News Details

BRENTWOOD, Tenn.--(BUSINESS WIRE)--Aug. 3, 2016-- Delek US Holdings, Inc. (NYSE: DK) (“Delek US”) today announced financial results for its second quarter ended June 30, 2016. Delek US reported a second quarter net loss of $(7.0) million, or $(0.11) per basic share, versus net income of $48.3 million, or $0.79 per diluted share, for the quarter ended June 30, 2015. On an adjusted basis, Delek US reported a net loss of $(5.1) million, or $(0.08) per basic share for the quarter ended June 30, 2016, compared to net income of $37.8 million, or $0.62 per diluted share on an adjusted basis in the prior year period. Reconciliations of GAAP earnings to adjusted earnings are included in the financial tables attached to this release.

On a year-over-year basis, results in the second quarter 2016 benefited from improved performance in retail and logistics, as well as lower operating and overhead expenses. The decline in expenses was primarily due to improved reliability and a combination of lower variable costs, outside services, employee expenses and maintenance, partially driven by cost reduction programs implemented throughout the company. These benefits were more than offset by a 47 percent decline in the WTI Gulf Coast 5-3-2 crack spread, and a narrowing of the Midland WTI crude oil discount to Cushing WTI.

In May 2015, Delek US acquired 48 percent of the outstanding stock of Alon USA. The loss from the equity investment in Alon USA of $(10.4) million and associated interest costs of $3.8 million related to the financing of this investment lowered results by approximately $0.15 per basic share after tax in the second quarter 2016. Excluding the effect of this investment, Delek US' underlying assets would have earned $0.04 per share on a reported basis and $0.07 per share on an adjusted basis. For purposes of after-tax calculations, a marginal income tax rate of 35 percent was used related to the effect from the investment in Alon USA.

Uzi Yemin, Chairman, President and Chief Executive Officer of Delek US stated, "During the second quarter, our initiatives to improve the factors under our control began to provide results. Programs to reduce costs were factors in lower operating expenses and G&A expenses on a year-over-year basis. We also achieved an operating expense per barrel of $3.41 in our refining system in the second quarter 2016. In addition our capture rates based on adjusted refining margin improved at both refineries on a sequential basis compared to first quarter 2016. Finally, both the logistics and retail segment contribution margins improved on a year-over-year basis as well."

Yemin concluded, "We ended the quarter with $377.1 million of cash, which is an improvement from our March 31, 2016 cash balance of $350.0 million. By reducing costs, managing our capital spending programs and benefiting from cash inflows from tax refunds we lowered our net debt position on a sequential basis by approximately $48.0 million. Efforts are underway to unlock the value of our retail segment and we remain focused on creating long term value for our shareholders as we continue to explore strategic opportunities."

Regular Quarterly Dividend

Delek US announced today that its Board of Directors had declared its regular quarterly cash dividend of $0.15 per share. Shareholders of record on August 23, 2016 will receive this cash dividend payable on September 13, 2016.

Liquidity

As of June 30, 2016, Delek US had a cash balance of $377.1 million and total debt of $941.4 million, resulting in net debt of $564.3 million. This compares to $612.1 million of net debt at March 31, 2016. As of June 30, 2016, Delek US' subsidiary, Delek Logistics Partners, LP (NYSE: DKL) ("Delek Logistics"), had $362.6 million of debt, which is included in the consolidated amounts on Delek US' balance sheet. Excluding Delek Logistics, Delek US had approximately $377.1 million in cash and $578.8 million of debt, or a $201.7 million net debt position compared to $254.4 million at March 31, 2016.

During the second quarter 2016, approximately $36.0 million of cash was received from tax refunds from prior periods and for the first six months of 2016 approximately $136.0 million has been received from a combination of a litigation settlement and tax refunds from prior periods. The total amount expected to be received in 2016 is approximately $140.0 million. Compared to previous guidance of up to $160.0 million that was expected to be received in 2016, the timing of approximately $19.0 million of prior period tax refunds has shifted from the fourth quarter 2016 into 2017. This amount is subject to change based on timing of future tax refunds.

Refining Segment

Net sales for the refining segment were $1,077.7 million the second quarter 2016 compared to $1,336.8 million in the second quarter of 2015. The decrease in net sales was primarily a result of declines in the price of U.S. Gulf Coast gasoline and Ultra-Low-Sulfur diesel ("ULSD") in the second quarter of 2016 compared to the second quarter of 2015. Additionally, sales volumes at the El Dorado refinery decreased as a result of lower throughputs and production as operations matched commercial demand.

Cost of goods sold for the refining segment was $988.1 million in the second quarter 2016 compared to $1,164.8 million in the prior year period. The decrease in cost of goods sold was primarily attributable to a decrease in the cost of WTI crude oil, from an average of $57.80 per barrel in the second quarter of 2015 to an average of $45.56 in the second quarter of 2016. Decreases in sales volumes at the El Dorado refinery also contributed to the decrease. These decreases were partially offset by an increase in the expense for renewable identification numbers ("RINs") related to blending obligations which was $12.3 million in the second quarter 2016 compared to $2.4 million in the prior year period.

In the second quarter 2016, operating expenses in the refining segment decreased to $49.6 million from $60.0 million in the prior year period. The decrease at Tyler was primarily due to lower outside services and natural gas expense. El Dorado operating expenses decreased primarily due to outside services, utilities and chemical expenses. Also, the prior year period at El Dorado included $4.2 million of unanticipated pipeline expenses that were primarily related to oil spill remediation costs.

Refining segment contribution margin was $40.0 million in the second quarter 2016 compared to $112.0 million in the second quarter 2015. The total segment contribution margin included the Tyler, Texas refinery contribution margin of $30.8 million in the second quarter 2016 compared to $75.2 million in the second quarter 2015, and the El Dorado, Arkansas refinery contribution margin of $7.2 million in the first quarter 2016 compared to $36.6 million in the prior year period. On a year-over-year basis several factors affected performance at the refineries. First, the Gulf Coast 5-3-2 crack spread declined to $9.80 per barrel for the second quarter 2016, compared to $18.60 per barrel for the same period in 2015. Second, the second quarter 2016 included a net hedging loss of $(17.4) million compared to a $(15.2) million hedging loss in the prior year period.

Finally, the Midland WTI crude differential to Cushing WTI averaged a $0.18 per barrel discount in second quarter 2016 compared to an average discount of $0.60 per barrel in the second quarter 2015. In addition to the decline in the Midland differential on a year-over-year basis, contango in the oil futures market narrowed to $1.43 per barrel in the second quarter 2016, compared to contango of $1.77 per barrel in the second quarter 2015.

Inventory was a factor in the change in refining performance on a year-over-year basis. There was a reduction in the other inventory charge, excluding lower of cost or market in the second quarter 2016 to $0.2 million compared to a charge of $11.2 million in the second quarter 2015. Lower of cost or market ("LCM") valuation was a benefit of $13.0 million in the second quarter 2016, compared to an LCM valuation benefit of $29.9 million in the prior year period. The change on a year-over-year basis is due to the change in prices of products and crude oil during the respective quarters. The inventory breakdown by refinery is included in the attached financial tables.

See the table below for a summary of certain information by refinery impacting our refining segment operations:

Logistics Segment

Delek US and its affiliates beneficially own approximately 62 percent (including the 2 percent general partner interest) of all outstanding Delek Logistics units. The logistics segment's results include 100 percent of the performance of Delek Logistics and adjustments for the non-controlling interests are made on a consolidated basis.

On a year-over-year basis, results in the logistics segment benefited from a higher west Texas gross margin and terminalling volumes, combined with lower operating expenses, which were partially offset by reduced performance in the trucking operations and on other pipelines on a year-over-year basis. Net sales for the logistics segment were $111.8 million in the second quarter 2016 compared to $172.1 million for the second quarter of 2015, a decrease of $60.3 million, or 35.0%. The decrease was primarily attributable to decreases in the average sales prices per gallon of gasoline and diesel and in diesel volumes sold in our west Texas marketing operations. Decreases in the average cost per gallon of gasoline and diesel also drove a $59.4 million decrease in cost of goods sold for the logistics segment, as purchases in our west Texas operations were impacted by the decline. Operating expenses for the logistics segment were approximately $8.7 million in the second quarter 2016 compared to $10.8 million for the second quarter of 2015. The decrease in operating expenses was primarily due to decreases in maintenance costs and insurance expense. As a result of those factors, contribution margin in the second quarter 2016 increased to $30.0 million compared to $28.8 million in the second quarter 2015.

Retail Segment

Retail segment performance increased year-over-year primarily due to higher fuel margins and lower operating expenses. This benefit was partially offset by lower fuel gallons sold as fuel pricing programs focused on margin rather than gallons during the second quarter 2016. Net sales for the retail segment were $369.8 million in the second quarter 2016 compared to $409.9 million in the second quarter of 2015. The decrease in net sales was primarily due to a decrease in the retail fuel price per gallon. On a year over year basis, merchandise sales increased, which partially offset the decrease in retail fuel. The decrease in the average retail fuel cost per gallon also drove a $41.5 million decrease in cost of goods sold to $318.5 million in the second quarter 2016 from $360.0 million in the prior year period. Operating expenses for the retail segment were $33.1 million in the second quarter 2016 compared to $35.6 million in the second quarter of 2015. The decrease in operating expenses was primarily attributable to declines in insurance and credit expenses. Contribution margin for the segment increased to $18.2 million in the second quarter 2016 compared to $14.3 million in the prior year period.

Fuel gallons sold decreased to 115.3 million in the second quarter 2016 from 116.2 million in the prior-year period and merchandise sales increased year-over-year to $111.0 million compared to $109.2 million in the second quarter 2015. On a same store sales basis, fuel gallons sold decreased (2.4)% and merchandise sales increased 1.7% from second quarter 2015. At the end of the second quarter 2016, there were a total of 69 large-format stores in the portfolio.

See the table below for a summary of certain information impacting our retail segment operations:

Second Quarter 2016 Results | Conference Call Information

Delek US will hold a conference call to discuss its second quarter 2016 results on Thursday, August 4, 2016 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. For those who cannot listen to the live broadcast, a telephonic replay will be available through November 4, 2016 by dialing (855) 859-2056, passcode 48847379. 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) second quarter earnings conference call that will be held on Thursday, August 4, 2016 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 and convenience store retailing. The refining segment consists of refineries operated in Tyler, Texas and El Dorado, Arkansas with a combined nameplate production capacity of 155,000 barrels per day. Delek US Holdings, Inc. and its affiliates also own approximately 62 percent (including the 2 percent general partner interest) of Delek Logistics Partners, LP. Delek Logistics Partners, LP (NYSE: DKL) is a growth-oriented master limited partnership focused on owning and operating midstream energy infrastructure assets. The retail segment markets motor fuel and convenience merchandise through a network of approximately 348 company-operated convenience store locations operated under the MAPCO Express®, MAPCO Mart®, East Coast®, Fast Food and Fuel™, Favorite Markets®, Delta Express® and Discount Food Mart™ brand names. Delek US Holdings, Inc. also owns approximately 48 percent of the outstanding common stock of Alon USA Energy, Inc. (NYSE: ALJ).

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 and opportunities 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.

Investors are cautioned that the following important factors, among others, may affect these forward-looking statements. These factors include but are not limited to: 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; 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; the effect on our financial results by the financial results of Alon USA Energy, Inc., in which we hold a significant equity investment; changes in the scope, costs, and/or timing of capital and maintenance projects; 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, particularly levels of spending relating to travel and tourism or conditions affecting the southeastern United States; and other risks contained in our filings with the United States Securities and Exchange Commission.

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.

Non-GAAP Disclosures:

This earnings release includes references to financial measures that are not defined under U.S. generally accepted accounting principles ("GAAP"). These non-GAAP measures include adjusted net income or loss and adjusted net income or loss per share. Delek US believes that the presentation of these non-GAAP measures reflects operating results that are more indicative of Delek US' ongoing operating performance while improving comparability to prior periods, and, as such, may provide investors with an enhanced understanding of the Company's past financial performance and prospects for the future. Adjusted income or loss and adjusted net income or loss per share should not be considered in isolation or as alternatives to net income or loss, net income or loss per share, or any other measure of financial performance presented in accordance with U.S. GAAP. Additionally, because adjusted net income or loss and adjusted net income or loss per share 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.

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Source: Delek US Holdings, Inc.

Delek US Holdings, Inc.
Keith Johnson, 615-435-1366
Vice President of Investor Relations