UPDATE 4-Valero earnings tumble but handily beat Wall St
(Adds details from conference call)
NEW YORK, Jan 29 (Reuters) - Refiner Valero Energy Corp (VLO.N) on Tuesday said fourth-quarter earnings fell sharply on lower profits from gasoline production, but the results were far ahead of Wall Street estimates as the company's focus on cheaper grades of crude oil buoyed results.
The company's shares rose more than 10 percent after the announcement, pushing up stocks of the entire refining industry.
Industry profit margins from refining were relatively weak in the quarter as gasoline prices failed to keep pace with oil prices, which soared to record levels.
But Valero managed to squeeze extra profit out of its refineries by processing lower-grade crudes, which trade at a discount to the light, sweet crude oil that is the U.S. benchmark.
Net income in the quarter dropped to $567 million, or $1.02 a share, from $1.11 billion, or $1.80 a share, a year before.
Analysts, on average, were expecting earnings of 62 cents a share in the quarter.
"It's these types of quarters when light sweet crude prices are very strong, where guys that can process these types of crudes are going to benefit much more than their less complex peers," said BMO Capital Markets analyst Jim Byrne. "I think it bodes similarly well for other refiners that process those kinds of discounted feedstocks."
Byrne said Holly Corp (HOC.N) and Frontier Oil Corp (FTO.N) are other refiners likely to benefit from the differentials in crude prices.
Revenue rose to $28.67 billion from $18.83 billion a year before.
Valero said it continues to see large discounts versus light, sweet crude for sour and heavy crude oils and other feedstocks that make up more than 60 percent of its throughput.
It also believes supply constraints coupled with seasonal demand growth will result in stronger gasoline margins this spring and summer.
Still, the company said margins for its secondary products like asphalt, fuel oils and petrochemical feedstocks were weak in the fourth quarter and are still weak.
Valero is exploring the sale of its refineries in Aruba, Krotz Springs, Louisiana; and Memphis, Tennessee, as part of an effort to pare back non-core assets. Chief Executive Bill Klesse also said the company is currently working to determine a plan for its Paulsboro, New Jersey, plant.
"The level of interest is extremely high" for the three refineries already on the block, Klesse said on a conference call with analysts. "There's a lot of interest from operating companies, and financial players still as well." Continued...
