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Valero Beats 3Q17 Earnings Estimates, But Stock Falls

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Valero Beats 3Q17 Earnings Estimates, But Stock Falls PART 1 OF 5

Valero Beats 3Q17 Estimates—But RIN Costs Are Rising

VLO’s 3Q17 estimated versus actual performance

Valero Energy (VLO) posted its 3Q17 results on October 26, 2017. Before we proceed with the earnings review, let’s quickly examine VLO’s 3Q17 performance versus estimates.

In 3Q17, VLO’s revenue surpassed the Wall Street analysts’ consensus estimate by ~17%. VLO reported EPS (earnings per share) of $1.91, which is ~4.3% higher than its estimated EPS of $1.83. VLO’s 3Q17 EPS was also 54% higher than its 3Q16 adjusted EPS. VLO’s refining margins rose in 3Q17 YoY (year-over-year).

Valero Beats 3Q17 Estimates—But RIN Costs Are Rising

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Valero’s 3Q17 earnings review

In 3Q17, VLO’s net income rose 37% YoY to $841 million. The increase in VLO’s net income was due to rise in the operating earnings of its Refining and VLP (VLP) or Midstream segments. This rise was somewhat offset by a decline in ethanol earnings.

VLO’s gross refining margin widened by $2.2 per barrel YoY to $10.9 per barrel in 3Q17. The rise in the refining margin was due to an across-the-board rise in gasoline and diesel cracks, which was largely influenced by Hurricane Harvey. However, refining income was impacted by the larger biofuel blending obligation resulting from the procurement of RINs (renewable identification numbers). VLO’s RIN costs stood at $230 million in 3Q17, which was ~$32 million higher YoY.

On the RIN issue, VLO Vice President-Europe Jason Fraser stated: “Still the White House, the EPA and Congress have all acknowledged that high RIN prices are a problem for the refiners. This is not the way the program is supposed to work. So, they’re going to continue to get pressure until we get the situation addressed. We’re going to continue to pursue our legal, regulatory, and legislative options, as are others, and we’re going to keep up the fight.”

Peer performances in 3Q17

Notably, peer Marathon Petroleum’s (MPC) 3Q17 EPS stood three times higher than its 3Q16 adjusted EPS.

Andeavor (ANDV), Phillips 66 (PSX), and HollyFrontier (HFC) are expected to report rises of 128%, 49%, and 135%, respectively, YoY in 3Q17. PBF Energy (PBF) and Delek US Holdings (DK) are also expected to report positive earnings in 3Q17, compared with their respective losses in 3Q16.

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