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Delek (DK) Loses 12.6% Despite Narrower-Than-Expected Q2 Loss
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Shares of Delek US Holdings, Inc. (DK - Free Report) have declined 12.6% since second-quarter 2020 earnings announcement on Aug 4. While the top and the bottom line came ahead of the respective Zacks Consensus Estimate, investors continued to be sceptical about the challenging macro environment. Compared with the year-ago period, Delek’s refining margins contracted across all regions. As the coronavirus pandemic persistently weighs on product demand, the outlook for crack spreads remains bearish. This downstream operator’s rising debt-levels are a dampener as well.
Delek’squarterly results reported an adjusted loss of 48 cents a share, narrower than the Zacks Consensus Estimate of a loss of 52 cents. This better-than-expected result was driven by a strong contribution from the logistics segment and lower year-over-year operating expenses. Meanwhile, the independent refiner, transporter and marketer of petroleum products delivered earnings of $1.17 in the year-ago quarter. The year-over-year underperformance was due to weak contribution from the refining segment.
Quarterly revenues of $1,536 million also compared unfavorably with the year-ago sales of $2,480 million. However, the top line surpassed the Zacks Consensus Estimate of $1,309 million.
Segmental Performance
Refining: The company reported a margin of $59.7 million for this segment compared with $198.1 million in the year-ago quarter. Results were hurt by lower crude differential environment, crack spreads and throughputs 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 $61.4 million, up 38.9% from $44.2 million in the year-ago period, led by a dropdown of the Delek Permian Gathering business and Trucking Assets, elevated crude gathering, operating expense reductions and an increase in income from equity method investments.
Retail: Margin for the unit, formed from the acquisition of Alon USA Energy in 2017, expanded 38.1% to $24.3 million from the year-earlier quarter’s level on the back of higher Retail fuel margin. Delek’s merchandise sales of $89.4 million with a margin of 30.8%, on average, compared favorably with sales of $83.3 million with a margin of 31.2%, on average, in the prior year. Its retail fuel gallons sale totaled $42.4 million, the average margin being 45 cents per gallon. This compared unfavorably with $53.7 million sale, the average margin being 29 cents in second-quarter 2019.
Delek US Holdings, Inc. Price, Consensus and EPS Surprise
Total operating expenses incurred in the quarter decreased 35.5% from the prior-year period to $1,512.7 million.
In the reported quarter, Delek spent $15 million on capital programs (81.3% on the Refining segment). As of Jun 30, 2020, the company had cash and cash equivalents worth $849 million and a long-term debt of $2,421.5 million with total debt to total capital of 60.8%, reflecting an increase from the debt of $2,185.5 million in the first quarter.
The company declared a quarterly dividend of 31 cents per share, payable Sep 3, 2020 to its shareholders of record as of Aug 19.
Guidance
Delek anticipates its 2020 capital expenses to be around $250 million.
Delek reiterates it previously announced plan to minimize its overall cost structure of 2020 by approximately $100 million from the year-ago level. This can be achieved through the ongoing optimization of operating costs and the implementation of a freeze on hiring to curtail overhead expenses.
For the third quarter of 2020, the company projects its crude oil throughput in the 230,000-250,000 barrels per day range.
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Delek (DK) Loses 12.6% Despite Narrower-Than-Expected Q2 Loss
Shares of Delek US Holdings, Inc. (DK - Free Report) have declined 12.6% since second-quarter 2020 earnings announcement on Aug 4. While the top and the bottom line came ahead of the respective Zacks Consensus Estimate, investors continued to be sceptical about the challenging macro environment. Compared with the year-ago period, Delek’s refining margins contracted across all regions. As the coronavirus pandemic persistently weighs on product demand, the outlook for crack spreads remains bearish. This downstream operator’s rising debt-levels are a dampener as well.
Delek’squarterly results reported an adjusted loss of 48 cents a share, narrower than the Zacks Consensus Estimate of a loss of 52 cents. This better-than-expected result was driven by a strong contribution from the logistics segment and lower year-over-year operating expenses. Meanwhile, the independent refiner, transporter and marketer of petroleum products delivered earnings of $1.17 in the year-ago quarter. The year-over-year underperformance was due to weak contribution from the refining segment.
Quarterly revenues of $1,536 million also compared unfavorably with the year-ago sales of $2,480 million. However, the top line surpassed the Zacks Consensus Estimate of $1,309 million.
Segmental Performance
Refining: The company reported a margin of $59.7 million for this segment compared with $198.1 million in the year-ago quarter. Results were hurt by lower crude differential environment, crack spreads and throughputs 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 $61.4 million, up 38.9% from $44.2 million in the year-ago period, led by a dropdown of the Delek Permian Gathering business and Trucking Assets, elevated crude gathering, operating expense reductions and an increase in income from equity method investments.
Retail: Margin for the unit, formed from the acquisition of Alon USA Energy in 2017, expanded 38.1% to $24.3 million from the year-earlier quarter’s level on the back of higher Retail fuel margin. Delek’s merchandise sales of $89.4 million with a margin of 30.8%, on average, compared favorably with sales of $83.3 million with a margin of 31.2%, on average, in the prior year. Its retail fuel gallons sale totaled $42.4 million, the average margin being 45 cents per gallon. This compared unfavorably with $53.7 million sale, the average margin being 29 cents in second-quarter 2019.
Delek US Holdings, Inc. Price, Consensus and EPS Surprise
Delek US Holdings, Inc. price-consensus-eps-surprise-chart | Delek US Holdings, Inc. Quote
Financials
Total operating expenses incurred in the quarter decreased 35.5% from the prior-year period to $1,512.7 million.
In the reported quarter, Delek spent $15 million on capital programs (81.3% on the Refining segment). As of Jun 30, 2020, the company had cash and cash equivalents worth $849 million and a long-term debt of $2,421.5 million with total debt to total capital of 60.8%, reflecting an increase from the debt of $2,185.5 million in the first quarter.
The company declared a quarterly dividend of 31 cents per share, payable Sep 3, 2020 to its shareholders of record as of Aug 19.
Guidance
Delek anticipates its 2020 capital expenses to be around $250 million.
Delek reiterates it previously announced plan to minimize its overall cost structure of 2020 by approximately $100 million from the year-ago level. This can be achieved through the ongoing optimization of operating costs and the implementation of a freeze on hiring to curtail overhead expenses.
For the third quarter of 2020, the company projects its crude oil throughput in the 230,000-250,000 barrels per day range.
Zacks Rank & Key Picks
Delek currently has a Zacks Rank #4 (Sell).
Some better-ranked players in the energy space are Murphy USA Inc. (MUSA - Free Report) , CNOOC Limited (CEO - Free Report) and SilverBow Resources Inc. (SBOW - Free Report) , each presently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Today's Best Stocks from Zacks
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This outperformance has not just been a recent phenomenon. From 2000 – Q2 2020, while the S&P averaged +5.5% per year, our top strategies averaged up to +51.7% per year.
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