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Bridgewater Associates' new positions in 4Q 2013: Important points

Part 5
Bridgewater Associates' new positions in 4Q 2013: Important points (Part 5 of 7)

Why Bridgewater Associates moved out of Valero Energy

Bridgewater Associates and Valero Energy Corp.

Valero Energy Corp. (VLO) was a 0.12% position in Bridgewater’s portfolio that was sold last quarter. Valero Energy Corporation, through its subsidiaries, is an international manufacturer and marketer of transportation fuels, other petrochemical products, and power.

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The company recently saw its 4Q 2013 earnings increase 30% due to gains from the spinoff of gas-station retailer CST Brands Inc. last year. Valero Energy posted a profit of $1.29 billion, or $2.38 a share, compared with a profit of $1.01 billion, or $1.82 a share, a year earlier. The company successfully completed the initial public offering of common units in Valero Energy Partners LP and plans to use this master limited partnership as the primary vehicle to grow its transportation and logistics assets.

Refining throughput volumes averaged $2.8 million barrels per day in the fourth quarter, which is an increase of 139,000 barrels per day versus the fourth quarter of 2012. Refining volumes were higher, primarily due to less maintenance activity and the initiatives of favorable crude discounts, particularly for light crude in the company’s Gulf Coast system. Differences in crude prices in the Gulf Coast enabled the company to expand its refining segment’s performance. From 4Q 2012 to 4Q 2013, Mars medium sour crude’s discount to Brent increased by $7.66 per barrel, and Maya heavy sour crude’s discount to Brent increased by $2.73 per barrel. Louisiana Light Sweet (LLS) prices increased by $8.39 per barrel, moving from a premium to a discount versus Brent.

The ethanol segment earned operating income of $269 million for 4Q 2013, attributed to strong gross margins driven by low industry ethanol inventories and a decline in corn prices, which combined with high quarterly average production volumes of 3.6 million gallons per day.

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The company had reported a big drop in its 3Q sales as “third quarter refining margins were challenged.” Diluted earnings per share declined from $1.21 to $0.57 per share below Street estimates. The decline was attributed to lower gasoline and diesel margins, in addition to lower light sweet and sour crude oil discounts. Moreover, operating income was impacted by higher costs related to compliance with the U.S. federal renewable fuel standard.

Valero and other U.S. Gulf Coast refinery peers such Tesoro Corporation (TSO) and Phillips 66 (PSX) are poised to benefit from higher export prices and the availability of cheap crude in addition to pipeline infrastructure facilities.

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