Skip to content
    VLO
    Earnings call· Jun 2026(Q2 FY26)

    VALERO ENERGY CORP/TX Q2 FY26 earnings call VLO

    Jul 30, 2026 Source

    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

    5

    • 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

    3

    • 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

    16
    CategoryTargetConfidence
    Capital investments attributable to Valero
    approximately $2 billion
    high materiality
    High
    Sustaining capital investments
    approximately $1.7 billion
    medium materiality
    High
    Refining throughput volumes
    1.78 million to 1.83 million barrels per day
    medium materiality
    High
    Refining throughput volumes
    460,000 to 480,000 barrels per day
    medium materiality
    High
    Refining throughput volumes
    110,000 to 120,000 barrels per day
    medium materiality
    High
    Refining throughput volumes
    450,000 to 470,000 barrels per day
    medium materiality
    High
    Refining cash operating expenses
    approximately $4.75 per barrel
    medium materiality
    High
    Renewable diesel sales volumes
    approximately 335 million gallons
    medium materiality
    High
    Renewable diesel operating expenses
    $0.49 per gallon
    medium materiality
    High
    Ethanol production volumes
    4.8 million gallons per day
    medium materiality
    High
    Ethanol operating expenses
    $0.39 per gallon
    medium materiality
    High
    Net interest expense
    about $140 million
    low materiality
    High
    Total depreciation and amortization expense
    approximately $700 million
    low materiality
    High
    G&A expenses
    approximately $960 million
    low materiality
    High
    Port Arthur DHT unit return to service
    by year-end
    medium materiality
    High
    Ethanol capacity growth
    100 million to 200 million gallons a year
    medium materiality
    Medium

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    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

    Operational metrics

    45
    Adjusted Net Income
    $3.7 billion
    Q2 FY26

    Attributable to Valero stockholders.

    Net Cash Provided by Operating Activities
    $5.6 billion
    Q2 FY26

    Total net cash provided by operating activities.

    Adjusted Net Cash Provided by Operating Activities
    $4.5 billion
    Q2 FY26

    Excluding working capital impact and DGD JV member share.

    Capital Investments
    $350 million
    Q2 FY26

    Total capital investments.

    Sustaining Capital Investments
    $290 million
    Q2 FY26

    Includes costs for turnarounds, catalysts, and regulatory compliance.

    Growth Capital Investments
    $60 million
    Q2 FY26

    Calculated as total capital investments minus sustaining capital investments.

    Capital Investments Attributable to Valero
    $346 million
    Q2 FY26

    Excluding JV member share of DGD and other variable interest entities.

    Shareholder Cash Returns
    $2.6 billion
    Q2 FY26

    Total shareholder cash returns.

    Payout Ratio
    59%
    Q2 FY26

    Payout ratio for the quarter.

    Dividend per share
    $1.20
    Q3 FY26

    Quarterly cash dividend on common stock, announced July 16.

    Total Debt
    $9.1 billion
    as of June 30, 2026

    Total debt balance.

    Total Finance Lease Obligations
    $2.2 billion
    as of June 30, 2026

    Total finance lease obligations.

    Cash and Cash Equivalents
    $7.9 billion
    as of June 30, 2026

    Cash and cash equivalents balance.

    Debt-to-Capitalization Ratio (net of cash)
    11%
    as of June 30, 2026

    Reflecting a cash build of $2.1 billion during the quarter.

    Cash Build during Quarter
    $2.1 billion
    Q2 FY26

    Cash build during the second quarter.

    Available Liquidity (excluding cash)
    $5.3 billion
    as of June 30, 2026

    Total available liquidity excluding cash.

    Notes Repaid (7.65%)
    $100 million
    July 1, 2026

    Outstanding principal balance of notes that matured.

    Notes Maturities (later this year)
    $572 million
    FY26

    Additional maturities due later this year, to be repaid using cash from debt proactively issued in Q1.

    Depreciation and Amortization Expense
    $737 million
    Q2 FY26

    Includes approximately $33 million of incremental depreciation expense related to ceasing refining operations at Benicia Refinery.

    G&A Expenses
    $233 million
    Q2 FY26

    Total G&A expenses.

    Net Interest Expense
    $145 million
    Q2 FY26

    Total net interest expense.

    Income Tax Expense
    $1.1 billion
    Q2 FY26

    Total income tax expense.

    Effective Tax Rate
    21%
    Q2 FY26

    Effective tax rate for the quarter.

    Working Capital Impact on Operating Activities
    $706 millionfavorable
    Q2 FY26

    Favorable impact from working capital.

    DGD JV Member Share of Operating Activities
    $389 million
    Q2 FY26

    Adjusted net cash provided by operating activities associated with the other joint venture member share of DGD.

    Strategic Spending (post-COVID average)
    $0.5 billion
    annual average

    Average strategic spending post-COVID, capped by project execution efficiency.

    Strategic Spending (potential creep)
    $0.7 billion
    annual average

    Potential increase in average strategic spending, much of which was renewable spend.

    First Half Turnaround CapEx
    $374 million
    H1 FY26

    Turnaround capital expenditures in the first half of the fiscal year.

    SPR Drawdown (peak)
    1.4 million
    past

    Peak rate of Strategic Petroleum Reserve drawdown.

    SPR Drawdown (current)
    0.5 million
    current

    Current rate of Strategic Petroleum Reserve drawdown. Transcription note: '0.5 million' was stated as '$0.5 million' in the transcript, but context indicates barrels per day.

    SPR Committed/Contracted
    130 millionout of 172 million announced
    as of March announcement

    Volume of SPR committed and contracted from the 172 million barrels announced for release.

    SPR Remaining under allocation
    40 million
    as of March announcement

    Remaining volume under the 172 million barrel allocation.

    SPR Minimum (discussion)
    —
    ongoing

    Discussion around what constitutes the minimum SPR level, with estimates ranging from 70 million to 300 million barrels.

    Russian Refining Capacity Offline
    1.7 million to 1.9 millionprogressively worse from May to July
    current

    Capacity offline due to drone attacks, with damage to critical equipment suggesting longer recovery.

    Global Light Product Inventories (YoY change)
    down 150 million
    from start of year

    Total light product inventories globally.

    Global Light Product Inventories (vs normal)
    130 millionnormal for this time of year
    current

    Inventories compared to normal levels for this time of year.

    Gasoline Net Import Reduction
    400,000down from historical
    current

    Reduction in net gasoline imports due to closed transatlantic arb and strong Latin American export demand.

    Ethanol Production Tax Credit
    $0.14
    YTD

    Production tax credit captured year-to-date.

    Ethanol Production Tax Credit
    $0.17
    FY26 estimate

    Estimated production tax credit for the full year.

    Ethanol Production Tax Credit
    $0.19
    2027-2029 estimate

    Estimated production tax credit for the period 2027-2029.

    Ethanol Historical Mid-Cycle Value
    $0.25
    historical

    Historical mid-cycle value for ethanol.

    Jet Yield
    9%
    Q2 FY25

    Jet fuel yield in the second quarter of the prior year.

    Jet Yield
    12%
    Q2 FY26

    Jet fuel yield in the second quarter of the current year.

    Jet Yield Increase
    100,000
    Q2 FY26 vs Q2 FY25

    Increase in jet fuel yield, supporting capture rates.

    Gulf Coast Indicators
    $41up from $30
    Q3 FY26 (current)

    Gulf Coast market indicators, as per analyst database, showing an increase from Q2 to Q3.

    Industry KPIs

    1
    MetricValueDetails
    FCF shareholder distributions$2.6 billionUSD

    Capital programs

    2
    FCC Unit optimization project at St. Charles Refineryunderway$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 repairunderway$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

    5
    Geopolitical and macroeconomic volatilityongoing

    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 depletionend 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 outageslonger 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 uncertaintyongoing

    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 importsrest 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

    5

    St. Charles FCC Unit Optimization Completion

    Q3 FY26
    CurrentUnderway
    TargetCompleted

    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.

    Q&A highlights

    5

    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 read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

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