Leading refiner Valero Energy Corp. (VLO) posted record quarterly earnings on Tuesday, topping Wall Street forecasts, on soaring refining margins fueled by high gasoline prices.
Those margins, which rose by 45 percent for Valero on the Gulf Coast, have benefited all refiners in the past several months as steady growth in demand, coupled with higher-than-normal refinery maintenance, led to higher gasoline prices and unprecedented profitability for the industry.
Valero's stock, however, weakened slightly.
"(Refinery margins) were at record highs of $35 per barrel on the Gulf Coast in the second quarter, now they're at $10, and that's why you're not seeing the market react to the earnings beat," said Roger Read, analyst at Natexis Bleichroeder in Houston.
The San Antonio-based company said second-quarter net income rose to $2.2 billion, or $3.89 per share, from $1.9 billion, or $2.98 a share, a year earlier.
That topped analysts' average forecast of $3.74 per share, according to data compiled by Reuters Estimates.
Revenue slipped to $24.2 billion from $25.6 billion.The company said it will buy back an additional $2 billion in stock by year-end, completing a previously announced $6 billion share repurchase program.
Chief Executive and Chairman Bill Klesse said refinery margins were lifted by strong U.S. demand for gasoline and diesel, and higher-than-normal unplanned refinery downtime during the quarter.
"The environment for refining margins was terrific in the second quarter, and we continued to benefit from our complex, geographically diverse refining system," he said in a statement.
Valero, which climbed to the top position in U.S. refining by buying older plants and upgrading their production units, confirmed that it was in talks with Mexican state oil monopoly Pemex to build a new refinery in Panama.
However, Klesse said the company had not made a commitment to build a new plant and would not invest without assurances on future refining margins.