July 27, 2010 / 12:11 PM / 9 years ago

REFILE-UPDATE 4-Valero profit tops Wall St view

(Refiles for wider readership)

* Q2 net EPS 93 cents vs Wall St view of 71 cts

* Shares shed earlier gains with market drop

* Margins still relatively good in Q3-CEO

* Gulf Coast market outperformed-analyst

* Looking for a partner for Aruba plant (Adds details from conference call, updates share price)

By Anna Driver

HOUSTON, July 27 (Reuters) - Valero Energy Corp (VLO.N) reported a higher-than-expected second-quarter profit on Tuesday, the refiner’s first in more than year, as margins in the company’s big Gulf Coast market improved.

Refining results have been hit very hard by the global economic downturn, which cut into demand for fuel and caused stockpiles to swell.

But now Valero, the second-largest U.S. refiner after Exxon Mobil (XOM.N), is seeing some improvement in demand for its products, including asphalt and lube oil, and is able to earn more money by processing lower-cost, sour-grade crude oil.

“The spread between higher- and lower-quality crude oil improved more than we expected,” Roger Read, analyst with Natixis Bleichroeder, said.

The price change helped most in Valero’s biggest Gulf Coast market where margins nearly doubled from a year-ago, the company said. Five of the company’ 15 plants are in that market.

For the third quarter, product margins and supply costs have continued at relatively good levels, but are down from levels seen in most regions in the second quarter, Valero Chief Executive Officer Bill Klesse said in a statement.

“We remain cautiously optimistic that global economic expansion will drive growth in refined-products demand, he said. Still, Klesse said the company needs the economy to improve to boost demand for fuel.

ARUBA PARTNER

Valero also said it will restart its 235,000 barrel per day (bpd) Aruba refinery in September, after completing an overhaul currently under way, if the plant can operate at a profit. [ID:nWEN7780]

Valero, which had pondered a sale of the Aruba refinery, said it is now looking for a partner for the plant, now that it has settled taxes issues with the local government.

Valero is still mulling the sale of its plant in Paulsboro, New Jersey, as part of its overall effort to shed less-profitable plants.

The company plans to hang onto its $2 billion in cash for now, but did not rule out a potential purchase, especially in Europe, Klesse told analysts on a conference call.

“We are still interested in Europe but, only for a quality asset or assets that we think can actually fit into our portfolio and lift our portfolio, the executive said.

Valero reported a profit of $583 million, or 93 cents per share, compared with a year-earlier loss of $254 million, or 36 cents per share.

Analysts on average expected the company to post earnings of 71 cents per share, according to Thomson Reuters I/B/E/S.

Revenue in the quarter rose to $21.8 billion, up from $17.4 billion a year earlier.

Shares of the San Antonio, Texas-based company were down 1.1 percent to $17.37 in afternoon trading on the New York Stock Exchange. The decline was in line with a 1.3 percent drop in the Standard and Poor’s refining and marketing index .15GSPENRM. (Additional reporting by Matt Daily in New York and Erwin Seba in Houston, editing by Gerald E. McCormick, Dave Zimmerman)

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