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It has been about a month since the last earnings report for Delek US Holdings (DK). Shares have added about 27.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Delek US Holdings due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Delek Posts Narrower-Than-Expected Q3 Loss, Sales Miss Mark
Delek’squarterly results reported an adjusted loss of $1.01 a share, narrower than the Zacks Consensus Estimate of a loss of $1.35. This better-than-expected report was driven by a strong contribution from the logistics segment and a tight leash on operating expenses. Meanwhile, this independent refiner, transporter and marketer of petroleum products delivered earnings of 78 cents in the year-ago quarter. The year-over-year underperformance was due to weak contribution from the refining segment.
Quarterly revenues of $2.06 billion compared unfavorably with the year-ago sales of $2.33 billion. However, the top line surpassed the Zacks Consensus Estimate of $1.04 billion.
Refining: The company reported a negative margin of $17.8 million for this segment against the positive $150.1 million in the year-ago quarter.Results were hurt by a lower crude differential environment and crack spreads resulting from coronavirus-induced reduced demand.
Logistics: This unit represents the company’s majority 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 was $67.2 million, up 44.2% from $46.6 million in the year-ago period, led by divesting the Big Spring Gathering business and Trucking Assets plus an elevated crude gathering and operating expense reductions.
Retail: Margin for the unit, formed from the acquisition of Alon USA Energy in 2017, declined 1.6% to $18.3 million from the year-earlier quarter’s level due to lower Retail fuel margin. Delek’s merchandise sales of $86.8 million with a margin of 31.6%, on average, compared favorably with sales of $81.5 million carrying a margin of 30.5%, on average, in the prior year. Its retail fuel gallons sale totaled $45.1 million in the September quarter of 2020, the average margin being 31 cents per gallon. This compared unfavorably with $54.9 million sale, the average margin being 32 cents in third-quarter 2019.
Total operating expenses incurred in the quarter decreased 4.8% from the prior-year period to $2,138.1 million.
In the reported quarter, Delek spent $4.7 million on capital programs (12.8% on the Refining segment). As of Sep 30, 2020, the company had cash and cash equivalents worth $807.9 million and a long-term debt of $2,440.6 million with the total debt to total capital of 63.2%, reflecting an increase from the debt of $2,421.5 million in the second quarter.
Management decided to suspend quarterly dividend payments for the time being in an attempt to preserve a flexible balance sheet.
Delek anticipates its 2020 capital expenses to be around $249 million.
The company is on course to surpass its earlier projected goal of curtailing its current-year overall cost structure by nearly $100 million from the year-ago level. This can be achieved through the tactical optimization including Krotz Springs and the implementation of a freeze on hiring to curtail overhead expenses.
For the fourth quarter, the company projects its crude oil throughput in the 225,000-235,000 barrels per day range.
Delek’s 2021 capital spending including turnarounds is predicted in the $150-$160 million band.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -7.66% due to these changes.
At this time, Delek US Holdings has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Delek US Holdings has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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