Valero Energy Reports Significant Drop in Q3 Profit

(Reuters) – Refiner Valero Energy (NYSE: VLO) experienced an 86% decline in third-quarter profit due to falling refining margins, yet it managed to exceed Wall Street's expectations.

Globally, refiners have faced lower profitability amid soft consumer and industrial demand, particularly in China. U.S. refinery margins, measured by the 3-2-1 crack spread, fell to $14.28 in mid-September, marking the lowest level since early 2021 due to lackluster fuel demand.

Prominent energy companies, including Exxon Mobil (NYSE: XOM), BP (NYSE: BP), and Shell (LON: SHEL), previously indicated that they anticipated weaker refining margins would negatively impact their earnings for the third quarter.

Valero's net income attributable to stockholders plummeted to $364 million, or $1.14 per share, down from $2.6 billion, or $7.49 per share, the previous year. Nevertheless, data compiled by LSEG indicated analysts had projected a profit of 98 cents.

As the second-largest U.S. refiner by capacity, Valero's refining margins decreased to $2.41 billion, compared to $5.41 billion during the same quarter last year. The refining segment reported operating income of $565 million, down from $3.4 billion a year earlier.

However, analysts at Tudor, Pickering & Holt noted that relative to their profit estimates, all three segments of the company—refining, renewable diesel, and ethanol—had results that were "a touch higher." Revenue reached $32.87 billion, surpassing estimates of $31.13 billion as a result of an 18.4% increase in sales volumes for renewable diesel.

Additionally, the Texas-based refiner displayed a higher payout ratio for the quarter at 84%, compared to 68% in the same quarter last year, while its interest expense decreased by nearly 88%. Total throughput volumes, or the amount of crude processed, averaged 2.9 million barrels per day (bpd) during a heavy maintenance season, compared to 3 million bpd with 95% refinery utilization a year earlier.