DALLAS -- The retail business of Alon USA Energy Inc. saw “its best first quarter ever,” Paul Eisman, president and CEO said during the company’s earnings call. He had a lot to talk about, including Delek US Holding Inc.’s agreement to acquire more than 48% of the stock now held by parent-company Alon Israel Oil Co. Ltd., as well as a prototype convenience store in New Mexico and wholesale expansion in Phoenix.
Alon USA and Delek US said they expect the stock transaction to close as early as May 12. It has received the required clearance.
“We are excited about the possibilities that this transaction could bring to both companies,” said Eisman, adding that it is “very early in the process and for the most part it is pre-mature for us to comment on any of the specifics.”
Alon USA CFO Shai Even did provide some color on the deal.
“We’ve known Delek and watched Delek for an extended period of time, and frankly, we’ve been very impressed with the company and what [its] team [has] done in terms of growing that company and taking advantage of things in the market. So, we’re very impressed with the company, and we think there are opportunities between the two companies.”
He said that the similarities between the companies are “striking.” They have similar refining capacities, number of convenience stores (approximately 365 stores for Delek US, about 294 for Alon US) and very roughly a similar number of employees.
The agreement also allows Delek US to acquire up to 49.99% of the outstanding shares of Alon USA, with additional ownership subject to approval of Alon USA’s board. It expires on the first anniversary of the closing of the transaction, and Delek US will then have no further restrictions on ownership in Alon USA.
Delek executives will have a “significant presence” on Alon USA’s board, with four executives joining Uzi Yemin, chairman, president and CEO of Delek US, as chairman.
On the first-quarter warnings call for Delek US on May 6, Yemin said that "when the market conditions are right," the company will look "very seriously" at acquired 100% of Alon USA.
Eisman also teased a new convenience-store design.
“We are excited about the opening of our newest store just this morning [May 6] in Rio Rancho, N.M., outside of Albuquerque. We see this as a prototype for the type of large format store we want to build in the future with 4,500 square feet of space within the store and 16 fueling stations.”
The quarterly performance was “supported by attractive fuel and merchandise margins,” Eisman said. “With lower fuel prices at the pump, our retail customers are increasingly purchasing higher-margin products, driving an improvement in our merchandise margins.”
Retail fuel sales volume increased to 46.1 million gallons in first-quarter 2015 from 45.5 million gallons in first-quarter 2014. Merchandise margins increased to 33.2% in first-quarter 2015 from 31.5% in first-quarter 2014.
But “our results for the first quarter were negatively impacted by a challenging wholesale marketing environment resulting from seasonal gasoline weakness in addition to the rise in fuel and RIN [renewable identification number] prices during the quarter.”
Tempering this, however, he said, “Fuel sales during the quarter were very strong. Versus the same quarter last year, wholesale gallons were up over 11%. This month, we initiated wholesale fuel sales into the Phoenix market. Historically, this has been a very attractive market and we see no logistical constraints to prevent us from getting up to 5,000 barrels per day of product into this market. We expect to push towards this rate as we develop our presence in this market.”
The Dallas-based company reported net income for first-quarter 2015 was $26.9 million, compared to net income of $800,000 for the same period last year.
Brentwood, Tenn.-based Delek US is a diversified downstream energy company with assets in petroleum refining, logistics and convenience-store retailing. It also own approximately 62% (including the 2% general partner interest) of Delek Logistics Partners LP, a master limited partnership (MLP) focused on owning and operating midstream energy infrastructure assets. The retail segment markets motor fuel and convenience merchandise through a network of approximately 360 company-operated convenience stores operated under the Mapco Express, Mapco Mart, East Coast, Fast Food & Fuel, Favorite Markets, Delta Express and Discount Food Mart brand names.
Alon USA Energy is an independent refiner and marketer of petroleum products, operating primarily in the south central, southwestern and western regions of the United States. It owns 100% of the general partner and approximately 82% of the limited partner interests in Alon USA Partners LP, which owns refineries in Big Spring, Texas, and Krotz Springs. Through Alon Brands, it operates nearly 300 7-Eleven convenience stores in central and west Texas and New Mexico and markets and supplies ALON motor fuels to independent and company-owned retail locations.
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