Speedway Speeds Ahead on Hess Conversions
Accelerated operational synergies double what Marathon Petroleum executives expected
FINDLAY, Ohio -- A month after the one-year anniversary of the acquisition of the Hess retail network on the East Coast, Marathon Petroleum Corp. (MPC) is “significantly ahead of schedule” in converting the locations to its own Speedway convenience-store brand and operating systems, with nearly 1,000 of the 1,245 locations rebranded to Speedway, and more than 240 of them remodeled or in the process of being remodeled.
“The new locations are performing well and the business is on track to more than double the $75 million in synergies we expected in this first year,” Gary Heminger, president and CEO of MPC, said during the company’s third-quarter 2015 earnings call.
“When you think about the accelerated conversions, the backoffice platforms, the operating platforms, the benefits we get to really marketing the stores along the same lines as we do our legacy stores, those are all generating additional synergies that we're realizing from that activity,” Tony Kenney, president of Speedway LLC, said on the call. “When you add in the number of remodels that we've completed--so these are projects we're spending $300,000 to $500,000 [on] to go into the stores and really redesign how we're merchandising the key areas of the store--those are giving rise to synergies on an accelerated basis.”
He continued, “I would say that [in] the overall integration of the operations, the people have been tremendous. The amount of time it has taken to train thousands of employees on new systems and procedures has really exceeded our expectations. So, again, from an operating expense standpoint and then overall from the G&A standpoint, we have been able to take advantage of those savings as well.”
MPC reported quarterly earnings of $948 million, compared with $672 million in third-quarter 2014. The Refining & Marketing segment income from operations was $1.46 billion in third-quarter 2015, compared with $971 million in third-quarter 2014.
"Our results in the third quarter were driven by a solid performance across all of our businesses," said Heminger. “Speedway also performed very well during the quarter, benefiting from higher light product margins. Our peer-leading merchandise model also continues to drive profitability, with higher earnings compared to the third quarter of last year.”
Speedway segment income from operations was $243 million in third-quarter 2015, compared with $119 million in third-quarter 2014.
Tim Griffith, senior vice president and CFO, said Speedway's income from operations more than doubled from the same quarter last year.
“Speedway's newly acquired locations were an important part of that increase,” he said, contributing approximately $66 million in income to the quarter's results or approximately $98 million of EBITDA in the third quarter.
Speedway's merchandise margin in the legacy locations was $16 million higher in the third quarter compared to the third quarter last year, primarily driven by an increase in merchandise and food sales and improved margins. On a same-store basis, gasoline sales volumes increased 0.5% and merchandise sales, excluding cigarettes, increased 3.6% in the third quarter compared to the same quarter last year.
October will be the first month that the Hess locations will be included in MPC’s year-over-year same-store metrics, Griffith said. For October, total company same-store gasoline volumes are up 1.8% versus October last year, he said.
Speedway's consolidated light product margin increased to 21.46 cents per gallon in third-quarter 2015, from 15.96 cents per gallon in third-quarter 2014.
“Speedway is a very strategic part of our business,” said Heminger. “Our strategies are we want to have a very high-control volume out of our refinery specifically for gasoline. And as Speedway continues to grow the diesel part of its business, it is certainly continuing to help that. … Are we thinking about spinning Speedway off? The answer is no. This is a very, very key part of our strategy going forward.”
Findlay, Ohio-based MPC is the nation's fourth-largest refiner. Marathon brand gasoline is sold through approximately 5,600 independently owned retail outlets across 19 states. Enon, Ohio-based Speedway LLC, an MPC subsidiary, owns and operates the nation's second-largest convenience-store chain, with approximately 2,760 stores in 22 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 master limited partnership (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.