FINDLAY, Ohio -- Marathon Petroleum Corp. has made “significant progress” toward completing its merger with Andeavor, said Gary Heminger, Marathon Petroleum’s chairman and CEO, on the company’s second-quarter 2018 earnings call July 26.
“We continue to be very enthusiastic about the combination of Marathon Petroleum and Andeavor into a premier, nationwide integrated downstream energy company,” Heminger said.
The waiting period for potential federal antitrust rulings has expired, and the companies expect the deal to close in second-half 2018. The transaction remains subject to customary closing conditions, including approval by Andeavor shareholders, approval by Marathon Petroleum shareholders of new shares to be issued in connection with the transaction and receipt of other required regulatory approvals.
Marathon Petroleum, Findlay, Ohio, operates six refineries and sells Marathon gasoline through approximately 5,600 independently owned gas stations in 20 states and the District of Columbia. Subsidiary Speedway LLC, Enon, Ohio, owns and operates the Speedway convenience-store chain with approximately 2,740 locations in 22 states.
San Antonio-based Andeavor operates 10 refineries. Its retail marketing system includes more than 3,200 outlets under brands including Arco, SuperAmerica, Shell, Exxon, Mobil, Tesoro, USA Gasoline and Giant. Formerly Tesoro Corp., the company changed its name to Andeavor in August 2017 following its $6.4 billion acquisition of El Paso, Texas-based Western Refining Inc.
- Marathon Petroleum's Speedway is No. 3 on CSP's 2018 Top 202 ranking of c-store chains by number of company-owned retail outlets. Andeavor is No. 7.
Here are some insights into the progress of the merger and the companies’ earnings …
“We've also made substantial progress in our integration planning,” said Donald Templin, president of Marathon Petroleum, on the call. “Since we announced this transaction about 12 weeks ago … our combined teams have worked diligently to identify key best practices across our organization with the goal of developing a bottoms-up plan to achieve our $1 billion annual run rate gross synergy target. We are currently ahead of our baseline integration plan and expect to be ready to go at close.”
But because the companies are still competitors until the transaction closes, “there are some limitations on the information that we can look at and the Andeavor folks can look at,” he said. So the companies are using a “clean room.”
“We are putting information into a data room, having clean teams look at that data, so that when we go to close day one in five minutes, we can go after synergies,” he said. “We feel very good about the progress that we've made, and obviously, when we have full access to information that will reveal incremental information that will be valuable to all of our management team in terms of running the business. But we feel like we're making good progress and can go after synergies by using this methodology.”
Photo courtesy of Pictures of Money.
Labor and technology
IT is a major component in the integration of Marathon Petroleum and Andeavor.
“Both companies have invested significantly in IT, because we think that having a strong IT system and excellence around execution is really important,” Templin said. “We have a plan over time to take our IT systems and to integrate them. We don't believe that the existing IT platform at Andeavor or the existing platform at [Marathon Petroleum] will be an impediment to us operating from day one, and that's what our teams are focused on.”
With its existing labor model and platform, Marathon Petroleum will be able, “in very short order, to transfer and translate that type of technology into the stores when we close Andeavor,” Heminger said.
“It will take some time, but that is one of the key synergies and I think key operating efficiencies that we're going to be able to really transfer into those stores,” he said. Speedway's platform “manages all the inventory, and if you have a technology that can manage inventory, you don't need people counting things. It manages all inventory in and out of the store, it manages labor, it manages dayparts of our labor requirements in the store to hit peak periods. So you're going to be able to see that efficient model as we put it into the Andeavor stores … drive some gains in retail.”
Photo courtesy of MaxPixel.
Combined executive team
Marathon Petroleum last week named the executive team that will lead the combined company upon the closing of the combination of MPC and Andeavor. It will include executives from both companies.
Among the top leadership, Gary Heminger will continue as Marathon Petroleum’s chairman and CEO. Gregory Goff, chairman, president and CEO of Andeavor, will be executive vice chairman. Donald Templin, president of Marathon Petroleum, will be president of refining, marketing and supply. Anthony Kenney, president of Speedway LLC, will remain in that position, with the responsibility for all company-owned and -operated c-stores.
Photo courtesy of MaxPixel.
Marathon Petroleum’s second quarter
Marathon Petroleum Corp. reported 2018 second-quarter earnings of $1.06 billion, compared with $483 million in second-quarter 2017. Refining and marketing segment income from operations was $1.03 billion in the quarter, compared with $562 million in the same period in 2017.
“Income from operations was $1.7 billion, and we are pleased to report EBITDA of $2.24 billion, which is the highest quarter since [Marathon Petroleum] became a public company in 2011,” Heminger said on the call. “The commodity environment and markets in which we operate were volatile this quarter, but our diversified integrated business model created opportunities and our team executed in capturing those opportunities, which drove these extraordinary results.”
Photo courtesy of Notorius4life.
Speedway’s second quarter
Speedway segment income from operations was $159 million in second-quarter 2018, compared with $238 million in second-quarter 2017.
The year-over-year decrease in second-quarter segment results was primarily related to lower light product margins and higher expenses. Speedway's gasoline and distillate margin decreased to 16.45 cents per gallon in second-quarter 2018 compared with 18.35 cents per gallon in second-quarter 2017 primarily due to the effects of rising crude oil prices.
Expenses increased $24 million year over year, primarily due to higher labor and benefit costs. Depreciation was $8 million higher year over year, primarily due to increased investment in the business. The $6 million gain on the sale of assets in second-quarter 2017 also contributed to the change in segment earnings.
For the quarter, same-store merchandise sales increased by 2.9% year over year and same-store gasoline sales volume decreased by 2.6% year over year.
Speedway’s store count
Speedway operated 2,744 c-stores at the end of the quarter, a net increase of 15 stores from the end of the same period last year.
In April, Speedway signed an agreement to purchase 78 c-stores in Syracuse, Rochester and Buffalo, N.Y., from Syracuse-based Petr-All Petroleum Corp.
“We are optimistic about the second half of the year for Speedway, as we're expecting to close on the acquisition of 78 store locations in Syracuse, Rochester, and Buffalo, New York in the third quarter,” said Donald Templin, president of Marathon Petroleum, on the earnings call. “These stores will enhance our existing network and expand our brand presence in key growth markets.”
He also said that “the completion of the pending Andeavor combination will add store locations to Speedway's marketing territory, establishing a coast-to-coast presence. With its industry-leading retail position and loyalty program, Speedway is well situated to expand over this nationwide footprint.”
Photo courtesy of Daniel Case.
Andeavor turned in a strong first-quarter 2018 performance as it heads into the merger with Marathon Petroleum. It reported earnings of $164 million, compared to $50 million for first-quarter 2017.
The company said its plans to release its earnings for second-quarter 2018 on Aug. 6.