Valero, An Earnings Warning In The Oil Patch (VLO)

Shares of Valero Energy Corp. (NYSE: VLO) are getting a haircut in after-hours trading.  High oil prices that get out of control hurt refiners because their costs escalate more than the margins on higher prices can be passed on.  The company expects that earnings will now be $0.10 to $0.35 EPS as throughput margins on gasoline and other products will be significantly lower than Q1-2007.  Its results are also getting hit by operating and equipment issues as outages are expected to reduce Q1 throughput margins by about $400 million.

Unfortunately, the estimates out of First Call are $0.91.  While this will have one-time costs associated with the actual numbers at the real report date, that is a monster miss.  You can expect this to lower entire 2008 estimates on top of Q1 estimates from Wall Street analysts on Tuesday.  Before any downward adjustments to price targets that will come tomorrow, analysts have an average price target north of $67.00.

Valero closed up 1.1% at $50.08 in normal trading.  Shares are down almost 4% to $48.10 in after-hours trading and the 52-week trading range is $44.94 to $78.68.  Things may have to get worse before they get better.

Jon C. Ogg
March 24, 2008

Jon Ogg produces the Special Situation Investing Newsletter and can be reached at [email protected]; he does not own securities in the companies he covers.