Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Delek US Holdings Inc (DK, Financial) achieved its highest throughput ever this quarter, demonstrating operational efficiency.
- The company announced the sale of its retail business for $385 million, unlocking significant value for shareholders.
- Delek US Holdings Inc (DK) completed its cost reduction efforts ahead of schedule, exceeding the initial target of $100 million.
- The company paid $16 million in dividends and increased its quarterly dividend to $0.25 per share, reflecting a commitment to shareholder returns.
- Delek US Holdings Inc (DK) announced a series of strategic transactions, including the acquisition of H2O Midstream, which is expected to be immediately accretive to EBITDA and free cash flow.
Negative Points
- Delek US Holdings Inc (DK) reported a net loss of $37 million for the second quarter, with an adjusted net loss of $59 million.
- The company faced a challenging market environment, leading to a $64 million decrease in refining margins.
- Cash flow from operations was negative $48 million, impacted by working capital movements and the Inventory Intermediation Agreement.
- The company experienced a $34 million loss in Supply and Marketing, with significant contributions from wholesale marketing and asphalt.
- El Dorado refinery faced operational challenges, including low margins and increased backwardation, impacting overall performance.
Q & A Highlights
Q: I'm trying to understand the difference between Delek debt and consolidated debt. What more can be done this year to deconsolidate that debt?
A: We are committed to showing the value of our parts and are aggressively driving towards this target. We have improved our cash balance with minimal impact on EBITDA and executed an economic swap of assets. This positions us for deconsolidation readiness, with more steps to come.
Q: Based on the transactions with DKL, should we expect a better EBITDA per barrel now that the assets are in the right buckets?
A: Yes, bringing back value over time while growing DKL will improve DK's capture rate in refining. This will make DK and DKL deconsolidation-ready.
Q: What is your position on SREs, and does it matter if the real price is $0.50 a gallon?
A: We are pleased with the court ruling and believe we deserve the exemption under the RFS rules. From 2018 to 2020, we spent approximately $300 million to meet RFS obligations. The court ruling is positive, and we hope the EPA will grant the exemption.
Q: How will the proceeds from the recent transactions be used?
A: We have a balanced approach between improving the balance sheet and buybacks. We see value in our share price and will provide more details once transactions are closed.
Q: How should we think about the tax implications from the recent transactions?
A: There will be some tax leakage from the retail front, but it is not material. We are working on minimizing it, and taxes from related party transactions are residual.
Q: Does the new corporate structure help simplify things for larger scale M&A at the DKL level?
A: Yes, the new structure puts the right assets under the right ownership, making DKL largely third-party income by the second quarter of 2025. This is a significant step towards deconsolidation.
Q: What stands out to you about the margin dispersion among your assets?
A: We faced low margins, increased backwardation, and co-product weakness in the second quarter. We are focused on alternative market access and expect to demonstrate progress in the next earnings call. Midwest balances have improved, positively impacting refinery and wholesale margins.
Q: Can you discuss the supply and marketing improvement in the second quarter and the outlook for Q3?
A: Improved Midwest market conditions have positively impacted pricing and product movement. We expect to return to normal asphalt ranges after a challenging start to the season.
Q: How close are you to completing the sum-of-the-parts effort after these deals are closed?
A: We are making significant progress, reducing interdependence between DK and DKL, and adding substantial third-party business to DKL. We are in a much better position for deconsolidation.
Q: Can you provide details on the second phase of cost reduction efforts?
A: We are taking this seriously and it will impact more aspects of the business. We will provide more specific guidance soon.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
