Delek (DK) Q2 Earnings Beat On Refining Strength, Up Y/Y

Delek US Holdings, Inc. (NYSE:DK) delivered a comprehensive beat in the second quarter of 2019, wherein it surpassed both earnings and sales estimates. Notably, robust contribution from the refining segment buoyed its results. The company posted adjusted net income per share of $1.17, comfortably surpassing the Zacks Consensus Estimate of 77 cents and increasing from the comparable year-ago profit of 92 cents.

Quarterly revenues came in at $2,480 million, beating the Zacks Consensus Estimate of $2,430 million. The top line also compared favorably with the year-ago sales of $2,422 million.

Segmental Performance

Refining: Margin from the Refining segment was $178.3 million, slightly higher than $177 million recorded in the year-ago quarter. The segment’s results were aided by reduced RIN costs, completion of the Alkylation project at the Krotz Springs refinery and higher crack spreads, partially offset by lower Midland discount versus Cushing (on continued congestion in the Permian Basin).

Logistics: This unit includes Delek’s 63% interest in Delek Logistics Partners, L.P. (NYSE:DKL) , a publicly-traded master limited partnership that owns, operates, develops, and acquires pipelines and other midstream assets. Margin from the Logistics unit decreased to $44.2 million from $45.2 million in the year-ago period amid lower y/y volumes from its Lion Pipeline System.

The company entered into a joint venture with Plains all American (NYSE:PAA) in May 2019 by purchasing a 33% stake in the Red River crude oil pipeline for about $128 million. The current transportation capacity of the firm stands at 150,000 barrels a day (bpd) and the same is likely to be expanded by another 85,000 bpd within the first half of 2020. Delek is also set to acquire a 15% stake in the Wink to Webster Pipeline for about $340-380 million. The project, which is expected to be completed by 2021, has already lined up enough customers. Notably, the Wink to Webster crude pipeline project — which is a JV between ExxonMobil (NYSE:XOM) and Plains All American, among others — is likely to come online within 2021.Contribution from these joint ventures and the drop down of Big Spring refinery logistics properties will aid the firm in generating annualized EBITDA in the range of $370-$395 from midstream operations by 2023.

Retail: Margin for the unit — which came into being following the acquisition of Alon USA Energy in 2017 — declined 5.4% from the year-ago quarter to $17.6 million due to lower merchandise sales and margins. Delek’s merchandise sales came in at $83.3 million with an average margin of 31.2% compared with $90.2 million with an average margin of 31.7% in the year-ago period.

Financials

Total expenses incurred in the quarter declined 6.2% from the prior-year period to $2,346 million.

In the reported quarter, Delek spent $86 million on capital programs (57% on the Refining segment). As of Jun 30, the company had cash and cash equivalents of $951.4 million and a long-term debt of $1,852.3 million, with a debt-to-capitalization ratio of 49.5%.

During the quarter under review, Delek bought back shares worth $58.6 million. It is expected to repurchase an additional $40 million shares in the third quarter.

The company declared quarterly dividend of 29 cents a share, marking a 3.6% sequential rise. The dividend will be payable on Aug 19 to its shareholders of record as of Sep 3.

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