Higher Merchandise Sales, Margins Help Speedway

But fuel margins, decline in demand hinder, says Marathon Petroleum Corp.

Greg Lindenberg, Editor, CSP

Marathon MPC Speedway Gas Station (CSP Daily News / Convenience Stores)

FINDLAY, Ohio -- Citing the effect of cold weather, Marathon Petroleum Corp. (MPC) has reported Speedway convenience store segment income from operations of $58 million in first-quarter 2014, compared with $67 million in first-quarter 2013.

For the company as a whole, MPC reported 2014 first-quarter earnings of $199 million, compared with $725 million for first-quarter 2013. Total income from operations was $361 million in first-quarter 2014, compared with $1.16 billion in first-quarter 2013.

The Refining & Marketing segment income from operations was $362 million in first-quarter 2014, compared with $1.11 billion in first-quarter 2013. The decrease was primarily due to narrower crude oil differentials, higher turnaround costs and lower refinery throughput, primarily due to the turnaround activities. The decrease was partially offset by higher crack spreads and more favorable net product price realizations.

"The cold weather impacted all aspects of Speedway's business," said CFO and senior vice president Donald Templin during the company's earnings call. "Light-product gross margin was about $8 million lower in the first quarter of 2014 compared with the first quarter of 2013. The decrease was primarily due to 1.5-cents-per-gallon lower gross margin.

Merchandise margin was $192 million in the first quarter of 2014 compared with $184 million in the same period last year. This $8 million increase was primarily due to higher merchandise sales and higher merchandise margins."

He continued, "Speedway's operating and other expenses were also $9 million higher during the first quarter of 2014 compared to the first quarter of 2013, primarily driven by an increase in store count and additional operating costs associated with keeping our facility safe for our customers during the adverse weather conditions. On a same-store basis, gasoline sales volumes decreased 0.7%, and merchandise sales, excluding cigarettes, increased 5.3% in the first quarter of 2014 compared with the 2013 first quarter."

Templin concluded, "In April 2014, we've seen a slight decline in demand, with an approximately 1% decrease in same-store gasoline sales volumes versus the prior year, primarily due to higher average gasoline street prices."

Concerning the potential for a master limited partnership (MLP) for retail or wholesale, president and CEO Gary Heminger said, "The way we look at this is that we have multiple levels of optionality. We are fully aware of some of those different structures. But I also want to be consistent that we believe there's a tremendous value and a value around synergy within MPC of having this very strong retail base and knowing how you're going to move your product and the efficiencies of moving your product through the marketplace that we've been able to capture historically. However, that does not say that we will forever maintain that type of a structure. We're fully aware, and we continue to do a lot of analysis on what the best way forward would be. But for now, we think we're in a very good position."

Findlay, Ohio-based MPC is the nation's fourth-largest refiner, with a crude oil refining capacity of approximately 1.7 million barrels per calendar day in its seven-refinery system. Marathon-brand gasoline is sold through approximately 5,200 independently owned retail outlets across 18 states. Also, Enon, Ohio-based Speedway LLC, an MPC subsidiary, owns and operates the nation's fourth-largest convenience store chain, with approximately 1,480 c-stores in nine states. MPC also owns, leases or has ownership interests in approximately 8,300 miles of pipeline. Through subsidiaries, MPC owns the general partner of MPLX LP, a midstream MLP. MPC's fully integrated system provides operational flexibility to move crude oil, feedstocks and petroleum-related products efficiently through the company's distribution network in the Midwest, Southeast and Gulf Coast regions.

Part of CSP's 2014 Convenience Top 101 retailers