Delek US officials continue to evaluate growth opportunities, while their financial position remains conservative.
Delek US Holdings Inc. has released financial results for its third quarter ending Sept. 30, 2015.
Delek US reported a third quarter net income of $18.7 million, or 29 cents per diluted share, versus net income of $72.5 million, or $1.22 per diluted share, for the quarter ended Sept. 30, 2014.
Third quarter 2015 results on a pre-tax basis were reduced by approximately $32.4 million of inventory related expenses consisting of an inventory charge due to the lower of cost or market valuation of $27.3 million and $5.1 million for other inventory related charges due to crude oil and product price movements during the quarter. Also, a $1.6 million net hedging loss, including $5.8 million of unrealized losses, lowered results in the third quarter of 2015. This compares to approximately $12.2 million of inventory related charges and a net hedging gain of $29.7 million, including $3.6 million of unrealized gains, in the third quarter 2014.
On a year-over-year basis, results in the third quarter 2015 benefited from increased throughput at the Tyler, Texas refinery, a higher WTI Gulf Coast 5-3-2 crack spread and improved performance in the logistics and retail segments. In addition, the approximately 48% ownership in Alon USA increased pre-tax income by $12.3 million net of associated interest expense. These benefits were more than offset by a $10.57 per barrel change in the Midland WTI and Cushing WTI differential to a premium as compared to a discount in the third quarter 2014, along with the items mentioned above.
“During the quarter we improved throughout sequentially at the Tyler refinery as we matched operating rates to increased commercial demand. The Retail segment had a solid third quarter, and its trailing 12 month contribution margin reached a record amount. Our Logistics performance improved year-over-year, and our joint venture crude oil pipeline projects are expected to be completed in the second half of 2016. Lastly, our cash flow generation has benefited from lower capital expenditures following the completion of the expansion and turnaround at Tyler in March 2015, and we repurchased $39 million of stock between late August and the end of October,” said Uzi Yemin, chairman, president and CEO of Delek US.
“We expect our maintenance and regulatory capital expenditure needs in 2016 to be approximately $100 to $110 million. Our cash flow attributed to our ownership of Delek Logistics’ general partner should increase as incentive distribution rights payments have reached the level of high splits based on Delek Logistics’ recent distribution increase. Also, the potential for increased free cash flow from our operations should improve as capital expenditures decline from our 2015 forecast of $227 million. As we enter the fourth quarter, Midland has moved back to a discount and the futures market remains in contango. Our financial position remains conservative, and we continue to evaluate growth opportunities, including the acquisition of additional shares of Alon USA, while also returning cash to shareholders,” Yemin concluded.
RETAIL SEGMENT
Retail segment contribution margin increased year-over-year primarily due to higher fuel margins and gallons sold, combined with increased merchandise sales. Operating expense decreased primarily due to lower credit expenses on a year-over-year basis. Fuel gallons sold increased to 117.9 million from 116.1 million in the prior-year period and merchandise sales increased year over year to $111.3 million compared to $107.0 million. On a same store sales basis, fuel gallons sold increased 0.4% and merchandise sales increased 3.8% from third quarter 2014. At the end of the third quarter 2015, there were a total of 64 large-format stores in the portfolio.