Valero Energy Corp.: Profit Drops; Company King Steps Down

Year ends with profit slide and company president's resignation.

While few consumers likely had any sympathy for the oil industry in 2007, the latter part of the fiscal year didn't produce the record-setting performances that previously put Big Oil under so much scrutiny. Valero Energy Corp. joined ConocoPhillips and Hess Corp. with year-end profit declines. Oil giants Exxon and Chevron, whose year-end financial reports will be released Feb. 1, reported lower profits in the third quarter.

Valero's net income fell 49% in the fourth quarter to $567 million, or $1.02 per share, from $1.11 billion, or $1.80 per share, a year earlier. The IndustryWeek IW 50 Best Manufacturer for 2007 said high crude oil and other feedstock prices impacted operating income during the quarter.

Even so, the company's quarterly performance was better than expected. Analysts forecasted that per-share profit would be 43 cents less than what the company posted, according to Bloomberg News.

"We reported good results for the fourth quarter considering the dramatic increase in feedstock costs relative to product prices," said board Chairman and CEO Bill Klesse in a company statement. "Our complex refineries were able to take advantage of the wide sour crude discounts in the fourth quarter. . . . We also benefited from having a large and geographically diverse refining system, which provides relatively more earnings stability through exposure to multiple refining regions.

Looking forward, the company expects as it heads into the summer that supplies for gasoline will fall and demand will grow, as winter-grade gasoline inventories decline and strong diesel margins push for increased diesel production over gasoline.

As for future growth, Valero is expanding its St. Charles refinery and exploring sales or strategic options for its Aruba, Memphis and Krotz Springs refineries. At the St. Charles refinery the company is adding a 50,000-barrel-per-day hydrocracker and will expand its crude and coker units to 45,000 and 10,000, respectively.

Valero Energy Corp.
At A Glance

Valero Energy Corp.
San Antonio, Texas
Primary Industry: Petroleum & Coal Products
Number of Employees: 21,836
2006 In Review
Revenue: $91.8 billion
Profit Margin: 5.95%
Sales Turnover: 2.43
Inventory Turnover: 19.19
Revenue Growth: 11.77%
Return On Assets: 16.69%
Return On Equity: 36.3

"Looking into 2008, we plan to continue our balanced approach of investing in growth projects, improving our operating performance, paying off debt, buying back more stock and increasing dividends, while maintaining our investment-grade credit rating," Klesse said. "In doing so, we remain focused on increasing shareholder value and becoming a better-positioned, better-performing and more valuable company for the long term."

Earlier in the fourth quarter, Greg King resigned as company president. King did not say why he was resigning. "He decided to leave for personal reasons," says company spokesman Bill Day. "At this point in his career he decided that would be the best thing for him. He has school-age kids and I think he wanted to spend more time with them."

The company has no plans to fill the vacant position, according to Day.

In other personnel moves, during the third quarter the company promoted Rich Marcogliese to executive vice president and chief operating officer. Marcogliese previously served as executive vice president of operations. He is now responsible for the company's commercial operations, including marketing, supply and transportation.


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