Ethanol earnings

We started the series by reviewing Valero Energy’s (VLO) crack indicators in the first quarter. We also discussed Valero Energy’s oil spread trend in the first quarter. Now, we’ll discuss the company’s ethanol earnings outlook in the first quarter.

Before we proceed with the outlook, we’ll discuss Valero Energy’s ethanol earnings in the fourth quarter. The company’s operating income from the Ethanol segment fell from $32 million in the fourth quarter of 2017 to -$27 million in the fourth quarter. The operating income fell due to lower ethanol prices.

The Ethanol segment’s gross margin narrowed from $0.46 per gallon in the fourth quarter of 2017 to $0.33 per gallon in the fourth quarter. However, Valero Energy’s ethanol production rose from 4,040 thousand gallons per day in the fourth quarter of 2017 to 4,251 thousand gallons per day in the fourth quarter. The company’s ethanol capacity is 1.73 billion gallons per year from its 14 plants.

Will Valero Energy’s Ethanol Earnings Fall in Q1?

First-quarter outlook

In the first quarter, the Ethanol segment’s margin will likely narrow YoY (year-over-year). So far in the first quarter, the ethanol price has fallen 6.3% YoY, while the corn cost has risen 2.2% YoY. The Ethanol segment’s margin could narrow. The corn cost has increased and ethanol prices have fallen. Valero Energy’s ethanol crack indicator has fallen 28.4% YoY to $0.30 per gallon in the first quarter.

Peers’ segments

Marathon Petroleum (MPC) and Phillips 66 (PSX) have earnings generated by other segments besides their core refining segments. Marathon Petroleum’s Midstream and Retail segments contribute to its overall earnings. Phillips 66’s Midstream, Chemicals, and Marketing segments add to its earnings.

Next, we’ll see how analysts rate Valero Energy.

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