It has been about a month since the last earnings report for Delek US Holdings (DK - Free Report) . Shares have lost about 12.1% 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 its most recent earnings report in order to get a better handle on the important drivers.
Delek Q1 Earnings Beat onFavorable Midland Differentials
Delek US Holdings delivered a comprehensive beat in the first quarter of 2019, wherein it surpassed both earnings and sales estimates. Robust contribution from the refining segment on the back of favorable Midland differentials buoyed its results. The company posted adjusted net income per share of $1.54, comfortably surpassing the Zacks Consensus Estimate of 48 cents and increasing from the comparable year-ago period’s profit of 33 cents.
Notably, it reported record net income of $149.3 million in the quarter under review, rebounding from a loss of $40.4 million in the corresponding period of 2018. Total expenses incurred in the quarter declined 14.5% from the prior-year period to $1,977.5 million.
Quarterly revenues came in at $2,200 million, beating the Zacks Consensus Estimate of $2,182 million. However, the top line compared unfavorably with the year-ago sales of $2,353 million.
Refining: Margin from the Refining segment was $294.3 million, skyrocketing 121% from $133.2 million recorded in the year-ago quarter. The improvement reflects wider Midland discount versus Cushing (on continued congestion in the Permian Basin), lower RIN costs and higher crack spreads.
Notably, with the completion of the Alkylation project at the Krotz Springs refinery in April, the firm expects an additional annualized net income and EBITDA of $33.2 million and $50 million, respectively.
Logistics: This unit includes Delek’s 63% 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 $40.1 million versus $36.3 million in the year-ago period. The segment’s results were positively impacted by contribution from the drop down of Big Spring refinery logistics properties. This was partly offset by a decrease in gross margin per barrel in West Texas.
Retail: Margin for the unit — which came into being following the acquisition of Alon USA Energy in 2017 — declined 14.3% from the year-ago quarter to $10.2 million due to lower merchandise sales, partly offset by higher margins. Delek’s merchandise sales came in at $75.3 million with an average margin of 31% compared with $80.5 million with an average margin of 30.2% in the year-ago period.
Capex & Balance Sheet, Dividend & Stock Buyback
In the reported quarter, Delek spent $128.4 million on capital programs (63.6% on the Refining segment). As of Mar 31, the company had cash and cash equivalents of $989.7 million and a long-term debt of $1,729 million, with a debt-to-capitalization ratio of 47.7%.
During the quarter under review, Delek bought back shares worth $46.2 million. It is expected to repurchase additional $60 million shares in the second quarter.
The company declared quarterly dividend of 28 cents a share, marking a 3.7% sequential rise. The dividend will be payable on Jun 3 to its shareholders of record as of May 20.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -9.25% due to these changes.
Currently, 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Delek US Holdings has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.