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Delek (DK) Q4 Earnings Beat on Favorable Midland Differential

Nilanjan Choudhury

Delek US Holdings, Inc. DK reported fourth-quarter adjusted net income per share of $1.59, ahead of the Zacks Consensus Estimate of $1.28 and the comparable 2017 period profit of 58 cents on robust Refining segment results.

With 70% of the downstream operator’s refining capacity leveraged to lower Permian pricing, the company benefited from favorable crude differentials, which averaged $10.68 per barrel in the fourth quarter.

However, Delek US Holding’s net sales of $2.4 billion came below the Zacks Consensus Estimate of $3 billion on lower crack spreads. Revenues decreased 2.8% year over year.

The company reported expenses of $137.8 million during the quarter, up from the $127.8 million incurred in the year-ago period.

Delek also announced a 3.8% increase inits quarterly dividend to 27 cents from 26 cents. The company bought back about $365 million of stock in 2018 and expects to repurchase $50 million of its common stock in the first quarter.

Delek US Holdings, Inc. Price, Consensus and EPS Surprise

 

Delek US Holdings, Inc. Price, Consensus and EPS Surprise | Delek US Holdings, Inc. Quote

Segmental Performance

Refining: Margin from the Refining segment was $235.3 million compared with $185.8 million in the year-ago quarter. The improvement reflects wider Midland discount versus Cushing (on continued congestion in the Permian Basin) and lower RIN costs, partly offset by narrowing crack spreads.

Logistics: This unit includes Delek US Holding’s 63% interest in Delek Logistics Partners, L.P. DKL, a publicly-traded master limited partnership that owns, operates, develops and acquires pipelines and other midstream assets. Margin from the Logistics unit totaled $45 million, up 37.6% from the year-ago period. The segment results were impacted by contribution from the drop down of the Big Spring refinery logistics properties. This was partly offset by decrease in gross margin per barrel in west Texas.

Retail: Margin for the unit – which came into being following the acquisition of Alon USA Energy in 2017 – edged down 1.5% to $13.1 million due to lower merchandise sales and margins. Delek’s merchandise sales came in at $81 million with an average margin of 30.2%, compared with $84.2 million with an average margin of 31.5% in the year-ago period. These factors were partly offset by the higher retail fuel margins. Delek sold retail fuels at an average margin of 30 cents per gallon, compared with 17 cents per gallon in the year-ago period

Capital Expenditure, Balance Sheet & Share Repurchase

In the reported quarter, Delek spent $106.3 million on capital programs (64% on the Refining segment). As of Dec 31, 2018, the company had cash and cash equivalents of $1.1 billion and long-term debt of $1.8 billion, with a debt-to-capitalization ratio of 48.9%. During the quarter under review, Delek returned $179 million of capital to shareholders, including $157.9 million of share repurchases.

Zacks Rank & Stock Picks

Delek US Holding currently retains a Zacks Rank #3 (Hold).

Some better-ranked players in the energy space are Enbridge Inc. ENB and NuStar Energy L.P. NS. Both have Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Enbridge’s earnings beat the Zacks Consensus Estimate in three of the last four quarters, the average positive surprise being 31.8%.

The 2019 Zacks Consensus Estimate for NuStar is $1.10, representing 64.2% earnings per unit growth over 2018. Next year’s average forecast is $1.32 pointing to another 20.3% growth.

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