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    VLO
    Earnings call· Mar 2026(Q1 FY26)

    VALERO ENERGY CORP/TX Q1 FY26 earnings call VLO

    Apr 30, 2026 Source

    Executive summary

    Valero Energy Corp. Q1 FY26 — Strong Performance Amidst Commodity Volatility

    Valero delivered a strong first quarter, leveraging its advantaged Gulf Coast refining network and operational flexibility to navigate significant commodity market volatility. The company maintained a robust balance sheet and continued its commitment to shareholder returns, while strategically investing in optimization projects and managing risk proactively. Management anticipates continued support for refining fundamentals due to constrained global capacity and low product inventories.

    Highlights

    5

    • Refining segment operating income reached $1.8 billion in Q1 FY26, a significant improvement from an operating loss of $530 million in Q1 FY25.

    • Adjusted net income attributable to Valero stockholders was $4.22 per share in Q1 FY26, up from $0.89 per share in Q1 FY25.

    • Shareholder cash returns totaled $938 million in Q1 FY26, resulting in a payout ratio of 59% for the quarter.

    • The Board approved a 6% increase to the quarterly cash dividend on January 22, reflecting a strong financial position.

    • Opportunistically issued $850 million of 10-year notes at a 5.15% coupon, pricing at a record low spread of 102 basis points over treasuries.

    Concerns

    5

    • The Port Arthur refinery experienced a fire in the diesel hydrotreater, causing a full refinery shutdown and extensive damage, with no timeline for rebuild.

    • Working capital had an unfavorable impact of $303 million in Q1 FY26.

    • Steep backwardation in the crude market is anticipated to be a headwind for Q2 capture rates.

    • The disconnect between physical markets and futures makes it complex to assess future capture rates.

    • VGO availability is expected to become an issue, as there appears to be insufficient supply to fill both FCC and hydrocracking capacity.

    Guidance & targets

    14
    CategoryTargetConfidence
    FCC unit optimization project operations start
    Q3 2026
    medium materiality
    High
    2026 Capital Investment Guidance
    Update pending
    medium materiality
    Medium
    Refining Throughput Volumes
    1.69 million to 1.74 million barrels per day
    high materiality
    High
    Refining Throughput Volumes
    450,000 to 470,000 barrels per day
    high materiality
    High
    Refining Throughput Volumes
    120,000 to 130,000 barrels per day
    high materiality
    High
    Refining Throughput Volumes
    480,000 to 500,000 barrels per day
    high materiality
    High
    Refining Cash Operating Expenses
    $4.85 per barrel
    medium materiality
    High
    Renewable Diesel Sales Volumes
    320 million gallons
    medium materiality
    High
    Renewable Diesel Operating Expenses
    $0.46 per gallon
    medium materiality
    High
    Ethanol Production Volumes
    4.7 million gallons per day
    medium materiality
    High
    Ethanol Operating Expenses
    $0.39 per gallon
    medium materiality
    High
    Net Interest Expense
    $145 million
    low materiality
    High
    Total Depreciation and Amortization Expense
    $730 million
    medium materiality
    High
    G&A Expenses
    $960 million
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Refining
    Reported $1.8 billion of operating income for the first quarter of 2026 compared to an operating loss of $530 million for the first quarter of 2025. Adjusted operating income for Q1 2025 was $605 million.
    Throughput volumes: 2.9 million barrels per dayCash operating expenses: $5.13 per barrel
    		———$1.8 billion operating income
    Renewable Diesel
    Reported operating income of $139 million for the first quarter of 2026 compared to an operating loss of $141 million for the first quarter of 2025.
    Sales volumes: 3 million gallons per day
    		———$139 million operating income
    Ethanol
    Reported $90 million of operating income for the first quarter of 2026 compared to $20 million for the first quarter of 2025.
    Production volumes: 4.6 million gallons per day
    		———$90 million operating income

    Operational metrics

    33
    Net income attributable to Valero stockholders
    $1.3 billionvs $595 million loss in Q1 FY25
    Q1 FY26

    Reported net income attributable to Valero stockholders.

    Adjusted net income attributable to Valero stockholders
    $282 million
    Q1 FY25

    Adjusted net income attributable to Valero stockholders for the prior year quarter.

    EPS
    $4.22vs $1.90 loss in Q1 FY25
    Q1 FY26

    Reported EPS attributable to Valero stockholders.

    Adjusted EPS
    $0.89
    Q1 FY25

    Adjusted EPS attributable to Valero stockholders for the prior year quarter.

    G&A expenses
    $285 million
    Q1 FY26

    General and administrative expenses.

    Depreciation and amortization expense
    $840 million
    Q1 FY26

    Includes approximately $100 million of incremental depreciation expense related to ceasing refining operations at Venetia refinery.

    Net interest expense
    $140 million
    Q1 FY26

    Net interest expense for the quarter.

    Income tax expense
    $401 million
    Q1 FY26

    Income tax expense for the quarter.

    Effective tax rate
    23%
    Q1 FY26

    Effective tax rate for the quarter.

    Net cash provided by operating activities
    $1.4 billion
    Q1 FY26

    Net cash provided by operating activities, including a $303 million unfavorable impact from working capital.

    Unfavorable impact from working capital
    $303 million
    Q1 FY26

    Unfavorable impact on net cash provided by operating activities.

    Adjusted net cash provided by operating activities
    $1.6 billion
    Q1 FY26

    Excludes unfavorable working capital impact and DGD joint venture member share.

    Capital investments
    $448 million
    Q1 FY26

    Total capital investments made, split between sustaining and growth.

    Capital investments attributable to Valero
    $430 million
    Q1 FY26

    Excluding capital investments attributable to the other joint venture member share of DGD and other variable interest entities.

    Shareholder cash returns
    $938 million
    Q1 FY26

    Total cash returned to shareholders.

    Payout ratio
    59%
    Q1 FY26

    Payout ratio for the quarter.

    Debt issued
    $850 million
    March

    Opportunistically issued 10-year notes to derisk upcoming debt maturities.

    Total debt
    $9.2 billion
    March 31, 2026

    Total debt outstanding at quarter end.

    Total finance lease obligations
    $2.3 billion
    March 31, 2026

    Total finance lease obligations at quarter end.

    Cash and cash equivalents
    $5.7 billion
    March 31, 2026

    Cash and cash equivalents at quarter end, reflecting a move towards the high end of the long-term target.

    Debt to capitalization ratio, net of cash
    18%
    March 31, 2026

    Debt to capitalization ratio, net of cash and cash equivalents.

    Long-term cash target
    $4 billion to $5 billion
    Long-term

    Company's long-term target for minimum cash balance.

    Total liquidity
    $11 billion
    Quarter end

    Combined cash balance and bank facilities.

    Incremental depreciation from Venetia
    $33 million
    Q2 FY26

    Incremental depreciation expense related to idling the Venetia refinery, included in Q2 D&A.

    Incremental depreciation from Venetia EPS impact
    $0.09
    Q2 FY26

    Expected EPS impact based on current shares outstanding.

    Jet as percentage of total distillates
    over 30%vs 26% typically
    March

    Increased jet fuel production in the system.

    U.S. exports increase
    470,000
    Year-over-year

    Increase in U.S. exports according to recent DOE data.

    Total light product inventories draw
    30 millionvs 5-year average
    Since January

    Total light product inventories in the U.S. have drawn relative to the 5-year average.

    Distillate inventory
    5-year lows
    Current

    Distillate inventory levels.

    Jones Act waivers
    several
    Recent

    Jones Act waivers issued to ship products more efficiently.

    Ethanol PTC
    $0.10
    Q1 FY26

    Production tax credit booked for ethanol.

    Share count reduction
    42%
    Since 2014

    Overall share count reduced through share repurchases since 2014.

    Return on buybacks
    close to 20%
    Since 2014

    Return on buybacks over the specified period.

    Industry KPIs

    2
    MetricValueDetails
    Realized price differential$16discount
    FCF shareholder distributions$938 millionUSD

    Capital programs

    1
    FCC unit optimization project at St. Charles refineryunderway$230 million

    Benefit: enhance ability to produce high-value products

    The $230 million initiative will enhance the ability to produce high-value products, including [indiscernible]. Expected to begin operations in Q3 2026.

    Risks & headwinds

    9
    Commodity market disruption and volatilityQ1 FY26

    Considerable disruption in the commodity markets

    Mitigation: Proactive management of commodity risk, adjusting product slate, optimizing refining system.

    Port Arthur refinery incidentMarch 23, 2026

    Fire in the diesel hydrotreater; diesel hydrotreater sustained extensive damage

    Mitigation: Full refinery shutdown as a precaution, investigation ongoing, smaller units restarted early April, larger units by May 1, kerosene hydrotreater back by Q3.

    Steep backwardation in crude marketQ2 FY26

    Steep backwardation in the crude market is a headwind

    Mitigation: Optimizing crude slate, increasing Venezuelan purchases, utilizing Canadian heavy crude discounts.

    Physical markets disconnecting from futuresOngoing

    Physical markets disconnect from the futures, making it complex to assess capture rates

    Mitigation: Frequent daily review of positions, maintaining inventory closer to LIFO to reduce derivative exposure.

    VGO availability issueApproaching driving season

    VGO availability will start to become an issue; insufficient VGO to fill both FCC and hydrocracking capacity

    Mitigation: Considering projects to increase commercial leverage and reduce dependency on VGO imports.

    Jet fuel shortageCurrent

    Jet is incredibly short

    Mitigation: Maximizing jet production in the system (over 30% of distillates in March), enabling jet production at additional refineries.

    Policy uncertainty for renewable dieselLonger-term

    Everything that happens in that space is very dependent on how policy works out and how you can sort of survive from administration to administration.

    Mitigation: Careful evaluation of policy before committing to projects like the SaaS project.

    Global demand outpacing supplyCurrent and several years ahead

    Demand significantly outpacing supply; very little excess refining capacity globally

    Mitigation: Leveraging high complexity refining assets, feedstock flexibility, and direct access to global markets.

    Time to rebuild inventories6-12 months

    At least 6 months to a year to start restocking inventories back to where they were

    Mitigation: Proactive inventory management to avoid short paper and derivative volatility.

    Q&A highlights

    8

    Are there early signs of demand disruption given rising transportation fuel prices, and what is the outlook for global refining supply/demand?

    Despite higher prices, domestic demand for transportation fuels remains resilient (gasoline flat to slightly up, diesel up, jet strong). The conflict in Iran has caused demand to significantly outpace supply, with very little excess global refining capacity, making it difficult to restock inventories even if the conflict resolves.

    “the conflict in an has really created a market with demand significantly outpacing supply. We had very little excess refining capacity globally. So it's going to be difficult to restruck inventories even when the conflict is resolved.”

    asked by Manav Gupta · answered by Gary Simmons

    2 min read7 chapters

    Detailed Narrative

    01

    Q1 Performance and Market Dynamics

    Valero reported an excellent first quarter, with strong financial returns driven by the optimization of its refining system. The company successfully navigated significant commodity market disruption🌐, benefiting from wider crude differentials early in the quarter due to incremental Venezuelan supply. In March, as global crude and refined product markets tightened, Valero's operations team responded decisively, adjusting the product slate to reflect market signals and delivering a record month.

    02

    Strategic Projects and Asset Optimization

    The company continues to advance strategic initiatives, including the $230 million FCC unit optimization project at its St. Charles refinery, which is expected to begin operations in Q3 2026 and will enhance the ability to produce high-value products. Valero also completed the idling of its Venetia refinery in April, which is reflected in Q2 throughput guidance and incremental depreciation, contributing to overall system optimization.

    03

    Financial Discipline and Capital Allocation

    Valero maintained a strong balance sheet, ending Q1 FY26 with $5.7 billion in cash and $11 billion in total liquidity, positioning itself at the high end of its cash target range to preserve optionality in a volatile market. The company demonstrated its commitment to shareholder returns with $938 million in cash returns and a 6% dividend increase. Additionally, Valero opportunistically issued $850 million in 10-year notes at a record low spread to derisk upcoming debt maturities.

    04

    Global Refining Outlook and Supply-Demand

    Management anticipates continued support for refining fundamentals due to constrained global refining capacity and low product inventories in key markets. The recent conflict in Iran has exacerbated market tightness, with global demand significantly outpacing supply. Valero believes it will take a minimum of 6 months to a year to restock inventories to previous levels, even if the conflict resolves, due to limited excess refining capacity globally.

    05

    DGD and Ethanol Business Outlook

    The DGD segment is expected to see higher profitability in Q2 compared to Q1, driven by strong RVOs, despite potential headwinds from mark-to-market on forward feedstock positions. The ethanol segment also performed well, benefiting from increased global demand as ethanol becomes a cheaper form of octane. The company is investing in ethanol for incremental growth and yield improvements, with potential for future 45Z tax credit contributions.

    06

    Port Arthur Incident and Recovery

    A fire at the Port Arthur refinery's diesel hydrotreater on March 23 led to a full refinery shutdown as a precaution. While the diesel hydrotreater sustained extensive damage with no rebuild timeline, the operations team successfully restarted smaller crude units, coker, hydrocrackers, reformer, and distillate hydrotreater by early April. The larger crude unit, FCC, and alky are expected to be operational by May 1, normalizing throughput.

    07

    Crude Sourcing and Market Flexibility

    Valero's Gulf Coast and Mid-Continent refining systems benefit from robust crude availability, allowing for optimization against volatile prices and freight costs. The company has increased Venezuelan crude runs since sanctions removal and is capitalizing on wide discounts for Canadian heavy crude. This feedstock flexibility and advantaged location enable Valero to navigate market volatility🌐 and maintain strong capture rates.

    AI-generated summary of the company’s earnings call. Not investment advice.