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Valero (VLO) Q3 Earnings Beat on High Renewable Diesel Sales

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Zacks Equity Research
·5 min read
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Valero Energy Corporation VLO reported third-quarter 2020 loss of $1.16 per share, narrower than the Zacks Consensus Estimate of a loss of $1.35. In the year-ago quarter, the company reported earnings of $1.55 per share.

Total revenues fell from $27,249 million in the prior-year period to $15,809 million. Moreover, the top line missed the Zacks Consensus Estimate of $18,821 million.

The narrower-than-expected loss can be attributed to a rise in renewable diesel sales volumes and lower corn prices in the Ethanol unit. Notably, Valero witnessed a demand recovery for diesel, gasoline and jet fuel in the third quarter. The positives were partially offset by lower refinery throughput volumes and ethanol production.

Valero Energy Corporation Price, Consensus and EPS Surprise

Valero Energy Corporation Price, Consensus and EPS Surprise
Valero Energy Corporation Price, Consensus and EPS Surprise

Valero Energy Corporation price-consensus-eps-surprise-chart | Valero Energy Corporation Quote

Segmental Performance

Operating loss at the Refining segment was reported at $629 million against a profit of $1,087 million in the year-ago quarter. Lower refinery throughput volumes amid the coronavirus pandemic affected the segment.

In the Ethanol segment, the company reported operating profit of $22 million versus $43 million loss in third-quarter 2019. The upside was led by higher margins stemming from lower corn prices. However, production volumes averaged 3.8 million gallons per day, down 206 thousand gallons from the year-ago quarter.

Operating income at the Renewable Diesel segment increased to $184 million from $65 million in the year-ago period on a rise in renewable diesel sales volumes. The segment sales averaged 870 thousand gallons per day, creating a new record, which marked a rise of 232 thousand gallons from the year-ago period.

Throughput Volumes

For the quarter, refining throughput volumes were 2,526 thousand barrels per day (Mbpd), down from the prior-year quarter’s 2,954 Mbpd.

In terms of feedstock composition, sweet crude, medium/light sour crude and heavy sour crude accounted for 49.6%, 13.7% and 12.6%, respectively, of its total volume. The remaining volumes came from residuals, other feedstock and blendstocks and others.

The Gulf Coast contributed approximately 57.3% to total throughput volume. Mid-Continent, North Atlantic and West Coast regions accounted for 16.5%, 16.2% and 10%, respectively, of the total throughput volume.

Throughput Margins

Refining margin per barrel of throughput decreased to $4.10 from the year-ago level of $10. Refining operating expense per barrel was $4.26 compared with $4.05 in the year-ago quarter. Depreciation and amortization expenses increased to $2.32 a barrel from $1.90 in the prior-year quarter. As such, adjusted refining operating loss was recorded at $2.48 per barrel of throughput against the year-ago profit of $4.05.

Capital Investment & Balance Sheet

Third-quarter capital investment totaled $517 million. Of the total amount, $205 million was allotted for sustaining the business. Through the September quarter, the leading independent refiner and marketer of petroleum products returned $399 million to stockholders as dividend payments.

At quarter-end, Valero had cash and cash equivalents of $4,047 million, significantly higher than the second-quarter level of $2,319 million. As of Jun 30, 2020, it had a total debt of $15,213 million compared with $12,677 million in the second quarter. Its debt to capitalization was 44.2%.

Guidance

The company expects capital investment for this year and the next year to be $2 billion each, marginally down from $2.1 billion announced earlier. Of the total, 60% will likely be used for business sustaining purpose and the rest will be utilized for growth projects. It expects the St. Charles Alkylation Unit to be completed in the fourth quarter. This will be used to transform low-value feedstocks into apremium alkylate product.

Moreover, Valero expects the Diamond Pipeline expansion and the Pembroke Cogen project to come online in the next year. The Port Arthur Coker project is scheduled to be completed in 2023.

Zacks Rank & Stocks to Consider

The company currently has a Zacks Rank #4 (Sell). Some better-ranked players in the energy space include EnLink Midstream, LLC ENLC, Solaris Oilfield Infrastructure, Inc. SOI and Premier Oil plc PMOIY, each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

EnLink’s bottom line for 2021 is expected to rise 96.3% year over year.

Solaris Oilfield’s bottom line for 2021 is expected to surge 133.3% year over year.

Premier Oil’s bottom line for 2021 is expected to jump 80% year over year.

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Valero Energy Corporation (VLO) : Free Stock Analysis Report
 
EnLink Midstream, LLC (ENLC) : Free Stock Analysis Report
 
Premier Oil PLC (PMOIY) : Free Stock Analysis Report
 
Solaris Oilfield Infrastructure, Inc. (SOI) : Free Stock Analysis Report
 
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