FRANKLIN, Tenn. -- Delek US Holdings Inc. today reported net income of $26.3 million, or 52 cents per basic share and 51 cents per diluted share, for third-quarter 2006 compared to $32.5 million, or 82 cents per basic and diluted share, for third-quarter 2005. For the first nine months of 2006, Delek reported a record net income of $81.4 million, or $1.78 per basic share and $1.75 per diluted share compared to $39.5 million or $1 per basic and diluted share for the first nine months of 2005.
Net sales for third-quarter 2006 were $920.9 million versus $698.7 [image-nocss] million in the comparative 2005 third quarter, an increase of $222.2 million. The increase was primarily driven by sales from the new marketing segment, the additional retail stores which have been acquired from BP and Fast Petroleum in the previous 12 months, and improved sales at the Tyler, Texas, refinery.
Segment contribution margin for third-quarter 2006 was $58.7 million compared to $78.6 million in the 2005 third quarter. The changes in the segment contribution margin were primarily related to the drop in the 5-3- 2 Gulf Coast crack spread, as well as a single purchase of initial inventory in the marketing and supply segment at a spot price which generated losses of $2.7 million due to an immediate drop in market value prior to the ultimate sale of such inventory.
Net income for third-quarter 2006 was $26.3 million including the noted spot inventory purchase, an unrealized loss on interest rate derivatives and a writeoff of costs associated with an unsuccessful acquisition which totaled $3 million after tax.
The refining segment contribution margin was $36.5 million for third-quarter 2006 compared to $60.3 million for third-quarter 2005.
Also, during the quarter, the company completed a major revamp project at its Tyler refinery that allows for the production of 22,000 barrels per day of ultra-low-sulfur diesel, an overall increase of more than 83% from our prior capacity. This project was undertaken in order to comply with governmental regulations requiring a reduction in sulfur content for diesel.
The retail segment reported a record contribution margin for third-quarter 2006 of $23.1 million. The retail segment reported net sales of $401.8 million, an increase of 33.8% compared to the third quarter last year. During the quarter, Delek US completed the acquisition of 43 convenience stores from Fast Petroleum, increasing its stores in operation to 392 at the end of the third quarter, up from 328 at the same time in 2005. This acquisition provides Delek US with additional geographic store density between its core markets of middle Tennessee and northern Alabama.
Merchandise sales for the quarter increased $12.5 million to $90.8 million compared to $78.3 million for third-quarter 2005, an increase of 16%. The increase was driven by $11.2 million in merchandise sales associated with the acquired BP and Fast stores. Same-store merchandise sales increased 1.7% for the quarter. The company said it will continue to expand its focus on fountain and foodservice, realizing a same-store sales increase of 12.9% in the category. The merchandise margin increased to 30.3% for third-quarter 2006 from 29.2% for the same quarter last year. Consistent with the retail segment's performance throughout 2006, the year-over-year improvement reflected increased sales of higher margin items, such as food, coffee and fountain drinks.
The retail segment's total fuel sales for third-quarter 2006 increased 40.3% to $290 million from $206.7 million for the same quarter of 2005, primarily due to both the 9.3% increase in the average retail price per gallon of fuel to $2.71 for the latest quarter from $2.48 for the third quarter last year, and a 28.3% increase in gallons sold to 107 million from 83.4 million. This increase in gallons sold was primarily driven by the increased number of stores in operation, as well as by a 5.5% growth in same- store gallons sold. The retail fuel margin was $0.207 per gallon for third-quarter 2006 compared to $0.208 per gallon for third-quarter 2005.
As part of Delek's overall strategy to diversify and integrate its operational segments, it established a new operating segment during the quarter in conjunction with the acquisition from The Pride Cos. The new marketing and supply segment contributed $94.4 million to net sales for the quarter. From the date of acquisition, Aug. 1, 2006, through Sept. 30, 2006, the marketing and supply segment reported a contribution loss of $958,000. Included in the contribution loss is an inventory loss of $2.7 million associated with the initial purchase of inventory. The marketing and supply segment reported total sales volume of 17,535 bpd during the quarter.
Delek US is a diversified energy business focused on petroleum refining, marketing and supply, and retail marketing. It's stores operate under the MAPCO Express, MAPCO Mart, East Coast and Discount Food Mart brands.
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