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Valero’s 1Q17 Earnings Beat Estimates, Refining Margin Expands

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Valero’s 1Q17 earnings: Estimated and actual performance

Valero Energy (VLO) posted its 1Q17 results on April 25, 2017. Before we proceed with an earnings review, let’s quickly examine VLO’s 1Q17 performance versus its estimates.

In 1Q17, VLO’s revenue surpassed Wall Street analysts’ consensus estimate by ~17%. Additionally, VLO reported EPS (earnings per share) of $0.68, 13% higher than its estimated EPS of $0.60. The company’s 1Q17 EPS were also 13% higher than its 1Q16 adjusted EPS. VLO’s refining margins rose YoY (year-over-year) in 1Q17.

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Valero’s 1Q17 earnings review

In 1Q17, VLO’s net income fell 38% YoY to $305 million due to inventory valuation benefits in 1Q16. However, excluding inventory valuation benefits, VLO’s adjusted net income rose from $283 million in 1Q16 to $305 million in 1Q17. 

The rise in VLO’s adjusted net income was the result of growth in its adjusted ethanol earnings and VLP (VLP) or midstream earnings. However, its adjusted refining segment earnings fell marginally.

VLO’s gross refining margin expanded $0.48 per barrel YoY to $8.2 per barrel in 1Q17 due to wider oil spreads and a rise in gasoline and diesel cracks in most areas. However, its refining income was impacted by larger biofuel blending obligations resulting from the procurement of RINs (Renewable Identification Number). RIN costs stood at $146 million in 1Q17. For more information on RINs, read Impact of renewable fuel standards on refiners.

VLO’s peers Tesoro (TSO) and Phillips 66 (PSX) are expected to post 74% and 92% falls in EPS in 1Q17, respectively, compared to 1Q16. Marathon Petroleum (MPC) is also expected to post a fall in 1Q17. 

All four stocks—MPC, TSO, VLO, and PSX—are part of the S&P 500 Index. For exposure to the index, you can consider investing in the SPDR S&P 500 ETF (SPY). The ETF has ~6% exposure to energy sector stocks.

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