FINDLAY, Ohio --Speedway LLC's conversion process for the nearly 1,250 convenience stores it acquired from Hess in late September 2014 and the deployment of Speedway's merchandise model are "progressing well," Gary R. Heminger, president and CEO of Speedway parent Marathon Petroleum Corp., said during the company's fiscal fourth-quarter 2014 earnings call on Wednesday.
MPC also announced its 2015 capital investment plan of $2.53 billion. The plan includes $1.28 billion for the refining and marketing segment, $452 million for the Speedway segment, $659 million for the pipeline transportation segment and $140 million for corporate and other segments.
Speedway's capital plan of $452 million is focused on continued growth and integrating the Hess retail operations into Speedway. The budget includes approximately $240 million for the Hess retail outlets primarily associated with store conversions and remodels, which will drive incremental merchandise sales.
Speedway reported record earnings of $273 million for the quarter including the newly acquired Hess locations and posted what would have been recording earnings for just the legacy Speedway locations, Heminger said.
During the fourth-quarter 2014, the Hess locations contributed income of approximately $118 million.
"Speedway performed remarkably while transitioning these new locations to the Speedway brand," said Heminger. "As of January 31, 134 of the 1,245 acquired stores have been converted. We are taking the opportunity to evaluate ways to leverage existing best practices of both business models and implementing those practices across the entire Speedway platform. The earnings power of this combined business will be tremendous, and we are well-positioned to execute our strategy to grow the EBITDA of this business to over $1 billion."
Tony Kenney, president of Enon, Ohio-based Speedway, praising the "wonderful people" on both sides of the deal, said its execution was "seamless."
And he said that "as we continue to implement the best practices at a stepped-up pace, the conversions and branding from Hess to Speedway as well as the implementation of the technology platforms inside the store such as our Speedy Rewards program, those are all generating the types of benefits that we would expect from that activity."
MPC as a whole reported 2014 fourth-quarter earnings of $798 million, compared with $626 million in fourth-quarter 2013. Earnings were $2.52 billion for the full-year 2014, compared with $2.11 billion in 2013.
"Our flexible refining system, large retail presence and extensive logistics network allowed us to successfully adapt to changing production and supply patterns," said Heminger. "This was a year where our results clearly demonstrate the value of our integrated downstream system."
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Speedway segment income from operations was $273 million in fourth-quarter 2014 and $544 million for full-year 2014, compared with $83 million in fourth-quarter 2013 and $375 million for full-year 2013.
The increase in segment income for the fourth-quarter and full-year 014 compared to 2013 is primarily the result of income from the locations acquired from Hess and higher light product and merchandise margins, partially offset by higher operating and administrative expenses.
Speedway's income from operations was $273 million in fourth-quarter 2014 compared with $83 million last year.
For the legacy Speedway sites the light product gross margin was about $67 million higher in fourth-quarter 2014 compared to last year. Overall, the Speedway segment's gasoline and distillate gross margin increased by more than 11 cents per gallon.
Speedway's merchandise margin in the legacy locations was $20 million higher in fourth-quarter 2014 compared to fourth-quarter 2013. On a same-store basis, gasoline sales volumes increased 0.3% and merchandise sales excluding cigarettes increased 5.4% in fourth-quarter 2014 compared with last year. In January 2015, the company saw a slight decrease in demand with an approximately 0.8% decrease in the same-store gasoline sales volumes versus the prior year.
Speedway's income from operations for full-year 2014 was $544 million compared with $375 million in 2013. The Hess locations contributed approximately $113 million of income in 2014. For the legacy Speedway sites, light product gross margins increased $50 million and merchandise margins increased $55 million year over year. For the Speedway site segment gasoline and distillates gross margins averaged $17.75 per gallon in 2014 compared to $14.4 per gallon in 2013.
On a same-store basis, gasoline sales volumes decreased 0.7% in 2014 and increased 0.5% in 2013. Partially offsetting the increases in Speedway income were higher operating expenses primarily attributed to an increase in the number of stores.
The light product margin for the legacy Speedway and Hess locations were $176 million and $197 million, respectively. The legacy Speedway and Hess locations contributed $225 million and $99 million in merchandise margin, respectively. Operating and other net expenses were $424 million for the quarter.
Findlay, Ohio-based MPC is a major refiner. Marathon-brand gasoline is sold through approximately 5,460 independently owned retail outlets across 19 states. In addition, Speedway owns and operates a major convenience store chain, with approximately 2,750 convenience stores in 22 states.
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