Valero: Q1 loss for ethanol segment, profit for renewable diesel

Valero Energy Corp. released first quarter 2020 financial results on April 29. While the company’s operations are being impacted by the COVID-19 pandemic, members of the executive team confirmed that demand for transportation fuels is beginning to rebound.

Joe Gorder, chairman and CEO of Valero, opened the company’s earnings call with statement on the pandemic. “We’ve all had a very challenging start to the year, with significant impact to our families, communities, and businesses worldwide brought on by the covid-19 pandemic,” he said. “The ensuing collapse of economic activity due to stay at home orders and travel restrictions has driven down demand for our products, particularly gasoline and jet fuel. Despite these extraordinary challenges, we’re blessed to be able to continue supporting our community partners and organizations on the front lines that help people most in need in response to the COVID-19 pandemic. Across the country we’ve seen neighbors and strangers helping one another and demonstrating genuine human kindness. With that in mind, our ethanol operations produced hand sanitizer for distribution to hospitals, emergency responders, and other organizations. And, I’m proud of our employees for their innovations and efforts to make this possible.”

Gorder said Valero has temporarily idled several of its ethanol plants and has reduced the volume of corn being processed at its operational facilities in order to address the decreased demand for ethanol. Ethanol production volumes for the first quarter, however, averaged 4.1 million gallons per day, which is in line with production levels reported for the first quarter of last year.

Valero’s ethanol segment reported a $197 million operating loss for the first quarter of 2020, compared to $3 million in operating income for the same period of 2019. The decrease in operating income was primarily attributed to lower ethanol prices and higher corn prices.

While Valero’s ethanol segment has been highly impacted by COVID-19, the impacts to its renewable diesel operations have not been as severe. Gorder said progress is continuing on the Diamond pipeline expansion and the Diamond Green Diesel project, both of which are expected to be complete in 2021, he said. Capacity at the Diamond Green Diesel facility is being expanded to 675 MMgy. “The Diamond Green Diesel joint venture also continues to make progress on the advanced engineering review of a potential new renewable diesel plant at our Port Arthur, Texas, facility,” Gorder said.

Valero’s renewable diesel segment reported $198 million in operating income for the first quarter of 2020, compared to $49 million for the same period of last year. After adjusting for the retroactive blenders tax credit, renewable diesel operating income was $121 million for the first quarter of 2019. Renewable diesel sales averaged 867,000 gallons per day during the first quarter, an increase of 77,000 gallons per day when compared to the same period of last year.

“The health, safety and wellbeing of our employees and the communities where we operate remain among our top priorities,” Gorder said. “Our prudent management of operations has allowed us to weather a global shutdown like this without layoffs. And, while a tremendous amount of uncertainty remains in the near future, our operational and financial flexibility allows us to navigate through today’s challenging macro environment.”

During the earnings call, Gorder and other Valero executives fielded questions on their expectations related to transportation fuel demand. Gorder said traffic in San Antonio, Texas, was up 14 percent in recent weeks. Groder also said that there is pent up desire from people to get out of their houses and said he  expects to see more activity as stay-at-home orders expire, particularly in the South.

Gary Simmons, executive vice president and chief commercial officer at Valero, said the company saw very sharp fall in fuel demand during the last two weeks of March. He said demand was at about 55 percent of normal. That level of demand was relatively stable during the first part of April, but has already started to pick up. Simmons said Valero’s rack system is suppling about 64 percent of its normal volume of fuel, which is up approximately 9 percent from earlier this month. Overall, he said Valero expects to see a gradual increase in transportation fuel demand, and does think demand will return close to where it was pre-COVID-19. While many people will continue to work from home, and as a result use less fuel, he said other factors will likely offset that decrease in use. For example, people are expected to drive more and use mass transit less.

Overall, Valero reported a net loss attributable to Valero stockholders of $1.9 billion, or $4.54 per share, for the first quarter of 2020, compared to net income of $141 million, or 34 cents per share, for the same period of 2019.