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Oil Refining Leader Valero Exceeds Expectations Despite a Drop in Q3 Profits

by Krystal

Valero Energy (NYSE: VLO), one of the largest refiners in the U.S., surpassed Wall Street estimates even as it reported a substantial decline in its third-quarter earnings, largely due to falling refining margins.

On Thursday, Valero announced earnings per share (EPS) of $1.14 for the third quarter. This figure marks an 86% decrease from last year’s EPS of $7.49 during the same period. However, it exceeded analysts’ consensus estimate of $0.98.

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Like Valero, all U.S. refiners are expected to show much lower profits for the third quarter compared to last year. This decline is attributed to refining margins dropping to multi-year lows amid weak fuel demand and a rise in global fuel supply. Valero is the first major U.S. refiner to release its Q3 earnings.

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In its earnings report, Valero revealed that its refining segment generated an operating income of $565 million for the third quarter of 2024. This is significantly lower than the $3.4 billion reported for the same quarter in 2023.

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The company stated that refining throughput volumes averaged 2.9 million barrels per day during a period marked by heavy maintenance activities in Q3 2024.

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The decline in refining margins has significantly impacted Valero’s performance, and it is expected to affect other U.S. refiners and major oil companies as well. Some of the larger oil companies have already indicated they will report reduced profits in the coming weeks due to these slumping refining margins.

For Valero, the refining margin per barrel of throughput dropped to $9.09 in Q3, down from $19.47 a year earlier. From January to September, this margin averaged $11.39, compared to $19.13 during the same timeframe in 2023.

Valero’s adjusted refining operating income per barrel also fell sharply to $2.14 in Q3, down from $12.41 last year.

Despite these lower margins and earnings, Valero remains dedicated to maintaining a minimum annual shareholder payout ratio of 40 to 50%. The company defines this ratio as the total of dividends paid and the costs of stock buybacks divided by adjusted net cash from operating activities.

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