Skip to content
    VLO
    Earnings call· Dec 2024(Q4 FY24)

    VALERO ENERGY CORP/TX Q4 FY24 earnings call VLO

    Jan 30, 2025 Source

    Executive summary

    Valero Q4 FY24 — Strong Operational Performance and Shareholder Returns Amidst Weak Margins

    Valero delivered strong operational performance in Q4 FY24, processing record heavy sour crude and achieving record ethanol production, despite a weak margin environment. The company successfully started up its DGD sustainable aviation fuel project and continued its commitment to shareholder returns with a 78% payout ratio for the year and a 6% dividend increase. Management anticipates gradually tightening supply-demand balances for products through 2025, supported by low light product inventories.

    Highlights

    5

    • Processed a record volume of heavy sour crude in Q4, demonstrating refining system flexibility.

    • Achieved record ethanol production with the expansion of the Charles City plant and process optimization.

    • Successfully started up the DGD sustainable aviation fuel project in Q4, now fully operational.

    • Returned $4.3 billion to stockholders in 2024, representing a 78% payout ratio.

    • Approved a 6% increase in the quarterly cash dividend, and reduced share count by 23% since year-end 2021.

    Concerns

    5

    • Adjusted net income attributable to Valero stockholders decreased to $207 million ($0.64 per share) in Q4 2024 from $1.2 billion ($3.57 per share) in Q4 2023.

    • Refining segment operating income fell to $437 million in Q4 2024 from $1.6 billion in Q4 2023.

    • Ethanol segment operating income decreased to $20 million in Q4 2024 from $190 million in Q4 2023.

    • Ethanol market challenged by high inventories and production rates, keeping margins below mid-cycle.

    • Potential Canadian tariffs and Venezuelan sanctions are driving market uncertainty for heavy crude differentials.

    Guidance & targets

    17
    CategoryTargetConfidence
    Capital investments attributable to Valero
    $2 billion
    high materiality
    High
    Sustaining capital investments
    $1.6 billion
    medium materiality
    High
    Refining throughput volumes
    1.72 million to 1.77 million bbl/day
    medium materiality
    High
    Refining throughput volumes
    415,000 to 435,000 bbl/day
    medium materiality
    High
    Refining throughput volumes
    190,000 to 210,000 bbl/day
    medium materiality
    High
    Refining throughput volumes
    455,000 to 475,000 bbl/day
    medium materiality
    High
    Refining cash operating expenses
    $4.95 per barrel
    medium materiality
    High
    Renewable Diesel sales volumes
    1.2 billion gallons
    medium materiality
    High
    Renewable Diesel operating expenses
    $0.51 per gallon
    medium materiality
    High
    Ethanol production volumes
    4.6 million gallons per day
    medium materiality
    High
    Ethanol operating expenses
    $0.41 per gallon
    medium materiality
    High
    Net interest expense
    $130 million
    low materiality
    High
    Total depreciation and amortization expense
    $710 million
    low materiality
    High
    G&A expenses
    $985 million
    low materiality
    High
    St. Charles SEC unit optimization project startup
    2026
    medium materiality
    High
    St. Charles SEC unit optimization project cost
    $230 million
    medium materiality
    High
    St. Charles SEC unit optimization project high-octane alkylate increase
    6,000 to 7,000 barrels a day
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Refining
    Operating income significantly decreased year-over-year due to a weak margin environment. Achieved 94% utilization and processed a record volume of heavy sour crude.
    Operating income (Q4 2023): $1.6 billionThroughput volumes: 3 million bbl/dayThroughput capacity utilization: 94%
    		———$437 million
    Renewable Diesel
    Operating income increased year-over-year, partly due to a one-time inventory optimization benefit. The DGD SAF project successfully started up in Q4.
    Operating income (Q4 2023): $84 millionSales volumes: 3.4 million gallons/day
    		———$170 million
    Ethanol
    Operating income decreased significantly year-over-year. The segment set a record for ethanol production, but the market is challenged by high inventories and production rates.
    Operating income (Q4 2023): $190 millionProduction volumes: 4.6 million gallons/day
    		———$20 million

    Operational metrics

    44
    Adjusted net income attributable to Valero stockholders
    $207 milliondown from $1.2 billion YoY
    Q4 FY24

    Excluding adjustments in earnings release tables.

    Net income attributable to Valero stockholders
    $281 milliondown from $1.2 billion YoY
    Q4 FY24
    Adjusted net income attributable to Valero stockholders
    $2.7 billiondown from $8.9 billion YoY
    FY24

    Excluding adjustments in earnings release tables.

    Net income attributable to Valero stockholders
    $2.8 billiondown from $8.8 billion YoY
    FY24
    Net cash provided by operating activities
    $1.1 billion
    Q4 FY24
    Adjusted net cash provided by operating activities
    $951 million
    Q4 FY24

    Excluding $119 million of adjusted net cash provided by operating activities associated with the other joint venture member share of DGD.

    Net cash provided by operating activities
    $6.7 billion
    FY24
    Adjusted net cash provided by operating activities
    $5.5 billion
    FY24

    Excluding $795 million favorable change in working capital and $371 million of adjusted net cash provided by operating activities associated with the other joint venture member share of DGD.

    Capital investments
    $547 million
    Q4 FY24

    Total capital investments, with $452 million for sustaining the business.

    Capital investments attributable to Valero
    $515 million
    Q4 FY24

    Excluding capital investments attributable to other joint venture member share of DGD and other variable interest entities.

    Capital investments attributable to Valero
    $1.9 billion
    FY24

    For the full year.

    Shareholder returns
    $601 million
    Q4 FY24

    Consisting of dividends and stock buybacks.

    Payout ratio
    63%
    Q4 FY24
    Payout ratio
    78%
    FY24
    Debt reduction
    $4 billion
    Since 2021

    Total debt reduction since the start of 2021.

    Share count reduction
    6%
    FY24

    Reduction in share count during 2024.

    Share count reduction
    23%
    Since year-end 2021

    Cumulative reduction in share count since year-end 2021.

    Total debt
    $8.1 billion
    As of Dec 31, 2024
    Finance lease obligations
    $2.4 billion
    As of Dec 31, 2024
    Cash and cash equivalents
    $4.7 billion
    As of Dec 31, 2024
    Debt to capitalization ratio
    17%
    As of Dec 31, 2024
    Available liquidity
    $5.3 billion
    As of Dec 31, 2024

    Excluding cash.

    G&A expenses
    $266 million
    Q4 FY24
    G&A expenses
    $961 million
    FY24

    For the full year.

    Depreciation and amortization expense
    $698 million
    Q4 FY24
    Net interest expense
    $135 million
    Q4 FY24
    Income tax benefit
    $34 million
    Q4 FY24
    Effective tax rate
    19%
    FY24
    Dividend increase
    6%
    Quarterly

    Increase in quarterly cash dividend approved by the board.

    Refining cash operating expenses
    $4.67
    Q4 FY24
    Renewable Diesel non-cash operating costs
    $0.22
    FY25

    For depreciation and amortization.

    Ethanol non-cash operating costs
    $0.05
    Q1 FY25

    For depreciation and amortization.

    Gasoline sales
    slightly downYoY
    Year-to-date

    Impacted by snow in South/Southeast and Colonial pipeline outage. 7-day average shows recent recovery.

    Diesel sales
    off a few percentYoY
    Year-to-date

    Impacted by renewable diesel diversion to SAF and snow. 7-day average shows recent recovery.

    Light product inventory
    9 million to 10 million barrelsbelow last year
    Current

    Total light product inventory compared to the same time last year.

    Gasoline exports
    98,000
    Q4 FY24

    Primarily to Latin America.

    Gasoline exports
    98,000
    Q1 FY25

    Current level for Q1, primarily to Latin America.

    Refining capture rate
    118%up from 102% QoQ
    Q4 FY24

    Benefited from butane blending into gasoline and wholesale business contributions.

    Refining capture rate
    86%up from 76% QoQ
    Q4 FY24

    Benefited from butane blending into gasoline, wholesale business contributions, and discounted Maya crude relative to Canadian grades.

    Potential throughput reduction from heavy feedstock limits
    10%
    Transitory

    Estimated impact if heavy barrels need to be significantly backed off due to tariffs or supply issues.

    Hypothetical cash built at 50% payout ratio
    $1.7 billion
    FY24

    If shareholder payout ratio had been held at 50% for the year.

    Hypothetical cash built at 50% payout ratio (adjusted)
    $700 million
    FY24

    If payout ratio was 50%, excluding $795 million positive working capital impact and including $167 million debt repayment.

    Debt repayment
    $167 million
    Q1 FY24
    Average sustaining capital
    $1.5 billion
    Average

    Nominal average for sustaining capital, inclusive of turnarounds, ongoing operations, and catalysts.

    Industry KPIs

    1
    MetricValueDetails
    FCF shareholder distributions$4.3 billionUSD

    Capital programs

    2
    DGD sustainable aviation fuel projectcompleted

    The DGD sustainable aviation fuel project was successfully started up in the fourth quarter and is now fully operational, ahead of schedule and under budget.

    St. Charles SEC unit optimization projectunderway$230 million

    Benefit: increase the yield of high-value products, including high-octane alkylate; increase high octane outlet production by 6,000 to 7,000 barrels a day

    Project aims to increase the yield of high-value products, including high-octane alkylate, by optimizing the SEC unit. It meets investment hurdle at mid-cycle pricing.

    Risks & headwinds

    4
    Weak margin environment

    Refining segment operating income for Q4 2024 was $437 million compared to $1.6 billion for Q4 2023.

    Mitigation: Relentless focus on operational excellence and low-cost operations.

    Potential Canadian tariffsIf it did drag on for an extended period of time, particularly as we switch into summer grade.

    Might see a 10% change in throughput if heavy barrels are significantly backed off.

    Mitigation: Commercial teams and optimization teams are developing every possible scenario; leveraging feedstock flexibility and ability to source from anywhere globally.

    Ethanol market challengesSustained through Q3, Q4, and into early Q1.

    High inventories and high production rates keeping margins below mid-cycle.

    Mitigation: Monitoring potential for incremental E15 adoption, especially in Canada, as a positive development for ethanol outlook.

    Transition from BTC to 45Z for Renewable DieselFirst quarter, as market sorts out.

    Fairly negative margin environment for non-waste oils (e.g., $0.16/gallon for soybean oil vs $1/gallon BTC).

    Mitigation: Valero's Diamond Green Diesel platform is advantaged as a waste oil unit on the Gulf Coast, which is favored by the new policy.

    What to watch in Q1 FY25

    4

    Refining margins and product supply-demand balances

    Through 2025
    CurrentLow light product inventories (9M-10M barrels below last year), gasoline demand flat, diesel demand up ~1%
    TargetGradual tightening of supply-demand balances

    Why it matters

    Key driver of profitability for the refining segment.

    Looking ahead, refining margins should be supported by low light product inventories ahead of the driving season. And longer term, we still expect product demand to exceed supply with the announced refinery shutdowns this year and the limited capacity additions beyond 2025 supporting long-term refining fundamentals.

    Q&A highlights

    8

    What is the supply-demand outlook for products and cracks for the year, and what are key indicators for a market turnaround?

    Light product inventories are 9-10 million barrels below last year. Gasoline demand is expected to be flat year-over-year, and diesel demand is projected to increase by about 1%. The market is expected to see a gradual tightening of supply-demand balances through the year.

    “Overall, what we can see is gasoline demand looks good, and we expect gasoline demand in the United States to be fairly flat until last year. ... Seven-day average shows diesel sales are up about 1%, and that's kind of what we expect for the year, about a 1% increase in diesel demand in the United States.”

    asked by John Royall · answered by Gary Simmons

    2 min read7 chapters

    Detailed Narrative

    01

    Operational Excellence and Safety Achievements

    Valero achieved its best year for personnel and process safety and one of its best for environmental performance in 2024. This focus on disciplined operations and low-cost execution enabled the company to deliver positive results in the fourth quarter, despite a challenging margin environment. The team's ability to secure and process economic crude oils was highlighted by record heavy sour crude processing.

    02

    Strategic Organic Investments

    The company continues to grow its earnings capacity through targeted organic investments. The DGD sustainable aviation fuel (SAF) project was successfully started up in the fourth quarter and is now fully operational, ahead of schedule and under budget. Additionally, Valero is progressing with a $230 million SEC unit optimization project at St. Charles, expected to start up in 2026, which will increase the yield of high-value products like high-octane alkylate by 6,000 to 7,000 barrels per day.

    03

    Refining and Product Market Outlook

    Management expects refining margins to be supported by low light product inventories ahead of the driving season. Longer-term, product demand is projected to exceed supply due to announced refinery shutdowns and limited new capacity additions beyond 2025. Gasoline demand in the U.S. is expected to be flat year-over-year, while diesel demand is anticipated to increase by about 1%.

    04

    Capital Allocation and Shareholder Returns

    Valero remains committed to shareholder returns, achieving a 78% payout ratio for 2024. The board recently approved a 6% increase in the quarterly cash dividend. Since 2021, the company has reduced debt by over $4 billion and returned approximately $18.7 billion to stockholders through dividends and share buybacks, reducing its share count by 23%.

    05

    Renewable Diesel and Policy Shifts

    The renewable diesel market is transitioning from the blender's tax credit (BTC) to the 45Z credit, which is carbon intensity-based. This shift is expected to limit product imports into the U.S. and is seen as advantageous for Valero's Diamond Green Diesel platform due to its feedstock flexibility and focus on waste oils. The company is monitoring how RINs and LCFS credits will respond to these policy changes.

    06

    Heavy Crude Optimization and Market Dynamics

    Valero's refining system demonstrated significant flexibility by processing a record volume of heavy sour crude in Q4. This was achieved by pivoting away from fuel oil as a feedstock when its differentials narrowed and leveraging the Port Arthur coker. The market for heavy crude differentials is currently influenced by discussions around potential Canadian tariffs and Venezuelan sanctions, which are muting typical market impact🌐s from events like the Lyondell refinery closure.

    07

    Ethanol Market Challenges

    The ethanol market is currently challenged by high inventories and sustained high production rates, leading to margins below mid-cycle levels. While there's ongoing discussion about year-round E15, significant growth in this market in the U.S. is not immediately apparent, with Canada potentially seeing incremental E15 adoption sooner through its CFR program.

    AI-generated summary of the company’s earnings call. Not investment advice.