Why Is Valero Energy (VLO) Down 2.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Valero Energy (VLO). Shares have lost about 2.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Valero Energy due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Valero Energy Q2 Earnings Beat Estimates, Revenues Miss

Valero Energyreported second-quarter 2020 loss of $1.25 per share, narrower than the Zacks Consensus Estimate of a loss of $1.42. In the year-ago quarter, the company reported earnings of $1.51 per share.

Total revenues fell from $28,933 million in the prior-year period to $10,397 million. Moreover, the top line missed the Zacks Consensus Estimate of $15,806 million.

The narrower-than-expected loss can be attributed to a rise in renewable diesel sales volumes and speedy recovery in refined product demand. This was partially offset by lower ethanol prices.

Segmental Performance

Operating income at the Refining segment was reported at $1,751 million, suggesting an increase from $1,037 million in the year-ago quarter. Speedy recovery in refined product demand despite the coronavirus pandemic aided the segment.

In the Ethanol segment, the company reported operating profit of $91 million, reflecting a jump from $7 million in the second quarter of 2019. The upside was led by a significant decline in total cost of sales, offset partially by lower ethanol prices and throughput.

Operating income at the Renewable Diesel segment increased to $129 million from $77 million in the year-ago period on a rise in renewable diesel sales volumes.

Throughput Volumes

During the quarter, refining throughput volumes were 2,321 thousand barrels per day (Mbpd), down from the prior-year quarter’s 2,968 Mbpd.

In terms of feedstock composition, sweet crude, medium/light sour crude and heavy sour crude accounted for 43.9%, 16.6% and 16.3%, respectively, of its total volume. The remaining volumes came from residuals, other feedstock and; blendstocks and others.

The Gulf Coast contributed approximately 59.7% to total throughput volume. Mid-Continent, North Atlantic and West Coast regions accounted for 15.7%, 14.6% and 10%, respectively, of the total throughput volume.

Throughput Margins

Refining margin per barrel of throughput decreased to $5.10 from the year-ago level of $9.58. Refining operating expense per barrel was $4.39 compared with $3.8 in the year-ago quarter. Depreciation and amortization expenses increased to $2.53 a barrel from $1.92 in the prior-year quarter. As such, adjusted refining operating loss was recorded at $1.82 per barrel of throughput against the year-ago profit of $3.86.

Capital Investment & Balance Sheet

Second-quarter capital investment totaled $503 million. Of the total amount, $240 million was allotted for sustaining the business. Notably, through the June quarter, the leading independent refiner and marketer of petroleum products has returned $400 million to stockholders as dividend payments.

At the end of the quarter, the company had cash and cash equivalents of $2,319 million. As of Jun 30, 2020, it had a total debt of $12,677 million. Its debt-to-capitalization was 39%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -55.94% due to these changes.

VGM Scores

Currently, Valero Energy has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Valero Energy has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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