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SAN ANTONIO -- Valero Energy Corp. plans to separate its retail business from the remainder of the company, executives announced during its second-quarter earnings conference call today.
According to Valero, it is considering all options, but most often mentioned during the call was the possibility of a tax-efficient distribution of the retail business to its shareholders. Media reports said Valero is also considering selling off its entire portfolio of company-owned convenience stores and gas stations.
"The separation will create operational flexibility and unlock value for shareholders," CEO Bill Klesse said on the call. The move also will allow the newly formed independent companies to focus on their industry-specific strategies, he added.
Whichever separation option Valero chooses, its 1,027 U.S. and 775 Canadian corporate-owned c-stores and gas stations will be affected, as will the company's marketing division. In the U.S., Valero's company-operated stores are branded Corner Stores.
Company executives, however, stressed that the 4,000 Valero-branded outlets that are not company operated would not be impacted by this split. Valero's ethanol wholesale division also will not be affected by the separation, the company noted during the conference call.
Media reports have pegged the value of Valero's retail division at as much as $2.8 billion.
Should Valero go the spinoff route for its retail assets, Klesse estimated the transaction could be completed in six months, following filings needed to be sent to and approved by the U.S. Securities and Exchange Commission.
As for its 2012 second-quarter earnings, Valero's retail division performed well, earning a net profit of $172 million vs. $135 million in the company's 2011 fiscal second quarter.
Companywide, Valero's net earnings improved by 11.7 percent, to $831 million, compared to a $745-million profit in its 2011 second quarter. Operating income for this latest quarter also improved slightly to $1.4 billion, vs. $1.3 billion in the same timeframe last year.
On the negative side of the ledger, profits in Valero's ethanol segment plummeted to $5 million, compared to $64 million a year ago. The company recently reduced its ethanol production rates as a result of negative margins due to rising corn prices and already-high ethanol inventories, according to media reports.