Why have Delek US Holdings (DK) shares fallen 2.9% since its last earnings report?

It’s been a month since Delek US Holdings’ (DK) last reported earnings. The stock is down about 2.9% in that time, underperforming the S&P 500.

Will the recent negative trend continue into its next earnings release, or is Delek US Holdings poised for a breakout? Before we dive into how investors and analysts have reacted recently, let’s take a quick look at the latest earnings report to better understand the important factors.

Delek’s Q2 profits rise as refining margins increase

Delek US Holdings reported adjusted net earnings of $1.03 per share for the second quarter, missing the Zacks Consensus Estimate of $1.14, reflecting higher operating expenses.

However, the downstream operator turned around from a comparable 2017 loss of 40 cents thanks to solid performance from its refining segment. Specifically, its refining margin of $14.37 per barrel was up from $10.86 a year earlier. With Delek’s refining capacity now operating at 70% to drive down prices in the Permian, the company also benefited from favorable crude oil price spreads, which averaged $15.03 per barrel in the second quarter compared with $3.48 per barrel in the same period a year earlier.

Delek US Holding’s net sales of $2,563.5 million surpassed the Zacks Consensus Estimate of $2,514 million and more than doubled year-over-year.

The company said it incurred expenses of $157.5 million during the quarter, a significant increase from the $62.1 million incurred during the same period last year.

Segment performance

Refining: Refining segment margin was $177 million compared with $16.9 million in the year-ago quarter. The improvement reflects higher crack spreads, a wider spread between Midland WTI and Brent crude prices and the addition of a refinery following the 2017 acquisition of Alon USA.

Logistics: This unit includes Delek US Holding’s 61.5% interest in Delek Logistics Partners, LP, a publicly traded master limited partnership that owns, operates, develops and acquires pipelines and other midstream assets. Logistics unit margins totaled $45.4 million, an increase of 43.2% compared to the same period last year. The segment’s results were impacted by the contribution of depreciation of the Big Spring refinery’s logistics properties, higher gross margin per barrel in West Texas and improved performance of the Paline pipeline. These factors were partially offset by increased operating expenses.

Retail sales: The unit, which was formed through the acquisition of Alon USA Energy, Inc. last year, had a margin of $18.6 million.

Capital Expenditures, Balance Sheet and Share Repurchases

During the reported quarter, Delek spent $54.7 million on capital programs (62% in the Refining segment). As of June 30, 2018, the company had cash and cash equivalents of $1,132.8 million and long-term debt of $1,861.7 million, for a debt-to-capitalization ratio of 51.1%. During the quarter, Delek returned $153 million of capital to shareholders, including $20 million in share repurchases.

How have estimates changed since then?

It turns out that the new estimates were flat over the past month. The consensus estimate has moved 7.61% due to these changes.

VGM Results

At the moment, Delek US Holdings has a strong Growth Score of A, a rating with the same grade on the momentum front. Following exactly the same path, the stock has received an A on the Value side, putting it in the top 20% for this investment strategy.

Overall, the stock has a composite VGM Score of A. If you’re not focused on a single strategy, this rating should interest you.

Perspectives

Delek US Holdings has a Zacks Rank #3 (Hold). We expect the stock to turn around in the next few months.

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