UPDATE 3-Valero profit down 67 percent; margins weak
(Adds details from conference call)
NEW YORK, July 29 (Reuters) - Valero Corp (VLO.N), the largest U.S. oil refiner, reported a 67 percent decline in quarterly earnings on Tuesday as soaring crude oil prices translated into weak profits from gasoline production.
Companies that refine oil to produce gasoline and other products have struggled to pass through record crude prices to their customers.
Natixis Bleichroeder analyst Roger Read, looking at price expectations for the rest of 2008, said, "It does not appear we have hit the bottom in the refining cycle yet."
Valero said net income in the second quarter fell to $734 million, or $1.37 a share, from $2.25 billion, or $3.89 a share, a year earlier.
Results were slightly ahead of Wall Street expectations. Analysts, on average, forecast earnings of $1.35 a share, according to Reuters Estimates.
Revenue rose 51 percent to $36.6 billion.
In the second quarter, the price of oil in the United States averaged just under $125 a barrel, nearly double what it cost a year earlier. But gasoline prices were up only about 25 percent.
Valero Chief Executive Bill Klesse said in a statement that gasoline margins will continue to be weak and industrywide refinery utilization rates will continue to drop through the end of next year.
But the company expects margins for distillates -- products that include diesel fuel, jet fuel and heating oil -- to be strong over that period.
Klesse said Valero's operational plans going forward would continue to make the best of the high oil and fuel prices that have been pressuring profits for the past two quarters.
The company refined about 2.75 million barrels per day of crude and other feedstocks at its refineries in the second quarter. With planned maintenance work at the company's refineries, Valero's expects throughput between 2.7 million bpd and 2.77 million bpd in the third quarter.
The company also cut its plans for capital and turnaround spending for 2008. It now expects to spend around $3.8 billion for the year, down $400 million from its April estimate and $700 million from January.
"We are eliminating a lot of things and delaying a lot of things in our budget to manage our capital spending with our cashflow and all the demands on it, and to maintain a buyback program," Klesse said on the company's conference call.
Still, the company is mulling retrofitting some of its refineries -- particularly its plant in Corpus Christi, Texas -- to make more profitable distillates. Continued...
