By Sourasis Bose

July 25 (Reuters) - Refiner Valero Energy

reported lower second-quarter profit on Thursday, but managed to

beat earnings estimates as strong processing volumes offset a

slump in margins.

The company's total throughput volumes, or amount of crude

processed, averaged 3.01 million barrels per day, compared with

2.97 million bpd a year earlier.

Wall Street had expected its throughput to average 2.96

million bpd, according to LSEG data.

"We see continued strength in our U.S. wholesale system with

sales exceeding one million barrels per day in the second

quarter," CEO Lane Riggs said.

Refiners had ramped up their processing capacity to 93.5% in

the second quarter, compared with 91% in the prior-year period,

on hopes of an uptick in demand. However, the demand did not

fully materialize, hurting margins, according to the Energy

Information Administration.

Demand for distillate fuels, which include diesel and

heating oil, took a sharp hit this year, pressured by sluggish

manufacturing activity, a milder-than-expected winter and

booming renewable fuel supply.

Valero said its refining margins were $3.05 billion in the

second quarter, nearly 28% lower than last year.

"VLO earnings beat consensus slightly, less impressive than

recent large beats," said TD Cowen analyst Jason Gabelman in a

note.

Refining missed consensus, with strength in North

Atlantic operations offset by weaker West Coast results, he

added.

Energy majors BP and Exxon Mobil ( XOM ) had earlier

said weak fuel prices would have a negative impact on their

results in the reported quarter.

The San Antonio, Texas-based refiner reported a net

income of $2.71 per share, lower than last year's $5.40 per

share. It beat an average profit estimate of $2.60, according to

LSEG data.

Production volumes in the company's ethanol segment rose by

31,000 gallons per day, to 4.5 million gallons a day, compared

to last year.