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Is Valero Energy’s Liquidity Stronger?

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Mar. 21 2019, Published 8:39 a.m. ET

Valero Energy’s cash flow

In 2018, Valero Energy (VLO) generated $4.4 billion in cash from operations—20% lower than the previous year. The company had $3.9 billion investing cash outflows—65% higher YoY (year-over-year). Valero Energy’s financing outflows rose 60% YoY to $3.3 billion in 2018.

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Cash flow shortfall

Valero Energy had cash outflows of $3.7 billion in the form of capital expenditure and acquisitions and $1.4 billion in the form of dividends in 2018. The company had ~$5.1 billion of significant cash outflows in 2018. Valero Energy’s cash flow from operations of $4.4 billion was lower than the needed outflows.

Valero Energy’s cash flow from operations fell short by $0.7 billion in covering the capex, acquisition, and dividend outflows. The company repurchased $1.7 billion of shares in 2018.

Valero Energy used its cash reserves to fund the shortfall and share repurchases. The company’s cash balance decreased from $5.9 billion on January 1, 2018, to $2.9 billion on December 31, 2018.

Phillips 66’s (PSX) cash flow from operations of $7.6 billion was enough to cover its capex and dividend cash outflows. Phillips 66 was left with $3.5 billion of surplus cash after incurring these necessary expenses. HollyFrontier’s (HFC) cash flow from operations of $1.6 billion could cover these cash outflows.

What does the cash flow analysis imply?

Valero Energy observed a cash flow shortfall in 2018. However, the shortfall was mainly due to acquisitions. Valero Energy had enough of a cash balance to fund the acquisitions. The cash could also cover share repurchases. Valero Energy managed the shortfall without increasing its debt level significantly—a favorable scenario.

Going forward, Valero Energy should monitor its acquisitions and share repurchase activities to maintain a comfortable liquidity position.

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