Valero Profit Rises 18 Percent, Topping Estimates

Valero reported Tuesday that first-quarter profits rose more than 18 percent, easily beating beat Wall Street expectations as higher refining margins offset weak gasoline demand.

The nation's largest independent oil refiner said net income for the January-March period amounted to $309 million, or 59 cents a share, up from the $261 million, or 48 cents per share, it earned a year ago.

Thomson Reuters says analysts it surveyed expected earnings of 50 cents per share.

Revenue fell 51 percent to $13.82 billion from a year ago, however, with the recession eating into demand for energy.

Last year at this time, crude prices were well into a historic run toward $150 per barrel, which led to slimmer margins by July for refiners like Valero. This year, with crude prices near five-year lows, Valero says margins improved on gasoline, as well as fuel oil, asphalt and petroleum coke. Also, as energy costs remained low in the first quarter, refining operating expenses declined.

This year, Valero entered the biofuel business, snapping up six plants from bankrupt ethanol producer Verasun Energy. The company closed on the sale of those plants earlier this month and Bill Klesse, Valero's chief executive, said the company will close on another soon.

"We have established a sizable, strategic position within the ethanol business," Klesse said. "Looking forward, we expect ethanol demand to grow under the federal mandate and catch up with production capacity by 2010."

Valero Energy Corporation
Valero Energy Corporation

Still, the bad economy cut into revenues as consumers slashed spending on gasoline.

At a time of year when people traditionally begin hitting the road and buying more gas, stockpiles of gasoline rose by 800,000 barrels last week, the government reported.

In an effort to conserve cash, the company cut its 2009 capital spending to $2.5 billion from its earlier estimate of $2.7 billion.

"Demand for refined products is clearly down from last year due to the decline in economic activity and rising unemployment," Klesse said. "However, better-than-expected gasoline fundamentals have supported margins so far this year. With pump prices around 40 percent lower than this time last year, gasoline demand could improve with the summer driving season."

Shares in Valero rose 14 cents to $20.74 in premarket trading.