Valero’s cash flow
In the first quarter of 2019, Valero Energy (VLO) generated $877 million in cash from operations, higher than $138 million in the first quarter of 2018. The company had $747 million in investing cash outflow, down 1% YoY (year-over-year). Valero’s financing outflow fell 42% YoY to $335 million in the first quarter of 2019.
Valero’s cash flow shortfall
The company had cash outflows of $726 million in the form of capex and $375 million in the form of dividends in the first quarter of 2019, which totaled ~$1.101 billion in significant cash outflow in the quarter. Valero’s cash flow from operations of $877 million was lower than its necessary outflow.
Thus, Valero’s cash flow from operations fell $224 million short of covering its capex and dividend outflows. Its cash outflow toward the purchase of its midstream MLP, Valero Energy Partners, stood at $950 million.
To fund the shortfall and acquisition of Valero Energy Partners, Valero raised its debt and used its cash reserves. Valero’s debt (including repayments) rose by net $1.008 billion in the quarter. The company’s cash balance decreased from $2.982 billion on January 1, 2019, to $2.777 billion on March 31.
In comparison, Phillips 66 (PSX) had cash from operations of -$478 million in the first quarter of 2019 due to its seasonal inventory buildup. Thus, PSX couldn’t use its cash from operations toward its capex and dividend outflows.
What does this cash flow analysis imply?
Valero saw a cash flow shortfall in the first quarter. However, Valero had a sufficient cash balance to fund the shortfall. The first quarter is usually a weak period for refiners.
Going forward, Valero will have to monitor its growth activities, acquisitions, and share repurchases to maintain a healthy liquidity position.