Why Valero Stock Fell—Despite Its 2Q17 Earnings Beat

Valero stock performance

Valero Energy (VLO) announced its results on July 27, 2017, before the market opened. The stock opened at $68.0 per share, which was higher than the previous day’s close of $67.9.

Valero (VLO) saw highs of $68.8 and lows of $66.1 on July 27. Eventually, VLO closed at $67.6—0.6% lower than its previous day’s close.

Why Valero Stock Fell—Despite Its 2Q17 Earnings Beat

The drop in Valero’s stock price despite surpassing its estimates was apparently due to its renewable fuel blending obligation. VLO saw a rise in its RIN (renewable identification number) costs in 2Q17 over 2Q16.

In the 2Q17 earnings transcript, Jason Fraser, VLO’s European vice president stated: “We also still have this broken structure with a disconnect between the point of obligation and the point of compliance.”

Fraser added: “There are still very long parties and very short parties, and we think this is contributing to the high RIN prices, which are costing consumers billions of dollars a year.”

Crude and the broader market

On July 27, 2017, crude oil prices rose 0.6%. VLO’s peers Tesoro (TSO) and Delek US Holdings (DK) fell 0.1%, and 1.4%, respectively, but Marathon Petroleum (MPC) and Phillips 66 (PSX) rose 0.9% and 1.0%, respectively, that day.

On July 27, the SPDR S&P 500 ETF (SPY) fell 0.1%, but the SPDR Dow Jones Industrial Average ETF (DIA) rose 0.4%.

VLO’s 2Q17 update

Valero’s capital expenditure or capex for 2Q17 stood at $461 million. Valero expects its 2017 capex to be around $2.7 billion, of which $1.1 billion will be for growth projects, and the rest would be for sustenance projects.

Joe Gorder, VLO’s CEO (chief executive officer), stated: “We’re pleased with the progress we’ve made on our growth investments this year. Before year-end, we expect to see the Wilmington cogeneration plant running and to have oil flowing through the Diamond Pipeline.”

In 2Q17, Valero returned $658 million to shareholders in the form of dividends ($312 million) and share repurchases ($346 million).