Why Is Delek US Holdings (DK) Up 6.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Delek US Holdings (DK). Shares have added about 6.6% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Delek US Holdings due for a pullback? 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 catalysts.

Delek Reports Wider-Than-Expected Q1 Loss on Refining Woes

Delek US Holdings, Inc. witnessed a comprehensive earnings miss for the first quarter of 2020. The company posted adjusted net loss per share of $1.74, wider than the Zacks Consensus Estimate of a loss of 98 cents. Moreover, the year-ago income was $1.54 per share. Notably, weak contribution from refining segment hampered results.

Quarterly revenues of $1,821 million compared unfavorably with the year-ago sales of $2,200 million. However, the top line surpassed the Zacks Consensus Estimate of $1,260 million owing to solid contributions from the Paline Pipeline, the Lion Pipeline System and the Gathering Assets.

Segmental Performance

Refining: The company reported a negative margin of $290.4 million for this segment against a profit of $301.9 million in the year-ago quarter. Results were hurt by lower crude differential environment.

Logistics: Margin from the Logistics unit was $47.3 million, up 18% from $40.1 million in the year-ago period, led by a $3.6-million increase in income from equity method investments as well as improved efforts from the Paline Pipeline, the Lion Pipeline System and the Gathering Assets.

Retail: Margin for the unit, formed from the acquisition of Alon USA Energy in 2017, expanded 20.6% to $12.3 million from the year-earlier quarter’s level on the back of higher Retail fuel margin. Delek’s merchandise sales of $71.7 million with average margin of 31.6% compared unfavorably with sales of $75.3 million with average margin of 31% in the prior year. Its retail fuel gallons sale totaled $48 million, the average margin being 31 cents per gallon. This compared unfavorably with $53.9 million sale with average margin of 19 cents in first-quarter 2019.

Financials

Total expenses incurred in the quarter increased 10.4% from the prior-year period to $2,182.7 million.

In the reported quarter, Delek spent $190.2  million on capital programs (88.4% on the Refining segment). As of Mar 31, 2020, the company had cash and cash equivalents worth $784.9   million and a long-term debt of $2,185.5 million with total debt to total capital of 59.5%.

The company declared a quarterly dividend of 31 cents per share, payable Jun 3, 2020 to its shareholders of record as of May 20.

Guidance

In response to the coronavirus-induced bearish oil environment, Delek is slashing its 2020 capital expenses by $75 million from the prior guidance of $325 million

Further, the company intends to minimize its overall cost structure by approximately $100 million from the year-ago level. This can be achieved through the ongoing optimization of operating costs and implementation of a freeze on hiring to reduce overhead expenses.

Refining throughput for the second quarter is projected to be nearly 80% of utilization.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 30.72% due to these changes.

VGM Scores

Currently, Delek US Holdings has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Delek US Holdings has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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