Valero Misses Earnings but is Optimistic About Global Demand

The oil and gas refiner has clear visibility into the global market for fuel products, Cowen Securities' Sam Margolin said, meaning the market will be impacted by their 2016 guidance.

Author:: Tom Terrarosa
Publish date:: May 3, 2016 9:20 AM EDT

Valero Energy (VLO) - Get Report was not the first refiner to report this earnings season, but as the country's largest exporter of fuels, its guidance for 2016 certainly carries weight for the industry, according to analysts.

Valero Energy on Tuesday reported first-quarter adjusted earnings of $283 million, or 60 cents per share, missing analysts expectations by 6 cents per share.

On consensus, analysts predicted a profit of 66 cents per share, according to Cowen Securities' Sam Margolin.

Margolin said Valero is the most exposed to refinery in the U.S. oil and gas industry, which has worked out as both a positive and a negative for them at times.

The oil refiner posted better-than-expected revenue of $15.71 billion for the first quarter, however. The company beat analysts predictions of $14.25 billion in revenue by 10%.

"Our team's relentless pursuit of safe, reliable, low-cost operations delivered solid operating performance this quarter despite lower product margins," said Joe Gorder, Valero Chairman, President and Chief Executive Officer. "This strategy, combined with our system's flexibility and complex assets concentrated in the advantaged U.S. Gulf Coast region, are factors that allow us to succeed in this competitive global industry."

Valero earnings report comes after a score of top tier vertically integrated oil and gas companies such as Chevron (CVX) - Get Report have noted lagging profits from refinery segments despite oil prices hovering near $30 per barrel for the majority of the quarter.

For companies that have reported thus far, refining segments have been the weakest, Cowen's Margolin said.

"I think the first quarter earnings have been a little more volatile for refiners," he said. "It's certainly not where beats have come from."

But it's important to note, Margolin added, that in terms of operations and asset quality, Valero sits at the upper end on the spectrum of refiners.

Valero has a conference call scheduled for 11 a.m., and as the company typically has a fairly good visibility into global demand, Margolin is looking to hear management's view of the world.

"They're usually pretty tuned in to global supply demand picture from a very high level. They are the biggest company," he said. "I think we'll hear something along the lines of, 'Things kind of bottomed in first quarter, and outlook moving forward is better.' "

If Valero has a poor outlook on global demand, Margolin admits that would definitely impact refiners in the market as a whole, but as demand is projected to be trending up, Valero's words could bring about a sigh of relief from the industry.

Valero exported 249,000 barrels per day ("BPD") of diesel and 138,000 BPD of gasoline in the first quarter of 2016.

"As we look beyond the first quarter, we're optimistic about product demand," Valero said in its morning earnings statement. "Here in the U.S., distillate inventories have shown favorable reductions recently, and the summer driving season is quickly approaching, which should support gasoline margins. We also expect the strong export demand we experienced in the first quarter to continue."

Analysts will look for the company to extrapolate on that outlook later today, but for now, the global refiner's optimism may help investors better swallow the quarter's miss on earnings.