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Valero Energy’s Q4 2018 Earnings Are Expected to Fall

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Jan. 10 2019, Updated 9:00 a.m. ET

Valero Energy

In this series, we have ranked four refiners based on their estimated earnings growth YoY (year-over-year) in the fourth quarter. We reviewed HollyFrontier (HFC), Phillips 66 (PSX), and Marathon Petroleum’s (MPC) expected performance. HollyFrontier was first with 144% estimated earnings growth YoY in the fourth quarter, followed by Phillips 66 (with 126% earnings growth) and Marathon Petroleum (with 25% earnings growth). In this part, we’ll review Valero Energy’s (VLO) estimated earnings growth for the fourth quarter.

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Valero Energy’s fourth-quarter estimates

Wall Street analysts expect that Valero Energy could post an EPS of $0.9 in the fourth quarter. The estimate is 23% lower than the company’s adjusted EPS in the fourth quarter of 2017 and 56% lower than the adjusted EPS in the third quarter. In this series, Valero Energy is the only company that’s expected to post a YoY decline in its fourth-quarter earnings. Valero Energy’s revenues are estimated to be ~$25.3 billion in the fourth quarter—4% lower than its revenues in the fourth quarter of 2017.

Valero Energy’s lower earnings could be due to the expected fall in the company’s refining margin and earnings. Valero Energy’s crack indicators fell in three of its four operating zones in the fourth quarter—compared to the fourth quarter of 2017. In the fourth quarter, the US Gulf Coast crack and the North Atlantic fell 42% YoY and 33% YoY. The US West Coast crack indicator fell 11% YoY in the fourth quarter. These three regions accounted for 85% of the company’s total throughput in the third quarter. The fall in the crack indicators in these regions points toward a likely YoY fall in the company’s refining margin in the fourth quarter.

However, Valero Energy could benefit from the decline in RIN (renewable identification number) prices in the fourth quarter. According to data published by Valero Energy, ethanol RIN prices have fallen 84% YoY to an average of 13 cents per gallon in the fourth quarter. Biodiesel RIN prices have fallen 59% YoY to 39.5 cents per gallon in the fourth quarter. Lower prices could give Valero Energy a break. The company has been bearing compliance costs for quite some time.

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