Valero’s 4Q15 Estimates Suggest Two Big Words: Under Pressure

Valero’s 3Q15 estimated and actual performance

Valero Energy Corporation (VLO) is expected to post its 4Q15 results on January 28, 2016. But before we proceed with the company’s 4Q15 estimates, let’s recap its 3Q15 performance versus estimates.

In 3Q15, the company’s revenues surpassed Wall Street analyst estimates by 22%. Moreover, its 3Q15 adjusted EPS stood at $2.8, which is around 5% higher than its estimated EPS of $2.7. This was also 39% higher than the company’s 3Q14 adjusted EPS and was due to a rise in refining margins, which strengthened the earnings of refining companies.

Valero’s 4Q15 Estimates Suggest Two Big Words: Under Pressure

Valero’s 4Q15 estimates were lower than in 4Q14

In 4Q15, according to Wall Street analyst estimates, Valero is expected to post EPS of $1.40. This is 23% lower than its 4Q14 adjusted EPS and 50% lower than its 3Q15 adjusted EPS. The company’s revenues are estimated to be around $18 billion in 4Q15—37% lower than the revenues it saw in 4Q14.

In 4Q15, refining earnings are likely to be under pressure. This is due to the fact that cracks and oil spreads narrowed in the fourth quarter of 2015, which is likely to weaken refining margins. (We’ll discuss this further in the next part of this series.)

By comparison, Valero’s peers Marathon Petroleum Corporation (MPC), Tesoro Corporation (TSO), and Phillips 66 (PSX) are expected to post 61%, 67%, and 56%, respectively, in addition to lower EPS in 4Q15 compared to 3Q15. The iShares US Energy ETF (IYE) has 10% exposure to refining sector stocks.

Valero’s yearly estimates

In 2015, Valero’s revenues are expected to be around $85 billion, which would be 35% lower than in 2014. But stronger refining margins are expected to pull down the bottom-line, resulting in higher earnings. According to Wall Street analyst estimates, Valero is expected to post EPS of $8.7 in 2015, which would be around 30% higher than its adjusted EPS in 2014.

Continue to the next part of this series for more on Valero’s refining margin.