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Will Valero’s Ethanol Earnings Rise in Q3 2018?

Maitali Ramkumar - Author
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Aug. 18 2020, Updated 5:18 a.m. ET

Valero’s ethanol earnings outlook

We started this series by reviewing analysts’ strengthening ratings for Valero Energy (VLO). We also delved into VLO’s focus on creating an integrated downstream growth model. Then we saw VLO’s refining margin expectation for the current quarter in the form of its refining margin indicator trend and oil spread trend in the quarter. Now let’s look at Valero Energy’s ethanol earnings outlook for the third quarter.

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Before proceeding with the outlook, let’s look at Valero’s ethanol earnings as of the second quarter. Valero’s adjusted operating income in its Ethanol segment rose from $31 million in the second quarter of 2017 to $43 million in the second quarter of 2018. The rise in its ethanol earnings was led by a rise in ethanol prices and stronger volumes.

The Ethanol segment’s gross margin has expanded from $0.46 per gallon in the second quarter to $0.47 per gallon in the third quarter. Valero’s ethanol production rose from 3.775 million gallons per day in the second quarter of 2017 to 4.002 million gallons per day in the second quarter of 2018.

In the third quarter, Valero’s Ethanol segment’s margin is likely to narrow YoY (year-over-year). In the third quarter so far, ethanol prices have fallen 3.8% YoY, whereas corn prices have fallen 1.8% YoY. The Ethanol segment’s margin could narrow because corn prices have not fallen as steeply as ethanol prices.

Other segments of peers

Like Valero, Andeavor (AND), Marathon Petroleum (MPC), and Phillips 66 (PSX) generate earnings via segments other than their core refining segments. ANDV’s and MPC’s Midstream and Marketing segments contribute to their overall earnings. PSX’s Midstream, Chemicals, and Marketing segments contribute to its earnings.

In the next article, we’ll discuss Valero’s debt position.

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