Valero Energy Corporation 2026 Q3 Earnings Call

Please go ahead. Good morning, everyone, and welcome to Valero Energy Corporation's third quarter 2026 earnings conference call.

Today, I'm joined by Lane Riggs, Chairman, CEO, and President, Gary Simmons, Executive Vice President and COO, Rich Walsh, Executive Vice President and General Counsel, Homer Bhullar, Senior Vice President and CFO, and several other members of Valero's senior management team. If you have not yet received a copy of our earnings release, it can be found on our website at investorvalero.com. Included with the release are supplemental tables providing detailed financial information for each of our business segments, along with reconciliations and disclosures for any adjusted financial metrics referenced during today's call. If you have any questions after reviewing these materials, please feel free to reach out to our investor relations team. Before we begin, I would like to draw your attention to the forward-looking statement disclaimer included in the press release.

In summary, it says that statements made in the press release and during this conference call that express the company's or management's expectations or forecasts of future events are forward-looking statements and are intended to be covered by the safe harbor provisions under federal securities laws. Actual results may differ from those expressed or implied due to various factors, which are outlined in our earnings release and filings with the SEC. I'll now turn the call over to Lane for opening remarks.

Thank you, Brian, and good morning, everyone. During the third quarter, our business teams executed well in all reporting segments. The market volatility and tight product inventories we saw in the prior quarter continued through the third quarter. Our teams remained focused on execution, running our refineries at near record levels of utilization and helping keep the market supplied with critical transportation fuels. Our ethanol segment also achieved a quarterly record for production during the third quarter, supplying fuel and contributing to our overall performance. Financially, we remain in a strong position. During the quarter, we continued to honor our longstanding shareholder commitments while also strengthening our cash position. As we look ahead, we remain constructive on the long-term outlook for our business. Refining fundamentals remain favorable, supported by low product inventories, limited excess refining capacity, and continued demand for transportation fuels.

Compared to other regions around the world, the U.S. is well-positioned in the current market environment, and the U.S. Gulf Coast continues to be one of the most advantaged regions globally, supported by abundant domestic crude production and access to cost-competitive feedstocks. Combined with our strategically located refining system and the flexibility of our commercial team, these advantages support our ability to respond to changing market conditions and resilient customer demand. Turning to strategic capital projects, we completed the FCC unit optimization project at St. Charles Refinery during the third quarter on schedule and within budget. This $230 million investment has already increased production of higher-valued products, including alkylate and gasoline. We continue to evaluate additional strategic opportunities to further strengthen the competitiveness and long-term value of our refining system.

However, as we assess these opportunities, we remain committed to our disciplined investment process that has served us well for more than a decade. In closing, our third quarter performance underscores the quality of our assets and our consistent operational, commercial, and financial performance. This is a result of a long-term strategy that we've been committed to for well over a decade. With that, I'll turn the call over to Homer.

Thank you, Lane. For the third quarter of 2026, net income attributable to Valero stockholders was $6.8 billion or $23.89 per share, compared to $1.1 billion or $3.53 per share for the third quarter of 2025. Excluding the adjustments shown in the earnings release tables, adjusted net income attributable to Valero stockholders for the third quarter of 2026 was $6.8 billion or $23.90 per share, compared to $1.1 billion or $3.66 per share for the third quarter of 2025. The refining segment reported operating income of $8.8 billion for the third quarter of 2026, compared to $1.6 billion for the third quarter of 2025. Refining throughput volumes in the third quarter of 2026 averaged 3 million barrels per day. Refining cash operating expenses were $5.03 per barrel in the third quarter of 2026.

The renewable diesel segment reported operating income of $353 million for the third quarter of 2026, compared to an operating loss of $28 million for the third quarter of 2025. Renewable diesel segment sales volumes averaged 3.4 million gallons per day in the third quarter of 2026. The ethanol segment reported operating income of $272 million for the third quarter of 2026, compared to $183 million for the third quarter of 2025. Ethanol production volumes averaged 4.8 million gallons per day in the third quarter of 2026. G&A expenses were $308 million for the third quarter of 2026. Depreciation and amortization expense was $684 million for the third quarter of 2026. Net interest expense was $144 million, and income tax expense was $2.1 billion for the third quarter of 2026. The effective tax rate was 23%.

Net cash provided by operating activities was $6.9 billion for the third quarter of 2026. Included in this amount was a $526 million unfavorable impact from working capital and $205 million of adjusted net cash provided by operating activities associated with the other joint venture member share of DGD. Excluding these items, adjusted net cash provided by operating activities was $7.3 billion in the third quarter of 2026. Regarding investing activities, we made $432 million of capital investments in the third quarter of 2026, of which $371 million was for sustaining the business, including costs for turnarounds, catalysts, and regulatory compliance, and the balance was for growing the business. Excluding capital investments attributable to the other joint venture member share of DGD and other variable interest entities, capital investments attributable to Valero were $429 million in the third quarter of 2026.

Moving to financing activities, we remain committed to our disciplined capital allocation framework. Shareholder cash returns resulted in a payout ratio of 52% for the quarter. Also in the third quarter, we repaid the outstanding principal balances of our $100 million note that matured in July and our $426 million note that matured in September. An additional $146 million of debt maturing later this year will be repaid using proceeds from the debt we proactively issued in the first quarter during a lower rate environment. Turning to the balance sheet, we ended the quarter with $8.6 billion of total debt, $2.4 billion of total finance lease obligations, and $9.8 billion of cash and cash equivalents. The debt-to-capitalization ratio net of cash and cash equivalents was 4% as of September 30th, 2026, reflecting the cash build this year.

While our long-term $4 billion to $5 billion cash target remains unchanged, we continue to maintain cash above the high end of that range to preserve optionality in a volatile market environment, consistent with our messaging throughout this year, while also honoring our payout commitment. Overall, we ended the quarter well-capitalized with $5.3 billion of additional liquidity excluding cash. Turning to guidance, we still expect capital investments attributable to Valero for 2026 to be approximately $2 billion. This includes expenditures for turnarounds, catalysts, regulatory compliance, joint venture investments, and the estimated cost to repair the DHT unit at our Port Arthur refinery. Approximately $1.7 billion is allocated to sustaining the business, with the remainder directed toward growth projects. Repairs to the Port Arthur DHT unit remain on track for completion by year-end. Total repair costs are still estimated to be approximately $250 million, which are included in our sustaining capital guidance.

As previously guided, we expect a substantial portion of the cost to be covered by insurance. In the meantime, the refinery continues to operate at normal throughput rates. Our growth projects continue to be focused on shorter cycle opportunities that improve crude and product flexibility, optimize the value of our product mix, and maximize utilization of existing conversion capacity across our refining operations. We've also been pursuing efficiency and capacity expansion projects at our ethanol plants. These investments should enhance the earnings power of our assets. For modeling our fourth quarter operations, we expect refining throughput volumes to fall within the following ranges: Gulf Coast at 1.855 million to 1.905 million barrels per day, Mid Continent at 440,000 to 460,000 barrels per day, West Coast at 100,000 to 110,000 barrels per day, and North Atlantic at 480,000 to 500,000 barrels per day.

We expect refining cash operating expenses in the fourth quarter to be approximately $4.85 per barrel. For the renewable diesel segment, we expect sales volumes of approximately 325 million gallons in the fourth quarter. Operating expenses should be $0.53 per gallon, including $0.23 per gallon for non-cash costs such as depreciation and amortization. Our ethanol segment is expected to produce 4.9 million gallons per day in the fourth quarter. Operating expenses should average $0.38 per gallon, which includes $0.04 per gallon for non-cash costs such as depreciation and amortization. For the fourth quarter, net interest expense should be about $135 million, and total depreciation and amortization expense should be approximately $700 million. Lastly, G&A expenses for 2026 are expected to be approximately $1.1 billion.