How does Valero plan to deploy its cash balance, which is above the mid-cycle target, considering options like holding excess cash or share buybacks?

The decision to build cash was to prudently manage commodity price volatility and ensure shareholder returns are not constrained. While volatility remains, the company can build cash and return to shareholders simultaneously. The long-term cash target remains unchanged, and accelerated returns are possible if volatility subsides. “I mean building cash and shareholder returns don't have to be mutually exclusive.”

With 5 million barrels/day of global refining capacity offline, what is the impact on global product inventories, and how long would it take to replenish them if the situation improved?

Global light product inventories are down 150 million barrels from the start of the year and 130 million barrels below normal. Projections suggest inventories remain below the 5-year average through 2027 even if the conflict ends, but management believes it will take longer due to sustained damage and ongoing attacks on Russian capacity. “Their data would suggest that if the conflict were to end today, global inventories remained below the 5-year average range through 2027.”

VLO

Valero (VLO) Q2 FY26 earnings call: guidance and Q&A

Q: Has the industry structurally shifted to a higher mid-cycle refining margin environment due to repeated geopolitical disruptions and tight global capacity?

Yes, Valero has a more bullish view of future mid-cycle margins, expecting them to be set by hydroskimming margins in Northwest Europe due to tightened supply-demand balances, rising carbon credit costs, and inflationary pressures. Crude quality discounts for heavy sour crude also contribute positively. “We do have a much more bullish view of a future mid-cycle than what you would calculate using historic margins.”

Earnings call· Jun 2026 (Q2 FY26)· Energy· Jul 30, 2026

Source: earnings call transcript

Executive summary

Valero Q2 FY26 — Record Earnings Driven by Strong Refining, Renewable Diesel, and Ethanol Performance

Valero delivered record quarterly earnings, driven by exceptional operational and commercial performance across its refining, renewable diesel, and ethanol segments, capitalizing on tight global product inventories and resilient demand. The company maintained a strong balance sheet, building cash while exceeding shareholder return commitments, and continues to focus on capital-disciplined optimization projects amidst a constructive market outlook. Policy uncertainty around RINs and global supply disruptions remain key factors influencing future market dynamics.

Highlights

Net income attributable to Valero stockholders was $3.7 billion or $12.62 per share in Q2 FY26, significantly up from $714 million or $2.28 per share in Q2 FY25.
Refining segment operating income reached $4.5 billion in Q2 FY26, compared to $1.3 billion in Q2 FY25.
Renewable diesel segment reported operating income of $717 million in Q2 FY26, a substantial improvement from an operating loss of $79 million in Q2 FY25.
Shareholder cash returns totaled $2.6 billion in Q2 FY26, representing a payout ratio of 59%.
Ended the quarter with $7.9 billion of cash and cash equivalents, reflecting a $2.1 billion cash build, and a net debt-to-capitalization ratio of 11%.

Concerns

Repairs to the Port Arthur DHT unit are estimated at $250 million, included in sustaining CapEx, though a substantial portion is expected to be covered by insurance.
The D4 RIN market is projected to be short, with the bank potentially running out by mid-2027, raising concerns about affordability and policy impact on consumers.
Uncertainty regarding the duration and extent of Russian refining capacity outages (1.7-1.9 million barrels/day offline) and the impact of Chinese product export quotas.

Guidance & targets

Category	Target	Timeline	Confidence
Capital investments attributable to Valero	approximately $2 billion high materiality	FY26	High
Sustaining capital investments	approximately $1.7 billion medium materiality	FY26	High
Refining throughput volumes	1.78 million to 1.83 million barrels per day medium materiality	Q3 · FY26	High
Refining throughput volumes	460,000 to 480,000 barrels per day medium materiality	Q3 · FY26	High
Refining throughput volumes	110,000 to 120,000 barrels per day medium materiality	Q3 · FY26	High
Refining throughput volumes	450,000 to 470,000 barrels per day medium materiality	Q3 · FY26	High
Refining cash operating expenses	approximately $4.75 per barrel medium materiality	Q3 · FY26	High
Renewable diesel sales volumes	approximately 335 million gallons medium materiality	Q3 · FY26	High
Renewable diesel operating expenses	$0.49 per gallon medium materiality	Q3 · FY26	High
Ethanol production volumes	4.8 million gallons per day medium materiality	Q3 · FY26	High
Ethanol operating expenses	$0.39 per gallon medium materiality	Q3 · FY26	High
Net interest expense	about $140 million low materiality	Q3 · FY26	High
Total depreciation and amortization expense	approximately $700 million low materiality	Q3 · FY26	High
G&A expenses	approximately $960 million low materiality	FY26	High
Port Arthur DHT unit return to service	by year-end medium materiality	FY26	High
Ethanol capacity growth	100 million to 200 million gallons a year medium materiality	next 1-2 years	Medium

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Refining Strong performance driven by adapting to changing market conditions and capturing opportunities. Gulf Coast throughput guidance for Q3 FY26 is 1.78M-1.83M bbl/d. Mid-Continent throughput guidance for Q3 FY26 is 460k-480k bbl/d. West Coast throughput guidance for Q3 FY26 is 110k-120k bbl/d. North Atlantic throughput guidance for Q3 FY26 is 450k-470k bbl/d. Q3 FY26 cash operating expenses expected at $4.75/bbl. Adjusted operating income: $4.4 billionThroughput volumes: 3 million barrels per dayCash operating expenses: $4.70 per barrel	—	—	—	$4.5 billion operating income
Renewable Diesel Benefited from volatility and increased RVO/D4 RINs outpacing fat prices. Outlook more positive for rest of 2026 and into 2027. Q3 FY26 sales volumes expected at 335 million gallons. Q3 FY26 operating expenses expected at $0.49/gallon, including $0.21/gallon noncash costs. Sales volumes: 3.8 million gallons per day	—	—	—	$717 million operating income
Ethanol Benefited from general increase in gasoline and octane values, plus production tax credit. Q3 FY26 production volumes expected at 4.8 million gallons/day. Q3 FY26 operating expenses expected at $0.39/gallon, including $0.04/gallon noncash costs. Small debottlenecking projects expected to add 100M-200M gallons/year capacity within 1-2 years. Production volumes: 4.7 million gallons per day	—	—	—	$318 million operating income

VLO operating KPIs by quarter

VLO operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Dec 2024 Q4 FY24	Mar 2025 Q1 FY25	Sep 2025 Q3 FY25	Dec 2025 Q4 FY25	Mar 2026 Q1 FY26	This call Jun 2026 Q2 FY26	Change vs prior quarter
Refinery throughput	3M bbl/d Refining throughput volumes in the fourth quarter of 2024 averaged 3 million barrels per day or 94% throughput capacity utilization. Source: earnings call transcript	2.8M bbl/d Refining throughput volumes in the first quarter of 2025 averaged 2.8 million barrels per day or 89% throughput capacity utilization. Source: earnings call transcript	3.1M bbl/d Refining throughput volumes in the third quarter of 2025 averaged 3.1 million barrels per day or 97% throughput capacity utilization. Source: earnings call transcript	3.1M bbl/d Refining throughput volumes in the fourth quarter of 2025 averaged 3.1 million barrels per day or 98% throughput capacity utilization. Source: earnings call transcript	2.9M bbl/d Refining throughput volumes in the first quarter of 2026 averaged 2.9 million barrels per day, refining cash operating expenses was $5.13 per barrel in the first quarter of 2026. Source: earnings call transcript	3M bbl/d Refining throughput volumes in the second quarter of 2026 averaged 3 million barrels per day. Source: earnings call transcript	+3.4%
Refinery utilization	94% Refining throughput volumes in the fourth quarter of 2024 averaged 3 million barrels per day or 94% throughput capacity utilization. Source: earnings call transcript	89% Refining throughput volumes in the first quarter of 2025 averaged 2.8 million barrels per day or 89% throughput capacity utilization. Source: earnings call transcript	97% Our refinery throughput utilization was 97% with the Gulf Coast and North Atlantic region setting new all-time highs for throughput following last quarter's record performance in the Gulf Coast. Source: earnings call transcript	98% Refining throughput volumes in the fourth quarter of 2025 averaged 3.1 million barrels per day or 98% throughput capacity utilization. Source: earnings call transcript	—	—	+1 pt
Capital expenditures Sustaining the business	$452M Regarding investing activities, we made $547 million of capital investments in the fourth quarter of 2024 of which $452 million was for sustaining the business, including costs for turnarounds, catalysts and regulatory compliance and the balance was for growing the business. Source: earnings call transcript	$582M Regarding investing activities, we made $660 million of capital investments in the first quarter of 2025, of which $582 million was for sustaining the business, including costs for turnarounds, catalysts and regulatory compliance and the balance was for growing the business. Source: earnings call transcript	$364M Regarding investing activities, we made $409 million of capital investments in the third quarter of 2025, of which $364 million was for sustaining the business, including costs for turnarounds, catalysts and regulatory compliance, and the balance was for growing the business. Source: earnings call transcript	$368M Regarding investing activities, we made $412 million of capital investments in the fourth quarter of 2025, of which $368 million was for sustaining the business, including costs for turnarounds, catalysts and regulatory compliance and the balance was for growing the business. Source: earnings call transcript	$404M Regarding investing activities, we made $448 million of capital investments in the first quarter of 2026, of which $404 million was for sustaining the business, including costs for turnarounds, catalysts and regulatory compliance and the balance looks for growing the business. Source: earnings call transcript	$290M Regarding investing activities, we made $350 million of capital investments in the second quarter of 2026, of which $290 million was for sustaining the business, including costs for turnarounds, catalysts and regulatory compliance and the balance was for growing the business. Source: earnings call transcript	-28.2%
Ethanol production volumes	—	4.5M gal/d Ethanol production volumes averaged 4.5 million gallons per day in the first quarter of 2025. Source: earnings call transcript	4.6M gal/d Ethanol production volumes averaged 4.6 million gallons per day in the third quarter of 2025, achieving record production. Source: earnings call transcript	4.8M gal/d Ethanol production volumes averaged 4.8 million gallons per day in the fourth quarter of 2025, also setting a quarterly and full year record. Source: earnings call transcript	4.6M gal/d Ethanol production volumes averaged 4.6 million gallons per day in the first quarter of 2026. Source: earnings call transcript	4.7M gal/d Ethanol production volumes averaged 4.7 million gallons per day in the second quarter of 2026. Source: earnings call transcript	+2.2%

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Capital programs

FCC Unit optimization project at St. Charles Refinery underway $230 million

Benefit:increase production of high-value products including output and finished gasoline

This $230 million investment is well timed and will allow us to increase our production of high-value products including output and finished gasoline.

Port Arthur DHT unit repair underway $250 million

Funding: substantial portion expected to be covered by insurance

Repairs to the Port Arthur DHT unit are expected to be completed and the unit returned to service by year-end. Total repair costs are estimated to be $250 million included in our updated guidance for sustaining CapEx. We expect a substantial portion of the cost to be covered by insurance.

Risks & headwinds

Geopolitical and macroeconomic volatility ongoing

Geopolitical and macroeconomic factors continue to drive volatility.

Mitigation:Disciplined consistency of operational and commercial execution, differentiated balance sheet, and financial flexibility.

D4 RIN market shortage and potential bank depletion end of 2026 to mid-2027

The bank being hit somewhere between the end of this year and sometime middle of next year. 2026 is expected to be a low production year versus the obligation, which will draw the bank.

Mitigation:Monitoring the situation, well-positioned, working with administration to highlight impact on consumers and policy options.

Russian refining capacity outages longer rather than shorter for them to recover

Currently about 1.7 million to 1.9 million barrels a day of Russian capacity offline. Damage to critical equipment suggests longer recovery.

Mitigation:None stated directly, but implies continued support for refining margins.

Jones Act waiver uncertainty ongoing

The Jones Act waiver has been critical to keeping PADD 1 and PADD 5 supplied.

Mitigation:Working with the administration to ensure understanding of market dynamics and the impacts of policy options.

Tariffs on renewable feedstock imports rest of the year

New tariffs make the hurdle more difficult for foreign imports of renewable feedstocks.

Mitigation:None stated directly, but implies advocacy for policy changes to help lower fuel prices.

What to watch in Q3 FY26

St. Charles FCC Unit Optimization Completion

Q3 FY26

Current Underway

Target Completed

Why it matters

This project is expected to increase production of high-value products like finished gasoline, impacting refining segment profitability.

Strategically, we still expect to complete our FCC Unit optimization project at our St. Charles Refinery during the third quarter.

Find out whether VLO delivers this. Inve re-checks your case every morning.

Q&A highlights

How do current market indicators and crude curve shape influence the outlook from Q2 to Q3, given the extraordinary Q2 results?

Margins and capture rates look constructive for Q3 relative to Q2, primarily due to improved delivered crude costs from feedstock discounts. Naphtha, propylene, and sulfur are strong, and an open arb for jet exports to Europe is emerging.

“The market structure thus far is resulting in an improvement in delivered crude costs relative to the benchmarks.”

asked by Neil Mehta · answered by Gary Simmons

2 min read 6 chapters

Detailed narrative

Refining Market Outlook

Management holds a more bullish view of future mid-cycle refining margins, expecting them to be set by hydroskimming margins in Northwest Europe rather than historical cracking margins. This shift is attributed to tightened supply-demand balances, rising carbon credit costs, and inflationary pressures on OpEx and CapEx, which collectively establish a higher floor for refinery cracks.

Additionally, a more bullish outlook on crude quality discounts, especially for heavy sour crude, positively impacts future mid-cycle views.

Renewable Fuels Structural Tailwinds

The renewable diesel segment benefited from increased RVO and D4 RIN values outpacing fat prices, a trend expected to continue through 2026 and 2027. The ethanol segment is experiencing significant structural tailwinds from the production tax credit, which is projected to be $0.17/gallon for FY26 and potentially $0.19/gallon from 2027-2029, nearly doubling its historical mid-cycle value of $0.25/gallon.

Global Product Inventory & Russian Outages

Global light product inventories are down approximately 150 million barrels from the start of the year and 130 million barrels below normal levels. Projections suggest inventories could remain below the 5-year average through 2027 even if the Russia-Ukraine conflict ended today. Russian refining capacity is currently 1.7-1.9 million barrels/day offline, with damage to critical equipment suggesting a longer recovery time.

Gasoline Market Strength

The relative strength in gasoline is driven by the closure of the transatlantic arbitrage for European imports to the U.S. and strong export demand to Latin America, resulting in a 400,000 barrels/day reduction in net gasoline imports. This, combined with robust domestic demand, contributes to tight gasoline markets.

Feedstock Dynamics

The current policy favors domestic feedstocks over foreign ones, with strong crop yields globally for soybeans and ag products. The U.S. policy with high D4 RINs is reducing the advantage of low CI waste feedstocks. Foreign imports of renewable fuels face hurdles due to RIN registration requirements and the elimination of tax credit benefits, slowing their uptake despite market shortages.

Crude Sourcing & West Coast Dynamics

Valero continues to see good availability of Venezuelan heavy crude and expects processing rates to exceed historical maximums. Mexican crude exports are down due to higher refinery runs at their Dos Bocas refinery. On the West Coast, refinery closures and increased California domestic crude production, exacerbated by the idling of the San Pablo pipeline, have led to considerably weaker prices for California crude, which Valero's Wilmington refinery is capitalizing on.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.