HOUSTON (AP) _ Crude prices that grew more quickly than prices for gasoline and other refined products put the squeeze on first-quarter profit at Valero Energy Corp., as North America's largest refiner said Tuesday its net income tumbled 77 percent to start the year.
The San Antonio-based company said it earned $261 million, or 48 cents per share, in the quarter ended March 31 compared with $1.14 billion, or $1.86 per share, for the same quarter in 2007. Last year's first-quarter profit was a record for the company.
The most-recent result is in stark contrast to major oil companies such as ConocoPhillips, Royal Dutch Shell PLC and BP PLC, which have reported sharply higher, multibillion-dollar results for the first three months of 2008. They've also struggled with refining margins but were able to reap massive profits from their exploration and production arms — which Valero doesn't have.
But Valero chairman and chief executive Bill Klesse said the fundamentals for gasoline are improving, including demand. On the Gulf Coast, he noted, the average "crack" spread for gasoline — the difference between what refiners pay for crude and get for the gasoline they make — has more than doubled in April versus March, from about $3 to $6.50 a barrel.
At one point last spring, crack spreads reached as high as $37 a barrel.
"We still expect a good summer driving season," Klesse said.
The latest quarter's results include a pretax benefit of $101 million, or 12 cents per share. Thomson Financial says analysts expected a profit of 29 cents per share. The estimates typically exclude one-time items.
Revenue was up to $27.9 billion from $18.7 billion a year ago.
Valero shares fell $1.27, or 2.4 percent, to $51.66 in afternoon trading. They've traded between $44.94 and $78.68 in the past year.
As expected — and as the company predicted a month ago — refining margins fell markedly in the first three months of 2008 as the cost of crude and other feedstocks grew more rapidly than the prices of gasoline, asphalt, fuel oil and other products.
The company noted the average price of the benchmark West Texas Intermediate crude increased nearly $40 a barrel in the quarter, while the average wholesale price of Gulf Coast conventional gasoline rose by about $34 a barrel.
Partially offsetting those weaker margins were substantially higher margins on diesel and jet fuel, whose global demand remained high.
Valero's operating income was squeezed by other factors in the first quarter, including higher operating expenses from a year ago. The company's operations have been hampered by ongoing repairs at refineries in Port Arthur, Texas, and Aruba — work it hopes to complete by the middle of May.
Valero has said it was exploring the possible sale of its Aruba refinery and had hired an investment bank to look at "strategic alternatives" for its refineries in Memphis and Krotz Springs, La.
Klesse said Tuesday the company is working closely with a potential buyer for Aruba and expected an announcement in the second quarter after repairs are finished. He said Valero also is negotiating with bidders for its facilities in Memphis and Krotz Springs, and more recently had started to explore alternatives for its refinery in Ardmore, Okla.
For now, Valero operates 17 refineries and 5,800 retail outlets in the United States, Canada and the Caribbean.
AP Business Writer Bree Fowler in New York contributed to this story.
Copyright 2008 The Associated Press.