FINDLAY, Ohio -- Following the conversion of 170 SuperAmerica convenience stores in Minnesota to the Speedway brand, Marathon Petroleum Corp. is moving westward to Texas, Arizona, New Mexico and California with its Andeavor retail rebranding initiative, Gary Heminger, chairman and CEO, said during the company’s fourth-quarter earnings call on Feb. 7.
- Speedway is No. 3 in the Top 40 update of CSP’s 2018 Top 202 ranking of c-store chains by number of retail outlets.
The company also converted 34 SuperAmerica locations to company-owned and- operated stores during the quarter, allowing the company to benefit from merchandise sales at those locations.
Here are the details on the synergies that Marathon Petroleum has reported as it combines its refining and retail networks with Andeavor’s …
Findlay, Ohio-based Marathon Petroleum closed on the $23.3 billion acquisition of San Antonio-based Andeavor, which owns the SuperAmerica and other retail brands, in October 2018.
The deal combined Andeavor's refineries in California, the midcontinent and the Pacific Northwest with Marathon Petroleum’s existing Gulf Coast and Midwest refineries for a total of 16 refineries.
The transaction also created a nationwide marketing portfolio, combining Marathon Petroleum’s presence east of the Mississippi with Andeavor’s presence in the western United States. The nationwide retail and marketing businesses include about 3,900 company-owned and -operated stores and 7,800 Marathon-branded locations. Enon, Ohio-based Speedway LLC owns and operates about 4,000 c-stores across the United States.
“We're now in southwest Texas, we are going to start in Arizona soon and New Mexico of ‘re-IDing’ and developing those stores to the Speedway mark,” Heminger said of the conversions to Speedway. “I was in Arizona last week and had a full market tour, and there are so many opportunities there that I am holding my breath that we can get going as soon as possible. But then it is going to take a little bit longer as we go into California and some of the other western states to get things permitted.”
“So you're going to see more of a stairstep” in progress on the rebranding, he said.
For Andeavor, the company has realized $160 million of synergies in three months and continues to expect total annual gross run-rate synergies of up to $600 million at year-end 2019 and $1.4 billion by the end of 2021, Heminger said.
Approximately 60% were commercial synergies primarily related to crude acquisition and supply. The remaining synergy capture was the result of implementing refining best practices and expertise across the new enterprise as well as procurement and corporate synergies.
“Our expanded integrated business model created significant opportunities for us to capture value. We optimized crude purchases and utilized our larger logistics and diversified marketing footprint to place over 70% of our gasoline volume on a daily basis,” he said.
“We are very bullish on the synergies that are there,” said Heminger. “I do believe that there can be some upside in the retail synergies, so stay tuned.”
Heminger compared the Andeavor rebranding initiative to that of converting the Hess retail network.
Speedway closed its acquisition of Hess Corp.'s retail operations in September 2014, a $2.82 billion transaction. At the time, Heminger said Speedway would rebrand all Hess retail locations within three years. In February 2015, he said that it completed the planned conversions of the 1,245 Hess gas stations on the East Coast and in the Southeast to the Speedway brand “well ahead of schedule.”
He said subsequent Andeavor conversions are “going to have higher synergies than the Hess model.” It took approximately 18 to 24 months "to get everything re-IDed and get tremendous synergy more on the inside of the store. Here we have to completely redo the … stores to get those into the Speedway type of operations," he said.
Marathon Petroleum reported fourth-quarter 2018 earnings of $951 million, compared to $2.02 billion in fourth-quarter 2017. Costs of $745 million due to expenses and other factors associated with the merger with Andeavor affected earnings; 2018 earnings reflect one quarter of results from the combined business.
Full-year 2018 earnings were $2.78 billion, compared to $3.43 billion for full-year 2017. Full-year earnings included costs of $789 million primarily due to purchase accounting related inventory effects and expenses associated with the Andeavor combination.
Total income from operations was $2.02 billion for fourth-quarter 2018 (and $5.57 billion for full-year 2018), compared with $1.17 billion for fourth-quarter 2017 (and $4.02 billion for full-year 2017).
Refining and marketing segment income from operations was $923 million for fourth-quarter 2018 (and $2.48 billion for full-year 2018), compared to $732 million for fourth-quarter 2017 (and $2.32 billion for full-year 2017).
Retail segment income from operations was $613 million for fourth-quarter 2018 (and $1.03 billion for full-year 2018), compared with $148 million of legacy Speedway-only results for fourth-quarter 2017 (and $729 million for full-year 2017).
Fourth-quarter 2018 results represented a record quarter for the former Speedway segment, even before considering the earnings contribution from the legacy Andeavor retail operations. The $465 million increase in segment results was driven primarily by the addition of Andeavor's operations along with higher merchandise sales and fuel margins across the combined, nationwide footprint.
Retail fuel margin increased to 32.35 cents per gallon in fourth-quarter 2018 from 17.72 cents per gallon in fourth-quarter 2017.
“The improvement in merchandise and fuel margins was largely related to the expanded business as well as the margin strength across the entire retail platform as well as higher same-store merchandise sales for the Speedway legacy locations,” Senior Vice President and CFO Timothy Griffith. “January started off with positive same-store gasoline sales, but was impacted by record low temperatures in a substantial portion of our marketing area. January gasoline same-store sales in legacy Speedway locations were down 1.5%, but we're optimistic volumes will normalize following the weather impacts.”