Delek US Holdings, Inc. (NYSE:DK) Q4 2023 Earnings Call Transcript
Delek US Holdings, Inc. (NYSE:DK) Q4 2023 Earnings Call Transcript February 27, 2024
Delek US Holdings, Inc. misses on earnings expectations. Reported EPS is $-1.46 EPS, expectations were $-1.28. Delek US Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning ladies and gentlemen and welcome to the Delek US Fourth Quarter Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Tuesday, February 27th, 2024. I would now like to turn the conference over to Rosy Zuklic, VP Investor Relations. Please go ahead.
Rosy Zuklic: Good morning and welcome to the Delek US fourth quarter earnings conference call. Participants on today's call will include Avigal Soreq, President and CEO; Joseph Israel, EVP Operations; Reuven Spiegel, EVP and Chief Financial Officer; Mark Hobbs, EVP Corporate Development. Today's presentation material can be found on the Investor Relations' section of the Delek US website. Slide 2 contains our Safe Harbor statement regarding forward-looking statements. We'll be making forward-looking statements during today's call. These statements involve risks and uncertainties that may cause actual results to differ materially from today's comments. Factors that could cause actual results to differ are included here as well as in our SEC filings. The company assumes no obligation to update any forward-looking statements. I will now turn the call over to Avigal for opening remarks.
Avigal Soreq: Thank you, Rosy. Good morning and thank you for joining us today. During the fourth quarter, our operation ran well at the higher end of our guidance. We did a good job of focusing on what we could control. With that, I would like to thank each member of the Delek team. From a market perspective, during the quarter, we saw a weakness in product demand, consistent with the seasonal trends. In refining, we achieved record total throughput in the quarter, but still see opportunities for further operational improvement. Joseph will provide the details of our refinery operation and progress at Big Spring. We delivered another record quarter in our logistics segment. The consistent strong performance from our logistics segment validates our favorable position in the Permian Basin.
Our [indiscernible] segment reported its best Q4 outside of COVID year 2020. Turning to the full year, 2023 was a strong year for Delek. We achieved $950 million of adjusted EBITDA. We made significant progress on our key objectives. As a reminder, they are operational excellence, financial strength and shareholder return, and executing our strategic initiatives. In terms of operational excellence, our team delivered a solid performance across all businesses this year. We made strategic investment in our people and us. This improved our foundation for profitable and sustainable growth. Our planned major turnaround of the Tyler refinery was completed on time, on budget, and with no recordable incidents The result was improved reliability, yield recovery, and stronger capture rate.
We are very focused on our safety practices and pushing for constant improvement. I'm pleased to report that 2023 was our best year on record for safety performance. This includes personnel and processes. Turning to financial strength and shareholder return. We continue to be shareholder friendly. In 2023, we returned $146 million of shareholders through dividends and share buybacks. We also improved our financial position by using our strong cash flow to reduce debt by $454 million. We made progress on our strategic initiatives. As a result of our cost reduction effort, we find more efficient ways of working. This has delivered tangible results. For example, our inventory management has resulted in improvement in both earnings and debt levels.
We are making progress to reach our goal of $100 million run rate cost reduction. Lastly, significant headway was made towards unlocking value intrinsic in our business. Now, turning to Slide 24. our key priorities have not wavered. We'll continue our drive towards operational excellence, staying focused in safe and reliable operations. We have turnaround of our Krotz Springs Refinery in Q4 of 2024. Joseph will give context on the improvement we expect Post turnaround. We'll also talk about additional initiatives we are undertaking in the refining segment. Financial strength and shareholder returns, will remain key. We believe we are well positioned to capture opportunities. We'll continue our disciplined capital allocation with the best interest of our stakeholders in mind.
We look to deliver strong portfolio performance and results. We'll continue to optimize the balance sheet and remain committed to sustainable and competitive shareholder returns. In 2023, we returned $146 million to shareholders, $85 million of this was share buybacks. As we demonstrate in 2023, we are committed to shareholder returns, based upon free cash flow. If we execute 2024, we'll remain and maintain this approach. And we'll keep a balanced approach between improving our financial strength and shareholder return. On our strategic initiatives, we'll remain focused in advance. For 2024m we estimate our CapEx to be approximately $330 million, which reflects a reduction from 2023 levels. The capital program show our dedication to maintaining safe reliable operation, enhancing our portfolio with strategic growth projects and delivering shareholder value while maintaining our financial strength and flexibility.
In 2024, we will continue to explore opportunities in the energy transition space, this meet our return to capital objectives. We announced earlier this month at our Big Spring Refinery was selected by the Department of Energy for a project that will advance carbon capture technology, safe environmentally responsible manner. This project will serve our industry well, into the decades to come. Now, I would like to turn the call over to Joseph, who will provide additional detail on our operations.
Joseph Israel: Thank you, Avigal. Moving to slide 5 through 7. In the fourth quarter our team processed a back to back record high 306,000 barrels per day of total throughput. In Tyler total throughputs in the fourth quarter was approximately 79,000 barrels per day. Production margin in the quarter was $11.54 per barrel and operating expenses were $5.13 per barrel, which reflects approximately $0.55 per barrel of an employee benefit accrual and accelerated Tank Farm work. In the first quarter, the estimated total throughput in Tyler is in the 71,000 to 74,000 barrels per day range. In El Dorado, total throughput in the quarter was approximately 88,000 barrels per day, a record high throughput from the plants. Our production margin was $4.94 per barrel and operating expenses of $4.58 per barrel.
Estimated throughput for the first quarter is in the 82,000 to 85,000 barrels per day range. After working the El Dorado fundamentals, in the past several years and improving reliability, the team is focused on profit improvement opportunities mainly in the crude sourcing, asphalt and wholesale areas. By accessing heavier grades in Eldorado, we will use existing refinery configuration to improve asphalt capabilities and optimize margins, by increasing regional sales of our pipeline on the light products side, we will improve commercial optionality. In Big Spring, total throughput for the quarter was approximately 58,000 barrels per day, driven by maintenance work mostly reflected in our guidance, but with the additional discoveries that we have addressed.
Our production margin was $6.5 per barrel, including an estimated unfavorable $3.40 per barrel impact from the maintenance activities. Operating expenses in Big Spring were $8.98 per barrel, including approximately $1.90 per barrel related to the additional maintenance. $1.40 per barrel for the integrity program and $0.40 per barrel related to employee benefit accrual. Estimated throughput for the first quarter is in the 63,000 to 66,000 barrels per day range. In Krotz Springs, total throughput was approximately 81,000 barrels per day. Our production margin was $4.93 per barrel and operating expenses were $4.83 per barrel. Krotz Springs team is preparing for the fourth quarter turnaround, which will include regular maintenance as well as major upgrades to our FCC and [indiscernible].
Execution cost is estimated at $115 million and expectedly term from the upgrades is approximately $30 million per year coming mainly from yield and rate flexibility improvement and energy efficiency. Plant's throughput for the first quarter is in the 73,000 to 76,000 barrels per day range and for our entire refining system implied throughput target is in the 289,000 to 301,000 barrels per day range as we position our oil sales for the gasoline season. In the fourth quarter, wholesale marketing contributed a loss of approximately $20 million. This is a $40 million negative variance for the third quarter. The decrease reflects seasonal trends along with challenging Mid-Con supply/demand dynamics and lowering prices. We are expecting our commercial initiatives to provide us with a better optionality in the future.
Asphalt marketing contributed approximately $5 million compared with $15 million in the third quarter and consistent with our seasonal trends. In summary, 2023 was an important and successful year for our system in many ways. Our focus on people, process and equipment is giving us a strong foundation to optimize what we have and positioned our system for growth while Tyler, Krotz Springs and El Dorado have optimized operations over the years. We remain confident about our progress in Big Spring for reliability ahead of the coming gasoline season. US refining market dynamics for 2024 are constructed and we are well-positioned to capture this opportunity. I will now turn the call over to Rosy for the financial variance.
Rosy Zuklic: Thanks, Joseph. Starting on slide 8. For the fourth quarter of 2023 Delek US had a loss of $165 million or $2.57 per share. Adjusted net loss was $93 million or $1.46 per share and adjusted EBITDA was $61 million. Cash flow from operations was $91 million. On slide 9, the waterfall of adjusted EBITDA from the third quarter to the fourth quarter of 2023 showed that the primary driver for the lower results was from refining. This reflects the significantly lower cracks in the fourth quarter relative to the third quarter. Logistics set a new record quarter at over $99 million. Retail was down largely due to seasonal trends, although we were in a falling crude environment. We saw lower margins but maintained strong volumes at our stores.
Corporate segment costs improved compared with last quarter largely due to lower employee benefit expenses. Moving on to slide 10 to discuss the cash flow. We do $80 million in cash during the quarter, ending the fourth quarter with a balance of $822 million. Cash flow from operations as I said was $91 million. Included in this amount is a positive $223 million of working capital. This was largely from improved inventory management and lower product prices, reflected in receivables. Investing activities of $69 million is mainly for capital expenditures. Financing activities of $101 million primarily reflects paydown of debt and return to shareholders. This includes $41 million debt repayment, $20 million in buybacks, $15 million in dividends and $10 million in distribution payments.
On slide 11, we have the breakout of the 2023 capital program and guidance for 2024. Full year 2023 was $372 million. Approximately 80% of the spend was for sustaining and regulatory projects, which include the major turnaround at the Tyler refinery and reliability work at the Big Spring refinery. Our forecasted 2024 capital program is $330 million, which included $255 million for sustaining and regulatory projects and $75 million for growth projects. In refining, we plan to invest $220 million with 93% of the capital dedicated towards sustaining and regulatory projects, most of which is for the Krotz Springs refinery major turnaround scheduled during the fourth quarter of 2024, as well as projects at the Big Spring refinery to improve capture rates.
In logistics, the Company expects the capital program to be approximately $70 million, with $50 million for growth projects. Growth projects will advance new connections in both the Midland and Delaware gathering systems, enabling continued volume growth at the partnership. The retail segment capital expenditures are expected to be approximately $15 million. Funds are dedicated to maintaining Delek's 250 convenience stores including interior, rebranding and reimage imaging initiatives. The corporate and other segment includes approximately $25 million of capital expenditures, which is primarily to fund IT improvements. Net debt is broken out between Delek and Delek's logistics on slide 12. During the quarter, we drew $80 million of cash and paid down $41 million of debt, ending the quarter with a net debt position of $78 million.
Finally, slide 13 covers outlook items. In addition to the guidance Joseph provided, for the first quarter of 2024, we expect operating expenses to be between $215 million and $225 million, G&A to be between $60 million and $65 million, D&A to be between $90 million and $95 million and net interest expense to be between $80 million and $85 million. We will now open the line for questions.
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