Q4 2024 Earnings Summary
- Valero possesses strong feedstock flexibility and supply resilience, particularly in sourcing heavy crude oil. They can source feedstocks from anywhere around the world, which mitigates risks from tariffs or supply disruptions.
- Improved capture rates in the North Atlantic and Gulf Coast regions were achieved due to blending more butane into high RVP gasoline and leveraging discounted Maya crude, which reduced crude costs and enhanced margins.
- Operating in maximum diesel mode to capitalize on strong diesel margins, optimizing their yield towards diesel production, which is favorable for earnings.
- Potential tariffs on Canadian crude imports could reduce Valero's access to heavy crude feedstocks, leading to lower refinery throughput and affecting clean product yields. As Gary Simmons stated, "there is a point where if heavy feedstocks become limited, it affects rate and production of clean products, certainly from our assets".
- Increased sustaining capital expenditures in 2025 may indicate higher maintenance costs or operational challenges. Lane Riggs mentioned the sustaining capital expenditure is expected to be about $1.6 billion, noting that "if it gets lumpy on the higher side... the only thing it can be is additional turnaround work".
- Operational issues in the West Coast refineries are impacting margins, with maintenance work at Benicia affecting throughput and capture rates. Greg Bram explained that "it impacted not so much throughput there, but it impacted the amount of transportation fuel we could make and so that had an impact on the capture rate".
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | –13% (from $35.414B in Q4 2023 to $30.756B in Q4 2024) | Total revenue declined by approx $4.66B (13%) due to weakened market demand and lower product prices for petroleum-based fuels in Q4 2024. This represents a reversal from Q4 2023 when stronger pricing and better market conditions supported higher revenue levels. |
Operating Income | –78% (from $1.553B in Q4 2023 to $348M in Q4 2024) | Operating income fell sharply by $1.205B (78%) mainly because of deteriorating refining margins and a significant decline in revenue. This drop underscores the impact of tougher market conditions and cost pressures in Q4 2024 compared to a more robust performance in Q4 2023. |
Net Income | –81% (from $1.516B in Q4 2023 to $281M in Q4 2024) | Net income dropped by $1.235B (81%) as a result of the sharp decline in operating income and revenue. The reduced margins and lower product prices in Q4 2024 markedly impacted profitability relative to the previous period’s stronger earnings. |
Basic EPS | –76% (from $3.71 in Q4 2023 to $0.89 in Q4 2024) | Basic EPS slid dramatically by approx 76% primarily because the lower net income in Q4 2024 directly translated into lower earnings per share, compounded by the operational challenges that were not present in Q4 2023. |
Cost of Goods Sold | +22% (from $24.793B in Q4 2023 to $30.127B in Q4 2024) | COGS increased by approximately $5.334B (22%) due to higher input costs and less favorable unit economics. This contrasts with Q4 2023 when a more efficient cost structure helped contain COGS despite higher revenues, highlighting a tougher cost environment in Q4 2024. |
Net Change in Cash | From –$407M in Q4 2023 to +$1,070M in Q4 2024 | Net cash improved by over $1.477B as Q4 2024 saw stronger cash management, lower capital investments, and better working capital adjustments. This turnaround from Q4 2023’s cash outflow indicates a strategic focus on liquidity despite softer operating performance. |
Proceeds from Debt | From $67M in Q4 2023 to $3,342M in Q4 2024 | Debt proceeds surged by over 4,900%, reflecting a strategic move to secure significant additional financing. This jump was likely aimed at funding capital projects and refinancing activities, marking a sharp contrast to the minimal borrowings in the previous period. |
Repayments of Debt | From $611M in Q4 2023 to $3,202M in Q4 2024 | Debt repayments increased by roughly $2.591B, driven by the repayment of maturing obligations such as the $167M Senior Notes and broader debt management efforts. This activity indicates a focused restructuring of the debt portfolio in Q4 2024 relative to more modest repayments in Q4 2023. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Capital Investments | FY 2025 | no prior guidance | $2 billion, including $1.6 billion for sustaining | no prior guidance |
Refining Throughput – Gulf Coast | Q1 2025 | no prior guidance | 1.72M to 1.77M barrels per day | no prior guidance |
Refining Throughput – Mid-Continent | Q1 2025 | no prior guidance | 415k to 435k barrels per day | no prior guidance |
Refining Throughput – West Coast | Q1 2025 | no prior guidance | 190k to 210k barrels per day | no prior guidance |
Refining Throughput – North Atlantic | Q1 2025 | no prior guidance | 455k to 475k barrels per day | no prior guidance |
Refining Cash Operating Expenses | Q1 2025 | no prior guidance | $4.95 per barrel | no prior guidance |
Renewable Diesel Sales Volumes | FY 2025 | no prior guidance | 1.2 billion gallons | no prior guidance |
Renewable Diesel Operating Expenses | FY 2025 | no prior guidance | $0.51 per gallon | no prior guidance |
Ethanol Production Volumes | Q1 2025 | no prior guidance | 4.6 million gallons per day | no prior guidance |
Ethanol Operating Expenses | Q1 2025 | no prior guidance | $0.41 per gallon | no prior guidance |
Net Interest Expense | Q1 2025 | no prior guidance | $130 million | no prior guidance |
Depreciation & Amortization | Q1 2025 | no prior guidance | $710 million | no prior guidance |
General & Administrative Expenses | FY 2025 | no prior guidance | $985 million | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Net Interest Expense | Q4 2024 | $140 million | $135 million | Beat |
Depreciation and Amortization Expense | Q4 2024 | $690 million | $687 million | Beat |
G&A Expenses | FY 2024 | $975 million | $961 million (258+ 203+ 234+ 266) | Beat |
Capital Investments | FY 2024 | $2 billion | $649 million (128+ 119+ 152+ 250) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Diesel margins and demand | Q3: Demand up 5% YoY, stronger cracks. Q2: Mixed signals; system sales +10% but broader market down. Q1: 2% higher in system, overall flat demand. | Strong margins, operating in max diesel mode, expecting 1% demand growth. Slight YoY dip in sales but tight inventories support margins. | Consistently strong; slight softness in Q2 but renewed optimism in Q4. |
Refining margins and capture rates | Q3: Heavy maintenance and lower capture. Q2: Lowest capture in 5-6 years. Q1: Margins aided by tight balances, but capture rates not explicitly discussed. | Refining margins supported by low product inventories. Capture rates rose in North Atlantic (118%) and Gulf Coast (86%). Weaker West Coast due to maintenance. | Improving from mid-year lows, boosted by stronger product markets. |
Feedstock flexibility and costs | Q3: Bright spots for heavy crude supply; waste oils remain most advantaged feedstock. Q2: Growing waste oil competition; good coking margins. Q1: Projects to increase feedstock flexibility. | Highlighted heavy sour crude processing at record volumes; leveraging waste oils for renewable diesel (advantaged under new CI credit framework). | Remains a priority with shifting cost advantages in heavy crude and waste oils. |
Ethanol production and margin shifts | Q3: 4.6 million gpd, margins “crumbling on paper” but capacity increasing. Q2: 4.5 million gpd, aided by cheap corn and nat gas. Q1: 4.5 million gpd, lower operating income. | Producing 4.6 million gpd, setting a record but margins are below mid-cycle. Operating income fell YoY from $190M to $20M. | High production volumes, margins remain under pressure. |
Renewable Diesel policy changes and expansions | Q3: CA LCFS changes, EU Fit for 55, IRA credits all favorable for RD/SAF. Q2: RIN oversupply and margin pressure, but SAF expansions. Q1: Weaker near-term RD margins, positive long-term outlook. | Shift to a carbon-intensity-based credit; SAF project at Diamond Green Diesel started, seen as a competitive edge. Europe/Canada more attractive than U.S.. | Transition to new credit systems; SAF becoming more prominent. |
Maintenance and inflation cost pressures | Q3: Heavy maintenance, some inflation impacting catalysts and chemicals. Q2: Maintenance affecting throughput, no direct inflation discussion. Q1: Heavy planned maintenance, no inflation mention. | No specific mention in Q4 2024. | Less reference to inflation in Q4; maintenance continues but details limited. |
Export demand for refined products | Q3: Strong exports on low inventories; diesel up 5% YoY. Q2: Slightly lower Mexico volumes, looking to boost with new terminal. Q1: 100k bpd to Mexico, stable volumes. | Gasoline exports to Latin America 98k bpd; diesel exports affected by cold U.S. weather but expected to normalize. | Stable exports overall, some regional shifts. |
Potential tariffs on Canadian crude imports | Q3, Q2, Q1: No mention. | Discussed as a risk; feedstock flexibility and foreign trade zones may mitigate impact. No clarity on final structure. | New concern in Q4, uncertain outcome. |
Capital expenditure increases (2025 sustaining capex) | No previous mentions in Q3, Q2, or Q1. | $1.6B sustaining CapEx for 2025, highest since 2019, about $300M above five-year average. Lumpiness in turnaround work. | Introduced in Q4, showing higher planned spend. |
West Coast operational issues and market volatility | Q3: Highest-cost region, stringent regulation, potential closures. Q2: Lowest margins since COVID, pipeline shifts. Q1: Seasonal demand dips, expected volatility. | Maintenance at Benicia lowered capture rate, but no major volatility discussion. | Ongoing challenges; Q4 references maintenance more than volatility. |
Sustainable Aviation Fuel (SAF) growth opportunities | Q3: SAF market undersupplied; Fit for 55 in EU, strong returns. Q2: SAF project on track for Q4 launch, premium over RD. Q1: Leadership in SAF capacity, strong interest from airlines. | DGD SAF fully operational, Europe/Canada more attractive than U.S. for policy-driven growth. | Expanding production and market focus, poised for strong returns. |
Negative global refining margins in certain markets | Q3, Q2: No mention. Q1: Negative Singapore cracking and European hydroskimming margins. | No mention in Q4 2024. | Not repeated after Q1. |
Co-product impacts on margin capture | Q3: Propylene and naphtha pricing weighed on capture. Q2: Co-products were a headwind to capture. Q1: No mention. | No mention in Q4 2024. | Dropped from Q4 discussions after factoring into Q2-Q3 results. |
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Impact of Tariffs on Heavy Crude Supply
Q: How would tariffs on Canada and Mexico affect heavy crude supply and refining?
A: Gary Simmons explained that while fundamentals suggest supportive quality differentials due to turnaround activities and refinery closures like Lyondell and Grangemouth, discussions on sanctions and tariffs are currently driving the market. Until there is resolution, significant moves in quality differentials are not expected. -
Supply-Demand Balances and Crack Outlook
Q: What's the outlook for supply-demand balances and crack spreads this year?
A: Gary Simmons noted that gasoline demand looks good, with sales up 2% year-over-year, and expects U.S. gasoline demand to be fairly flat compared to last year. Diesel sales are also up about 1%, and he anticipates a gradual tightening of supply-demand balances throughout the year, leading to improved crack spreads. -
Capital Allocation in Lower Crack Environment
Q: How should we think about payout ratios if cracks don't recover?
A: Jason Fraser and Homer Bhullar indicated that even in a low-margin environment, Valero can honor its minimum payout commitment of 40% to 50% without leaning on the balance sheet or drawing down cash. They emphasized the company's earnings capacity and flexibility in capital allocation. -
Renewable Diesel Performance and Outlook
Q: Why did renewable diesel perform better than expected, and what's the outlook?
A: Eric Fisher attributed the strong performance partly to a one-time inventory optimization at year-end. He mentioned that, with the new 45V PTC replacing the blenders tax credit, incentives are now carbon intensity-based, which favors Diamond Green Diesel's waste oil feedstock flexibility. While overall incentives are lower, Valero's platform is well-positioned in this new policy environment. -
Potential Refinery Closures and Crude Availability
Q: How are refinery closures affecting crude availability and Gulf Coast dynamics?
A: Gary Simmons observed that the shutdown of Lyondell has made more Canadian barrels available as they have backed off the market. However, discussions on tariffs and sanctions have muted any market impact from these closures so far. -
Maximizing Diesel Production Amid Market Conditions
Q: Are you operating in maximum diesel mode given strong diesel margins?
A: Greg Bram confirmed that Valero is in max diesel mode due to current crack spreads. He stated that they will monitor the market to adjust yields if gasoline cracks strengthen during the gasoline season. -
Industry Utilization and Inventory Tightness
Q: Can the industry maintain high utilization levels, and what if it can't?
A: Gary Simmons noted that maintaining high utilization is assumed in current supply-demand balances. He cautioned that any major weather events or unreliability could tighten markets quickly, as product inventories are within 10% of last year's levels when diesel cracks were much higher. -
Impact of Policy Changes on Biofuel Economics
Q: How will policy changes affect biofuel economics in early 2025?
A: Eric Fisher explained that the transition from the blenders tax credit to the 45V PTC reduces incentives, particularly for non-waste oils, leading to potential negative margins. He emphasized that while overall incentives are lower, Valero's focus on waste oils positions them advantageously. -
Energy Cost Reduction Opportunities
Q: Is there room to reduce energy costs amid higher natural gas prices?
A: Greg Bram stated that with current low energy costs, especially in North America, there is limited incentive for projects to reduce energy consumption further. He noted that while efficiency is always a goal, significant investments for energy reduction are hard to justify unless natural gas or power costs increase markedly. -
Ethanol Market Outlook and E15 Policies
Q: What's the outlook for ethanol and the impact of E15 policies?
A: Eric Fisher mentioned that the ethanol market faces challenges with high inventories and production rates, keeping margins below mid-cycle. While E15 adoption could be positive, logistical challenges persist, and significant growth in the U.S. is uncertain. Canada may move to E15 this year under their CFR program. -
Capital Expenditure and Turnaround Activities
Q: Is the higher sustaining CapEx indicative of increased turnaround activity?
A: Lane Riggs clarified that the sustaining CapEx of $1.6 billion includes expected turnaround activities. Variations from the average are mainly due to the level of turnaround work planned for the year. -
Impact of Foreign Trade Zones on Tariffs
Q: Can foreign trade zones help mitigate the impact of tariffs?
A: Richard Walsh explained that until the specifics of any tariffs are known, it's uncertain how foreign trade zones might mitigate their impact. While Valero has foreign trade zones and benefits from them in terms of exports, it's unclear if they would offset domestic tariffs. -
Heavy Sour Crude Processing and Coking Economics
Q: How did you optimize heavy sour crude processing despite tight fuel oil?
A: Greg Bram noted that as fuel oil prices narrowed differentials, they pivoted toward heavy crude as an alternative, aided by the new Port Arthur Coker. This shift increased heavy crude processing without impacting throughput negatively. -
Regional Performance Variances
Q: What drove the differences in regional performance this quarter?
A: Greg Bram explained that the West Coast saw lower capture rates due to maintenance at Benicia, impacting transportation fuel production. The Mid-Continent region benefited from higher throughput and improved capture rates due to favorable market incentives and less backwardated crude structures. -
Sustainable Aviation Fuel (SAF) Operations
Q: Can you update us on your SAF operations and economics?
A: Eric Fisher reported a successful startup of the SAF project ahead of schedule and under budget. The unit demonstrated a wide range of operability exceeding project goals, providing flexibility to optimize production between SAF and renewable diesel based on market conditions. They anticipate increased SAF demand due to the 2% mandate in the EU and UK.
Research analysts covering VALERO ENERGY CORP/TX.