* Loss 48 cents/share; Street view loss 50 cents
* Shares down 4.4 percent
* Says Q3 loss a possibility, Q4 challenging
(Corrects analyst name in paragraph 12)
By Anna Driver
HOUSTON, July 28 Valero Energy Corp (VLO.N)
reported a second-quarter loss on Tuesday as hefty fuel
inventories and weak demand weighed down profit margins, a
situation that has persisted and could cause a loss in the
current quarter for the largest U.S. refining company.
Valero shares fell more than 4 percent on the New York
Government data last week showed inventories of
distillates, including heating oil and diesel, at a 25-year
high as the global recession bites into industrial consumption
Valero's profit margins have been hurt as the lower-grade,
or sour, crude oil it uses has lost much of the cost advantage
over higher-grade crude.
"We did not anticipate such a dramatic fall in the medium
and heavy sour discounts," Valero chief executive officer Bill
Klesse said on a call with investors.
That situation is not likely to improve any time soon.
Valero forecast its margins in the third quarter would be
similar to those in the second quarter, which might result in
another net loss. The fourth quarter would be challenging as
well, the company told analysts.
Margins will bounce back when the global economy improves,
the company said.
Valero, based in San Antonio, Texas, shut its Aruba
refinery earlier this month due to weak market conditions. The
company said the facility will remain closed at least until
September, when the margin outlook will be reviewed.
Valero's loss was slightly narrower than Wall Street
expected, but analysts said investors would focus on the weak
outlook for refiners.
The second-quarter net loss was $254 million, or 48 cents
per share, compared with a profit of $734 million, or $1.37 per
share, a year earlier. Revenue fell by more than half, to
$17.93 billion from $36.6 billion.
Analysts, on average, had expected a loss of 50 cents per
share on revenue of $15.874 billion, according to Reuters
"The quality of the earnings is a bit worse than expected
as losses from (Valero's) refining operation (are) larger than
expected, partially offset by a higher than expected tax
benefit and retail contribution," Paul Cheng, an analyst at
Barclays Capital, told clients in a research note.
"We believe investors will focus on the weakness of its
refining operation as well as the current continuing weak
The refiner told analysts it expects to spend $2 billion to
$2.5 billion in 2010 and is on track to meet its 2009 spending
target of $2.5 billion.
Valero, which operates 16 refineries in the United States,
Canada and the Caribbean, processed 2.485 million barrels of
crude oil and other feedstocks per day in the quarter, down 9
percent from a year ago.
Valero shares fell 77 cents, or 4 percent, to $18 afternoon
trading on the New York stock exchange. That decline is in line
with a drop in Standard & Poor's index of refining companies
(Reporting by Anna Driver; additional reporting by Steve
James in New York; editing by John Wallace and Andre Grenon)