

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," "intend," "target," "will," "plans," 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 based on numerous factors, including those outside of the company's control, such as delays in construction timing and other factors, including but not limited to the impacts of COVID-19. 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, quarterly reports on Form 10-Q, and other reports filed with the Securities and Exchange Commission and available on Valero's website at www.valero.com.

COVID-19 Disclosure

The global pandemic has significantly reduced global economic activity and resulted in airlines dramatically cutting back on flights and a decrease in motor vehicle use at a time when seasonal driving patterns typically result in an increase of consumer demand for gasoline. As a result, there has also been a decline in the demand for, and thus also the market prices of, crude oil and certain of our products, particularly our refined petroleum products. Many uncertainties remain with respect to COVID-19, including its resulting economic effects and any future recovery, and we are unable to predict the ultimate economic impacts from COVID-19, how quickly national economies can recover once the pandemic subsides, or whether any recovery will ultimately experience a reversal or other setbacks. However, the adverse impact of the economic effects on us has been and will likely continue to be significant. We believe we have proactively addressed many of the known impacts of COVID-19 to the extent possible and will strive to continue to do so, but there can be no guarantee that these measures will be fully effective. For more information, see our quarterly reports on Form 10-Q and other reports filed with the Securities and Exchange Commission.

Use of Non-GAAP Financial Information

This earnings release and the accompanying earnings release tables include references to financial measures that are not defined under U.S. generally accepted accounting principles (GAAP). These non-GAAP measures include adjusted net income (loss) attributable to Valero stockholders, adjusted earnings (loss) per common share - assuming dilution, refining margin, renewable diesel margin, ethanol margin, adjusted refining operating income (loss), adjusted renewable diesel operating income, adjusted ethanol operating income (loss), and adjusted net cash provided by operating activities. These non-GAAP financial measures have been included to help facilitate the comparison of operating results between periods. See the accompanying earnings release tables for a reconciliation of non-GAAP measures to their most directly comparable U.S. GAAP measures. Note (f) to the earnings release tables provides reasons for the use of these non-GAAP financial measures.

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