Lower Refining Throughput to Hurt Valero's (VLO) Q3 Earnings

Valero Energy Corporation VLO is set to report third-quarter 2020 results on Oct 22, before the opening bell.

In the last reported quarter, the company’s loss per share of $1.25 was narrower than the Zacks Consensus Estimate of a loss of $1.42 due to a rise in renewable diesel sales volumes and speedy recovery in refined product demand. This was partially offset by lower ethanol prices.

The company beat the Zacks Consensus Estimate for the bottom line in the prior four quarters, with the average earnings surprise being 95.4%. This is depicted in the graph below:

Valero Energy Corporation Price and EPS Surprise

Valero Energy Corporation Price and EPS Surprise

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

Let’s see how things have shaped up prior to this announcement.

Trend in Estimate Revision

The Zacks Consensus Estimate for the company’s third-quarter loss per share of $1.22 has witnessed no upward revision but five downward movements over the past 30 days. The estimated figure suggests a decline of 182.4% from the prior-year reported number.

The consensus estimate for third-quarter revenues of $18.8 billion indicates a 30.9% decline from the year-ago reported figure.

Factors to Consider

Lockdown measures that were taken to contain the coronavirus pandemic were further eased in the third quarter. This implied partial resumption of economic activity and thereby, some recovery in fuel demand since more people got back to work. The improvement in fuel demand is likely to have favored Valero, touted as a leading international manufacturer and marketer of transportation fuels and petrochemical products.

The Zacks Consensus Estimate for third-quarter operating income for the Ethanol Segment is pegged at $7.3 million, indicating an improvement from the year-ago loss of $43 million. Moreover, the same for the Renewable Diesel segment is pegged at $153 million, signaling a rise from year-ago figure of $65 million.

However, the consensus mark for the Refining segment’s income is pegged at a loss of $144 million. The year-ago profit came in at $1,087 million. The consensus estimate for third-quarter refining throughput is 2,462 thousand barrels per day (MBbls/d), indicating a decline from the year-ago figure of 2,954 MBbls/d.

Even though the company is expected to have witnessed more profits from Ethanol and Renewable Diesel segments in the third quarter, the positives may have been offset by massive loss in the Refining sector.

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Valero this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That is not the case here as you will see below.

Earnings ESP: Earnings ESP for the company is -19.88%. This is because the Most Accurate Estimate of a loss of $1.46 per share is wider than the Zacks Consensus Estimate of a loss of $1.22. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.  

Zacks Rank: Valero currently carries a Zacks Rank #4 (Sell).

Energy Stocks With Favorable Combination

Here are some companies from the Energy space that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming quarterly reports:

EOG Resources, Inc. EOG has an Earnings ESP of +200.99% and is a Zacks #2 Ranked player. The company is scheduled to release third-quarter results on Nov 5. You can see the complete list of today’s Zacks #1 Rank stocks here.

Range Resources Corporation RRC has an Earnings ESP of +100.00% and a Zacks Rank of #1. It is scheduled to report third-quarter results on Oct 29.

Pioneer Natural Resources Company PXD has an Earnings ESP of +28.88% and holds a Zacks Rank #3. It is set to report third-quarter results on Nov 4.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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