Delek US Holdings Reports First Quarter 2019 Results

Globe Newswire 6-May-2019 6:45 AM

• Reported record first quarter net income of $149.3 million and adjusted EBITDA of $237.5 million
  
• Expect to repurchase $60 million of stock during the second quarter 2019
• Increased regular quarterly dividend by 3.7 percent to $0.28 per share
• Alkylation unit at Krotz Springs refinery operational in early April
• El Dorado refinery turnaround completed on April 24, 2019

BRENTWOOD, Tenn., May 06, 2019 (GLOBE NEWSWIRE) -- Delek US Holdings, Inc. (NYSE:DK) ("Delek US") today announced financial results for its first quarter ended March 31, 2019. Delek US reported first quarter 2019 net income of $149.3 million, or $1.90 per diluted share, versus a net loss of $(40.4) million, or $(0.49) per basic share, for the quarter ended March 31, 2018. On an adjusted basis, Delek US reported adjusted net income of $121.2 million, or $1.54 per diluted share for the first quarter 2019. This compares to adjusted net income of $21.5 million, or $0.26 per diluted share, in the prior-year period. Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") was $237.5 million compared to Adjusted EBITDA of $104.9 million in the prior-year period. Reconciliations of net income reported under U.S. GAAP to adjusted net income and Adjusted EBITDA are included in the financial tables attached to this release.

Quarterly results improved year-over-year primarily due to better performance in the refining segment. The refining segment contribution margin increased to $294.3 million in the first quarter 2019, compared to $133.2 million in the prior-year period. The improved results in refining benefited from a more favorable Midland-Brent crude oil price differential, lower RINs expense and an active inventory management strategy during a period of rising prices. Included in our reported and adjusted results on a pre-tax basis in the first quarter 2019, was approximately $61.0 million of inventory valuation benefit excluding the effect of a lower of cost or market gain. Reported and adjusted results in the period also included a pre-tax expense of approximately $9.0 million related to an asset disposal and emission allowance cost in the refining segment. In the prior year period, refining results included a benefit of approximately $115.5 million related to a combination of the 2017 RINs waivers and a biodiesel tax credit, while the first quarter of 2019 did not realize any benefit from either RINs waivers or a biodiesel tax credit.

Uzi Yemin, Chairman, President and Chief Executive Officer of Delek US, stated, "This was a great start to 2019. Performance benefited from our WTI-linked crude slate through the widening of the Midland-Brent crude oil differential and solid commercial execution as market conditions improved. The capture rates in our refining operations have continued to improve as sustainable commercial initiatives have been implemented by our team. These initiatives should benefit us going forward, along with a wider Midland-Brent crude oil differential that has averaged $11.60 per barrel so far in the second quarter. Our commitment to return cash to shareholders continued in the first quarter as $67 million was returned through dividends and share repurchases. We expect to repurchase $60 million of our stock in the second quarter and announced an increase in our dividend for the first quarter 2019. Through our repurchase program, we have reduced our weighted average share count by 13 percent since the peak in the second quarter 2018."

Mr. Yemin continued, "We remain focused on developing our midstream operations. During the first quarter, we exited the proposed PGC Partnership allowing us to explore more favorable options to participate in one of the announced long haul crude oil pipelines. The Big Spring Gathering System continues to develop which, when combined with our potential participation in a long haul pipeline, should support our target to achieve $350 to $370 million of EBITDA from our midstream operations by 2023."

Alkylation Project Completed

The alkylation unit at the Krotz Springs refinery was completed in early April providing additional flexibility to the refinery. The total cost was approximately $138.0 million. This project is expected to generate an annualized incremental net income of approximately $33.2 million and incremental EBITDA of approximately $50.0 million based on current market prices. This unit should improve the ability to convert low value products into gasoline, enable the refinery to produce multiple summer gasoline grades and increase octane, allowing the refinery to produce premium gasoline. Because of the conversion improvement at the refinery from this project, its returns are expected to be less dependent on the crack spread environment over time.

Regular Quarterly Dividend and Share Repurchase
Delek US announced today its Board of Directors declared a regular quarterly cash dividend of $0.28 per share. This represents a 3.7 percent increase from our previous regular quarterly dividend. Shareholders of record on May 20, 2019 will receive this cash dividend payable on June 3, 2019.

Based on settlement dates during the first quarter 2019, Delek US repurchased approximately 1.3 million shares of Delek US common stock for approximately $46.2 million, with an average price of $35.73 per share. At March 31, 2019, there was approximately $363.6 million of total available authorization remaining to repurchase shares. Based on settlement date, approximately $3.8 million of repurchases were completed in early April as part of the first quarter 2019 program. Delek US expects additional repurchases of approximately $60.0 million of Delek US common stock during the second quarter 2019.

Liquidity
As of March 31, 2019, Delek US had a cash balance of $989.7 million and total consolidated debt of $1,761.1 million, resulting in net debt of $771.4 million. As of March 31, 2019, Delek US' subsidiary, Delek Logistics Partners, LP ("Delek Logistics"), had $705.2 million of total debt and $5.4 million of cash, which is included in the consolidated amounts on Delek US' balance sheet. Excluding Delek Logistics, Delek US had approximately $984.3 million in cash and $1,055.9 million of debt, or a $71.6 million net debt position.

Refining Segment
Refining segment contribution margin was $294.3 million in the first quarter 2019 compared to $133.2 million in the first quarter 2018. On a year-over-year basis, results benefited from a wider discount for the Midland to Brent differential, lower RINs expense and a higher crack spread. In addition, as discussed earlier, results in the first quarter 2019 benefited from a rising price environment during the period. Performance at the Krotz Springs, Louisiana refinery continued to improve as it benefited from a crude slate with increased amounts of Midland crude oil and better net-backs as a result of lower RINs prices. The first quarter 2018 results included a benefit from RINs waivers and a biodiesel tax credit that were not present in the first quarter 2019. The Gulf Coast 5-3-2 crack spread increased to $13.02 per barrel for the first quarter 2019, compared to $11.53 per barrel for the same period in 2018.

Results during the first quarter 2019 include a Midland to Cushing market differential during the period that was higher than the average market differential due to an inventory timing effect. The estimated realized Midland to Cushing differential included in reported results was approximately $4.26 per barrel during the first quarter 2019, taking into consideration this inventory timing effect. During the El Dorado refinery turnaround, our refining system continued to process all of our available Midland crude oil.

During the first quarter 2019, the Midland WTI crude oil differential to Brent crude oil was an average discount of $10.13 per barrel compared to $4.70 per barrel in the prior-year period. The Midland WTI crude oil differential to Cushing WTI was an average discount of $3.86 per barrel in first quarter 2019 compared to an average premium of $0.37 per barrel in the first quarter 2018. Contango in the oil futures market was $0.36 per barrel in the first quarter 2019, compared to backwardation of $0.12 per barrel in the first quarter 2018.

During the first quarter 2019, the Environmental Protection Agency did not finalize its decision related to small refinery exemption from the requirements of the renewable fuel standard for the 2018 calendar year. In the first quarter 2018, the El Dorado, Arkansas and Krotz Springs, Louisiana refineries received approval from the Environmental Protection Agency for a small refinery exemption from the requirements of the renewable fuel standard for the 2017 calendar year. This waiver resulted in approximately $59.3 million of RINs expense reduction at El Dorado and $31.6 million at Krotz Springs for the first quarter 2018.

The U.S. Congress did not approve a biodiesel blenders tax credit during the first quarter 2019. In the first quarter 2018, approximately $24.6 million of income was recognized in the renewables business in the refining segment from a $1 per gallon biodiesel blenders federal tax credit that was approved in February 2018 on a retroactive basis for calendar year 2017.

Logistics Segment
The logistics segment contribution margin in the first quarter 2019 increased to $40.1 million compared to $36.3 million in the first quarter 2018. The primary factor that increased contribution margin was a benefit from the drop down of the Big Spring refinery logistics assets that was effective March 1, 2018, which was partially offset by a lower gross margin in west Texas wholesale marketing.

Retail Segment
For the first quarter 2019, contribution margin was $10.2 million compared to $11.9 million in the prior year period for the retail segment. Merchandise sales were approximately $75.3 million with an average retail margin of 31.0% in the first quarter 2019, compared to merchandise sales of approximately $80.5 million with an average retail margin of 30.2% in the prior year period. Approximately 53.9 million retail fuel gallons were sold at an average margin of $0.19 per gallon in the first quarter 2019 compared to 53.7 million retail fuel gallons sold at an average margin of $0.19 per gallon in the first quarter 2018. On a same store sales basis in the first quarter 2019, merchandise sales increased 0.8% and fuel gallons sold increased 4.1% compared to the prior-year period.

Corporate/Other Segment
Contribution margin from the Corporate/Other segment was a loss of $10.8 million in the first quarter 2019 compared to a loss of $29.1 million in the prior-year period. The net hedging gain included in this segment in the first quarter 2019 was $8.8 million compared to a net hedging loss of $17.8 million in the prior-year period.

First Quarter 2019 Results | Conference Call Information
Delek US will hold a conference call to discuss its first quarter 2019 results on Monday, May 6, 2019 at 8:30 a.m. Central Time. Investors will have the opportunity to listen to the conference call live by going to www.DelekUS.com and clicking on the Investor Relations tab. Participants are encouraged to register at least 15 minutes early to download and install any necessary software. Presentation materials accompanying the call will be available on the investor relations tab of the Delek US website approximately five minutes prior to the start of the call. For those who cannot listen to the live broadcast, a telephonic replay will be available through August 6, 2019 by dialing (855) 859-2056, passcode 6275616. An archived version of the replay will also be available at www.DelekUS.com for 90 days.

Investors may also wish to listen to Delek Logistics' (NYSE:DKL) first quarter 2019 earnings conference call that will be held on Monday, May 6, 2019 at 7:30 a.m. Central Time and review Delek Logistics' earnings press release. Market trends and information disclosed by Delek Logistics may be relevant to the logistics segment reported by Delek US. Both a replay of the conference call and press release for Delek Logistics are available online at www.deleklogistics.com.

About Delek US Holdings, Inc.
Delek US Holdings, Inc. is a diversified downstream energy company with assets in petroleum refining, logistics, renewable fuels and convenience store retailing. The refining assets consist of refineries operated in Tyler and Big Spring, Texas, El Dorado, Arkansas and Krotz Springs, Louisiana with a combined nameplate crude throughput capacity of 302,000 barrels per day.

The logistics operations primarily consist of Delek Logistics Partners, LP (NYSE:DKL). Delek US Holdings, Inc. and its affiliates own approximately 63% (including the 2 percent general partner interest) of Delek Logistics Partners, LP. Delek Logistics Partners, LP is a growth-oriented master limited partnership focused on owning and operating midstream energy infrastructure assets.

The convenience store retail business is the largest 7-Eleven licensee in the United States and operates approximately 281 convenience stores in central and west Texas and New Mexico.

Safe Harbor Provisions Regarding Forward-Looking Statements
This press release contains forward-looking statements that are based upon current expectations and involve a number of risks and uncertainties. Statements concerning current estimates, expectations and projections about future results, performance, prospects, opportunities, plans, actions and events and other statements, concerns, or matters that are not historical facts are "forward-looking statements," as that term is defined under the federal securities laws. These statements contain words such as "possible," "believe," "should," "could," "would," "predict," "plan," "estimate," "intend," "may," "anticipate," "will," "if," "potential," "expect" or similar expressions, as well as statements in the future tense. These forward-looking statements include, but are not limited to, statements regarding throughput at the Company's refineries; crude oil prices, discounts and quality and our ability to benefit therefrom; share repurchases; returning cash to shareholders; payments of dividends; growth; investments into our business; execution of our midstream growth initiatives, including the Big Spring Gathering System and the long-haul crude oil pipeline; RINs waivers and tax credits and the value and benefit therefrom; cash and liquidity; opportunities and anticipated performance and financial position.

Investors are cautioned that the following important factors, among others, may affect these forward-looking statements. These factors include, but are not limited to: uncertainty related to timing and amount of future share repurchases and dividend payments; risks and uncertainties with respect to the quantities and costs of crude oil we are able to obtain and the price of the refined petroleum products we ultimately sell; risks related to Delek US' exposure to Permian Basin crude oil, such as supply, pricing, gathering, production and transportation capacity; gains and losses from derivative instruments; management's ability to execute its strategy of growth through acquisitions and the transactional risks associated with acquisitions and dispositions; acquired assets may suffer a diminishment in fair value as a result of which we may need to record a write-down or impairment in carrying value of the asset; changes in the scope, costs, and/or timing of capital and maintenance projects; the ability to grow the Big Spring Gathering System; the ability to obtain commitments and construct a long-haul pipeline; operating hazards inherent in transporting, storing and processing crude oil and intermediate and finished petroleum products; our competitive position and the effects of competition; the projected growth of the industries in which we operate; general economic and business conditions affecting the southern United States; and other risks described in Delek US' filings with the United States Securities and Exchange Commission (the "SEC"), including risks disclosed in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other filings and reports with the SEC.

Forward-looking statements should not be read as a guarantee of future performance or results and will not be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management's good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Delek US undertakes no obligation to update or revise any such forward-looking statements to reflect events or circumstances that occur, or which Delek US becomes aware of, after the date hereof, except as required by applicable law or regulation.

Non-GAAP Disclosures:

Our management uses certain "non-GAAP" operational measures to evaluate our operating segment performance and non-GAAP financial measures to evaluate past performance and prospects for the future to supplement our GAAP financial information presented in accordance with U.S. GAAP. These financial and operational non-GAAP measures are important factors in assessing our operating results and profitability and include:

• Adjusted net income (loss) - calculated as net income attributable to Delek US adjusted for certain identified infrequently occurring items, non-cash items and items that are not attributable to our on-going operations (collectively, "Adjusting Items") recorded during the period;
  
  
• Adjusted unrealized hedging (gains) losses - calculated as GAAP unrealized (gains) losses on commodity derivatives that are economic hedges but not designated as hedging instruments adjusted to exclude unrealized (gains) losses where the instrument has matured but where it has not cash settled as of the balance sheet date. This adjustment more appropriately aligns matured commodity derivatives gains and losses with the recognition of the related cost of materials and other. There are no premiums paid or received at the inception of the derivative contracts, and upon settlement there is no cost recovery associated with these contracts;
  
  
• Adjusted net income (loss) per share - calculated as adjusted net income (loss) divided by weighted average shares outstanding, assuming dilution, as adjusted for any anti-dilutive instruments that may not be permitted for consideration in GAAP earnings per share calculations but that nonetheless favorably impact dilution;
  
  
• Earnings before interest, taxes, depreciation and amortization ("EBITDA") - calculated as net income attributable to Delek adjusted to add back interest expense, income tax expense, depreciation and amortization;
  
  
• Adjusted EBITDA - calculated as EBITDA adjusted for the identified adjusting items in adjusted net income (loss) that do not relate to interest expense, income tax expense, depreciation or amortization, and adjusted to include income (loss) attributable to non-controlling interests;
  
  
• Refining margin - calculated as the difference between total refining revenues and total cost of materials and other; and
  
  
• Refining margin per sales barrel - calculated as refining margin divided by our average refining sales in barrels per day (excluding purchased barrels) multiplied by 1,000 and multiplied by the number of days in the period.

We believe these non-GAAP operational and financial measures are useful to investors, lenders, ratings agencies and analysts to assess our ongoing performance because, when reconciled to their most comparable GAAP financial measure, they provide improved comparability between periods through the exclusion of certain items that we believe are not indicative of our core operating performance and they may obscure our underlying results and trends.

Non-GAAP measures have important limitations as analytical tools, because they exclude some, but not all, items that affect net earnings and operating income. These measures should not be considered substitutes for their most directly comparable U.S. GAAP financial measures. Additionally, because adjusted net income or loss, adjusted net income or loss per share, EBITDA and adjusted EBITDA or any of our other identified non-GAAP measures may be defined differently by other companies in its industry, Delek US' definition may not be comparable to similarly titled measures of other companies. See the accompanying tables in this earnings release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures.

Investor Relations Contact:
Keith Johnson
Vice President of Investor Relations
615-435-1366

Media/Public Affairs Contact:
Michael P. Ralsky
Vice President - Government Affairs, Public Affairs & Communications
615-435-1407