A month has gone by since the last earnings report for Delek US Holdings (DK). Shares have lost about 2.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Delek US Holdings due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Delek Q2 Earnings Surge as Refining Margins Improve
Delek US Holdings reported second-quarter adjusted net income per share of $1.03, lagging the Zacks Consensus Estimate of $1.14. The underperformance stems from higher operating expenses.
However, the downstream operator turned around from the comparable 2017 period loss of 40 cents on robust Refining segment results. Specifically, refining margin of $14.37 per barrel increased versus $10.86 a year ago. With 70% of the Delek’s refining capacity leveraged to lower Permian pricing, the company also benefited from the favorable crude differentials, which averaged $15.03 per barrel in the second quarter, compared to $3.48 per barrel in the prior-year period.
Delek US Holding’s net sales of $2,563.5 million came above the Zacks Consensus Estimate of $2,514 million and more than doubled year over year.
The company reported expenses of $157.5 million during the quarter, up significantly from the $62.1 million incurred in the year-ago period.
Refining: Margin from the Refining segment was $177 million compared with $16.9 million in the year-ago quarter. The improvement reflects higher crack spreads, wider divergence between Midland WTI and Brent crude oil pricing, and the addition of refineries following the Alon USA acquisition of 2017.
Logistics: This unit includes Delek US Holding’s 61.5% interest in Delek Logistics Partners, L.P., a publicly-traded master limited partnership that owns, operates, develops and acquires pipelines and other midstream assets. Margin from the Logistics unit totaled $45.4 million, up 43.2% from the year-ago period. The segment results were impacted by contribution from the drop down of the Big Spring refinery logistics properties, better gross margin per barrel in west Texas and improved performance from the Paline Pipeline. These factors were partly offset by increase in operating expenses.
Retail: Margin for the unit – which came into being following the acquisition of Alon USA Energy, Inc. last year – was $18.6 million.
Capital Expenditure, Balance Sheet & Share Repurchase
In the reported quarter, Delek spent $54.7 million on capital programs (62% on the Refining segment). As of Jun 30, 2018, the company had cash and cash equivalents of $1,132.8 million and long-term debt of $1,861.7 million, with a debt-to-capitalization ratio of 51.1%. During the quarter under review, Delek returned $153 million of capital to shareholders, including $20 million of share repurchases.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted 7.61% due to these changes.
At this time, Delek US Holdings has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Delek US Holdings has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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