Mergers & Acquisitions

Hess Rebranding Moving at ‘Rapid Pace’

MPC pleased with progress in converting acquired retail network to Speedway

FINDLAY, Ohio --Marathon Petroleum Corp. (MPC) is converting to its Speedway brand the nearly 1,250 convenience stores it acquired when it purchased the Hess retail network in late September 2014 for $2.82 billion at a “rapid pace,” said Gary R. Heminger, CEO and president of MPC, during the company’s first-quarter 2014 earnings call.

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

“Speedway continues to make excellent progress transitioning its new retail locations to the Speedway brand,” he said. “As of [April 30], we have converted more than 400 stores, including 260 completed during the first quarter. “This rapid pace of store conversions contributes to our confidence that we will achieve the synergies and marketing enhancements we expect as we integrate this business. …… I'm very pleased with the progress that they're making, both in getting the stores converted, and secondly, the inside sales results bump that we're starting to see.”

Describing the process, Heminger said, “The comprehensive transition for each store not only includes the changing of signs and canopies, but it's a complete system changeover, which includes the backoffice, point-of-sale and inventory control systems, as well as integration of the Speedy Rewards Loyalty Program.”

He also offered some insights into the continuing geographic strategy.

“With the majority of the Florida stores now converted, crews have been focused on convergence in the Northeast for the past month. … First and foremost is to get what we now call Speedway East fully transitioned.”

On the call, Anthony R. Kenney, president of Speedway, elaborated on that strategy.

“We're very pleased with the progress we're making on the conversions to the Speedway brand. And along with that includes the implementation of our merchandise programs inside the stores, which is a real source of synergies down the road,” he said. “As we continue to go forward, we're going to start to realize some marketing efficiencies as well. So on a full year basis, in 2015, we're right on plan with where we expect to be on the synergy capture in 2015.”

Florida has not had a strong retail loyalty program, Kenney said. With the conversions, he said there has been a lot of interest from customers, “which is probably the best benchmark we have right now in terms of how we're attracting new customers.”

He added, “There's a lot of dynamics in play. Retail price, as the gasoline prices come down, I think that's driving traffic as well. … We're getting some very, very good feedback from our customers in terms of the loyalty and the offers that we have once we convert to the Speedway brand.”

MPC reported 2015 first-quarter earnings of $891 million compared with $199 million for first-quarter 2014. Refining & Marketing segment income from operations was $1.32 billion in first-quarter 2015, compared with $362 million in first-quarter 2014.

Speedway performed very well, achieving record first-quarter earnings even before the contribution from its newly acquired locations.

Speedway segment income from operations was $168 million in first-quarter 2015, compared with $58 million in first-quarter 2014. Approximately two-thirds of this increase was related to the legacy Speedway stores, and was primarily the result of higher light-product and merchandise margins, partially offset by higher operating and administrative expenses.

“On a same-store basis, which excludes locations acquired within the past year, gasoline sales volumes decreased 1.2% over the same period last year. Merchandise sales in the quarter, excluding cigarettes, increased 6.2% on a same-store basis on a year-over-year basis. In April, we have seen no change in same-store gasoline volumes compared to last April,” CFO Timothy T. Griffith said on the call.

Speedway's newly acquired locations are performing better than expected, contributing income of approximately $36 million to the quarter's results.

Findlay, Ohio-based MPC is the nation's fourth-largest refiner. Marathon-brand gasoline is sold through approximately 5,500 independently owned gas stations and convenience stores across 19 states. Speedway LLC, an MPC subsidiary based in Enon, Ohio, owns and operates the nation's second-largest c-store chain, with approximately 2,750 stores in 22 states.

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