A More 'Refined' Delek US

Executives discuss healthier state of its refining business

BRENTWOOD, Tenn. -- Delek US Holdings Inc. officials spent much of the company's second-quarter 2012 earnings call discussing the stronger, healthier state of its refining business. Twice during the quarter, supply problems disrupted its two refineries, but in both instances, it discovered new sources of supply. Much of the credit went to newfound railcar options, which now gives the company flexibility in volatile periods.

"In our refining segment, we were able to overcome challenges and still post strong operating results," president and CEO Uzi Yemin said. "Our refineries' proximity to increasing supplies of crude oil continues to provide us access to higher volumes of cost-advantaged [West Texas Intermediate] crude oil."

Also during the second quarter, Delek US took "strategic steps to create flexibility to supply the El Dorado refinery with up to 15,000 barrels per day of crude delivered via rail including heavy Canadian, Bakken and midcontinent crudes. These steps, in addition to increased locally sourced crude, supported our ability to average more than 137,000 barrels per day of combined throughput at our refineries during the month of July."

Overall, a lower crude-price environment and higher asphalt prices also contributed positively to performance, he said.

See Related Content below for more details on this week's Delek US earnings call, including how 'mega' stores are helping the performance of its MAPCO retail division.

For the three months ended June 30, 2012, Delek US reported net income of $67.8 million, or $1.15 per diluted share, versus net income of $62.1 million, or $1.08 per diluted share in second-quarter 2011.

Excluding special items, the company reported adjusted net income of $69 million, or $1.17 per share, in second-quarter 2012.

"Our company continues to perform extremely well as all three of our segments delivered year-over-year improvements in contribution margin," Yemin said.

Refining segment contribution margin increased to $133.2 million in second-quarter 2012, versus $122.3 million in second-quarter 2011.

Retail segment contribution margin increased to $18.2 million in second-quarter 2012, versus $14.6 million in second-quarter 2011. Increases in fuel and merchandise same-store sales and lower overall operating expenses contributed to improved performance as compared to second-quarter 2011. Second-quarter 2012 results were positively impacted by same-store merchandise sales growth of 4.3%, which was supported by same-store foodservice sales growth of 9.3%. In addition, same store fuel gallons sold increased 2.2% as declining fuel prices coincided with the peak driving season. The merchandise margin was 29.7% and the fuel margin was 18.2 cents per gallon for second-quarter 2012.

At the conclusion of second-quarter 2012, the retail segment operated 374 locations, versus 390 locations at the end of second-quarter 2011.

Marketing segment contribution margin improved to $7.5 million in second-quarter 2012, versus $5.1 million in second-quarter 2011.

Delek US Holdings is an integrated downstream energy business focused on petroleum refining, the wholesale distribution of refined products and convenience store retailing. The refining segment consists of refineries operated in Tyler, Texas, and El Dorado, Ark., with a combined nameplate production capacity of 140,000 barrels per day. The marketing and supply segment markets refined products through a series of owned and third-party product terminals and pipelines. The retail segment supplies fuels and merchandise through a network of approximately 374 company-operated convenience store locations operated under the MAPCO Express, MAPCO Mart, East Coast, Fast Food & Fuel, Favorite Markets, Delta Express and Discount Food Mart brand names.

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