A month has gone by since the last earnings report for Delek US Holdings (DK - Free Report) . Shares have lost about 0.7% 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 Posts Narrower-Than-Expected Q2 Loss, Sales Top Estimates
Delek’ssecondquarter 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.
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.
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.
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.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -33.43% due to these changes.
Currently, Delek US Holdings has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, 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 A. 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.