VALERO ENERGY CORP/TX Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Performance: Solid financial results driven by strong operational and commercial execution. Set a record for refining throughput rate in U.S. Gulf Coast; diesel sales up ~10% y-o-y, gasoline sales flat.
• Shareholder Returns: Maintained payout ratio of 52% in Q2, announced $1.13 per share dividend.
• Strategic Projects: Progressing FCC unit optimization project at St. Charles, expected to cost $230 million in 2026.
• Refining Fundamentals: Optimistic on refining fundamentals with planned refinery closures and limited capacity additions beyond 2025; sour crude differentials expected to widen.

Segment Performance

• Refining Segment: Reported operating income of $1.3 billion in Q2 2025 (vs. $1.2 billion in Q2 2024). Refining throughput volumes averaged 2.9 million barrels per day with 92% capacity utilization. Cash operating expenses were $4.91 per barrel.
• Renewable Diesel Segment: Had an operating loss of $79 million in Q2 2025 (vs. operating income of $112 million in Q2 2024). Sales volumes averaged 2.7 million gallons per day.
• Ethanol Segment: Reported operating income of $54 million in Q2 2025 (vs. $105 million in Q2 2024). Production volumes averaged 4.6 million gallons per day.

Guidance

• Capital Investments: Attributable to Valero expected to be ~$2 billion in 2025, with ~$1.6 billion for sustaining business and the rest for growth.
• Third Quarter Outlook: Refining throughput volumes: Gulf Coast 1.76-1.81 million bpd, Mid-Continent 430,000-450,000 bpd, West Coast 240,000-260,000 bpd, North Atlantic 465,000-485,000 bpd. Refining cash operating expenses ~$4.80 per barrel. Renewable Diesel sales volumes expected ~1.1 billion gallons in 2025. Ethanol production ~4.6 million gallons per day in Q3. Net interest expense ~$135 million in Q3. Depreciation and amortization ~$810 million in Q3, including ~$100 million related to Benicia Refinery closure. G&A expenses expected ~$985 million in 2025.

Risks

• Market Factors: OPEC+ production, AMEX production volatility, Venezuelan barrel unavailability, GOM crude quality issues could impact light-heavy differentials.
• Regulatory Uncertainty: Uncertainty around EPA's RVO and SREs affecting Renewable Diesel segment.
• Refinery Closures: Potential for more refinery closures affecting supply-demand balances.

Question and Answer

Q: How is refined product demand trending across Valero's footprint?

A: Gary Simmons discusses flat gasoline demand vs. robust diesel demand, strong export demand, low inventories.

Q: Near to medium-term outlook for light-heavy differentials?

A: Gary Simmons talks about OPEC+ production, Canadian production, and other factors affecting differentials.

Q: Outlook for net capacity additions?

A: Gary Simmons discusses limited new refining capacity, refinery rationalization, and economic impact.

Q: Gulf Coast capture and heavy-light differentials?

A: Greg Bram explains strong capture due to operating and commercial performance, and how differentials affect capture.

Q: Renewable Diesel path to profitability?

A: Eric Fisher talks about EPA policy clarity, feedstock access, and market dynamics.

Q: Benicia Refinery closure plans?

A: Rich Walsh states no change in plans despite speculation.

Q: Impact of Nigerian refining on Atlantic Basin markets?

A: Greg Bram and Gary Simmons discuss Nigerian refining issues and impact on markets.

Q: Efficiency gains in light vehicle fleet?

A: Gary Simmons talks about CAFE standards and EV penetration.

Q: RVO proposal impact?

A: Rich Walsh discusses potential SRE reallocation and its likelihood.

Q: Global diesel supply dynamics?

A: Gary Simmons talks about low inventories, refinery shutdowns, and crude quality impacts.