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Delek (DK) Q2 Earnings Jump, Helped by Refining Margin Surge

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Delek US Holdings, Inc. (DK - Free Report) 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.

Delek US Holdings, Inc. Price, Consensus and EPS Surprise

 

Delek US Holdings, Inc. Price, Consensus and EPS Surprise | Delek US Holdings, Inc. Quote

Segmental Performance

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.

Zacks Rank & Stock Picks

Delek currently retains a Zacks Rank #3 (Hold).

Meanwhile, one can look at a better-ranked energy player like McDermott International, Inc. (MDR - Free Report) , Northern Oil and Gas, Inc. (NOG - Free Report) and W&T Offshore, Inc. (WTI - Free Report) . All the companies sport a Zacks Rank #1 (Strong Buy).

(You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.)

McDermott International is a fully vertically integrated company providing engineering and construction solutions to the energy firms. In the last 60 days, the Zacks Consensus Estimate for current year earnings has risen 4%.

Northern Oil and Gas is a non-operator explorer and producer with primary focus on the Williston Basin in North Dakota and Montana. In the last 60 days, the Zacks Consensus Estimate for current year earnings has risen 24%.

W&T Offshore is a leading oil and natural gas explorer with operations primarily focused on resources located off the coast of Gulf of Mexico. In the last 60 days, the Zacks Consensus Estimate for current year earnings has risen 23%.

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