Why Valero Stock Fell despite Its 3Q17 Earnings Beat



Valero stock performance

Valero Energy (VLO) announced its 3Q17 results on October 26, 2017, before the market opened. VLO stock closed at $76.3 the same day—1.8% lower than the previous day’s close.

The fall in Valero’s stock price was apparently due to its renewable fuel blending obligation. VLO saw a rise in its RIN (renewable identification number) costs in 3Q17 over 3Q16.

In the company’s 3Q17 earnings conference call, VLO Vice President-Europe Jason Fraser stated that Scott Pruitt, administrator of the EPA (Environmental Protection Agency), had written a letter to Midwestern Senators. Frasier stated: “In the letter, he said they decided they weren’t going to move the point of obligations. They weren’t going to lower the biodiesel volumes under the notice they were looking at, and they weren’t going to grant export RINs, which is another idea they were looking at. Of course, we are disappointed in how this went down since it looks like political pressure resulted in short-circuiting the policy review process.”

The ongoing, volatile RIN expenses could thus have pressured Valero stock.

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Peers and SPY

Peers HollyFrontier (HFC) and Phillips 66 (PSX) fell 0.6% apiece on October 26, while Andeavor (ANDV) and Delek US Holdings (DK) fell 0.1% and 0.8%, respectively, the same day.

On October 26, crude oil prices rose 0.9%, while the SPDR S&P 500 ETF (SPY) and the SPDR Dow Jones Industrial Average ETF (DIA) rose 0.1% and 0.3%, respectively.

VLO’s 3Q17 update

VLO’s capital expenditure or capex for 3Q17 stood at $565 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 for sustenance projects.

VLO is making sound progress on its Wilmington cogeneration project and its Diamond Pipeline project. For more on Valero’s capex details and growth plans, please refer to Market Realist’s “How the Growth Trajectory of Valero Energy’s Capex Looks.”

In 3Q17, VLO signed a contract for use of terminals to import refined products in Mexico by 2H18. The company has also announced logistics asset expansion in the US Gulf Coast. For more on this, please refer to Valero’s Joint Venture with MMP Solidifies Logistics Position in USGC and Valero’s Logistics Growth in Focus: New Pipelines and Terminals.

Notably, in 3Q17, Valero returned $600 million to shareholders in the form of dividends (~$309 million) and share repurchases (~$291 million).


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