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    Back in the Black: Earnings Roundup Q1 2009

    Several industry players turned around the net loss they reported the first quarter of 2008.

    Several of the convenience industry’s top retailers—Alon USA Energy Inc., Delek US Holdings Inc., Murphy Oil Corp., Sunoco Inc., Susser Holdings Corp., Tesoro Corp. and Western Refining Inc.—reported their first quarter 2009 earnings this week.

    The following is a snapshot of how each performed:

    Alon USA Energy Inc.

    DALLAS -- Alon USA Energy Inc. reported net income for the first quarter of 2009 of $17.4 million, compared to net loss of $33.6 million for the same period last year.

    Excluding special items, Alon recorded net income of $17.4 million for the first quarter of 2009, compared to a net loss of $25.2 million for the same period last year. Special items for the first quarter of 2008 included after-tax losses for net costs associated with the Big Spring refinery fire of $9.7 million partially offset by an after-tax gain of $1.4 million on disposition of assets. There were no special items for the first quarter of 2009.

    "We are pleased with the progress we have made during the past year. It was only a little over a year ago when I shared with you the news of the fire at our Big Spring refinery. Today, I have the pleasure of conveying that not only have we recovered, we have made measurable strides forward in our refinery operations, capital structure and growth prospects," Jeff Morris, Alon's president and CEO said in a statement.

    "As we continue into 2009, we are planning to capitalize upon the momentum we've developed by continuing our efforts to strengthen our balance sheet by reducing debt, increase our shareholder value by generating positive operating results, and grow our organization by investing in projects consistent with our growth strategy."

    Alon USA is an independent refiner and marketer of petroleum products, operating primarily in the South Central, Southwestern and Western regions of the United States. The company owns four crude oil refineries in Texas, California, Louisiana and Oregon. Alon operates more than 300 convenience stores primarily in West Texas and New Mexico substantially under the 7-Eleven and FINA brand names, and supplies motor fuels to these stores primarily from its Big Spring refinery. In addition, Alon markets under the FINA branded name to approximately 700 additional locations.

    Delek US Holdings Inc.

    BRENTWOOD, Tenn. -- Delek US Holdings Inc. reported net income from continuing operations of $1.6 million in the first quarter of 2009, versus a net loss from continuing operations of $5.2 million in the first quarter of 2008. Excluding special items, the company reported an adjusted net loss from continuing operations of $2.5 million.

    Results for the three months ended Mar. 31, 2009 were impacted by a fire at its Tyler, Texas refinery, which occurred Nov. 20, 2008. To date, the refinery has restarted most major units and is currently in the final phase of the start-up process, Delek stated.

    In the company’s retail segment, margin declined to $7.0 million in the first quarter 2009, compared to $9.9 million in the first quarter 2008. Retail fuel margins returned to more normalized levels, in line with the historical seasonal trend of years past.

    First quarter 2009 retail fuel margins were 11.0 cents per gallon, compared to 12.6 cents per gallon in the first quarter 2008. Although same-store retail fuel gallons sold declined by 2.1 percent in the first quarter 2009, the year-over-year change in the same-store gasoline gallons sold in the first quarter 2009, excluding the impact of leap year, increased approximately 1 percent, the company reported.

    Delek US reported a 4.5 percent decline in same-store merchandise sales during the first quarter of 2009, attributable to lower sales of several food-related categories, including dairy and soft drinks, in addition to a general reduction in discretionary consumer spending. Merchandise margin for the three months ended Mar. 31, 2009 was 31.9 percent, vs. 32.2 percent in the first quarter 2008, the report stated.

    The chain’s retail segment has re-imaged approximately 20 percent of the company’s total store base as of the end of the first quarter of 2009. During the second quarter of 2009, Delek said its retail segment intends to re-image more than 20 stores.

    Also, during the fourth quarter 2008, the company’s Virginia operations were reclassified to discontinued operations. As of Mar. 31, 2009, Delek sold 24 of the 36 stores held for sale. That includes 12 locations, which were sold during the first quarter of 2009.

    Delek US Holdings is a diversified energy business focused on petroleum refining, marketing and supply of refined products, and retail marketing of fuel and general merchandise. The retail segment markets gasoline, diesel and other refined petroleum products and convenience merchandise through a network of company-operated retail fuel and convenience stores, operated under the MAPCO Express, MAPCO Mart, East Coast, Discount Food Mart, Fast Food and Fuel and Favorite Markets brand names.

    Murphy Oil Corp.

    EL DORADO, Ark. -- Murphy Oil Corp. reported net income of $171.1 million in the first quarter of 2009 compared to net income of $409.0 million in the first quarter of 2008. The 2009 net income includes income from discontinued operations of $99.9 million associated with Ecuador operations that were sold in March at an after-tax gain of $104.0 million. In the 2008 quarter, income from discontinued operations was $0.8 million.

    The smaller profit from continuing operations in 2009, compared to 2008, was primarily due to significantly lower worldwide crude oil and North American natural gas sales prices, which led to much lower earnings in the company’s exploration and production business, according to Murphy Oil. The first quarter of 2008 also included a $39.9 million after-tax gain on its sale of Berkana Energy in Canada.

    First quarter 2009 earnings in the company’s refining and marketing business were about even with the prior year, as improved U.S. refining margins were mostly offset by much tighter U.S. retail marketing margins and lower margins for operations in the UK.

    Murphy’s refining and marketing operations generated income of $10.8 million in the 2009 first quarter compared to income of $10.2 million in the 2008 quarter. In North America, downstream earnings were $14.6 million, compared to earnings of $1.0 million in 2008. North American results were improved in 2009 mostly due to significantly better refining margins, which benefited from lower prices for crude oil feedstocks.

    Margins for U.S. retail marketing operations were much weaker in the 2009 quarter as the demand for motor vehicle fuel fell amidst the economic downturn, Murphy stated.

    Sunoco Inc.

    PHILADELPHIA -- Sunoco Inc. reported net income of $12 million for the first quarter of 2009 versus a net loss of $59 million for the first quarter of 2008. Income before special items was $59 million for the first quarter of 2009. There were no special items in the first quarter of 2008, according to the company’s earnings release.

    "In a period of significant demand weakness, we were able to earn $23 million in refining and supply by effectively optimizing operations in a very difficult market," stated Lynn Elsenhans, Sunoco's chairman and CEO. "In addition, our non-refining businesses earned $57 million in the first quarter. While lower demand and rising feedstock costs limited the contribution from retail marketing and chemicals, logistics earnings of $30 million reflected another record quarterly result from Sunoco Logistics Partners L.P. and our Coke segment earned $25 million."

    Retail marketing earned $6 million in the current quarter versus $26 million in the first quarter of 2008. The decrease in earnings was due to lower margins, partially offset by lower expenses. Sales volumes were relatively flat, but margins were negatively affected by periods of rising wholesale prices and a weak demand environment.

    Commenting on the company's outlook, Elsenhans said, "We continue to expect a challenging market for petroleum and chemical products due to ongoing economic weakness and additional global supply.

    However, the company remains focused on executing its strategic plan. In the first quarter, we implemented the first phase of our business improvement initiative, and expect to reduce costs by more than $300 million on an annualized basis by year end. Our capital spending for 2009 is now expected to be approximately $200 million lower than planned."

    With 910,000 barrels per day of refining capacity, along with approximately 4,700 retail sites selling gasoline and convenience items, approximately 6,000 miles of crude oil and refined product owned and operated pipelines, and 43 product terminals, Sunoco is one of the largest independent refiner-marketers in the United States.

    Susser Holdings Corp.

    CORPUS CHRISTI -- Susser Holdings Corp. reported a net loss of $0.9 million versus a net loss of $3.4 million a year ago. Because its business is seasonal, the company noted it historically experiences higher sales and profitability in the second and third quarters during the summer months, and lower traffic during the winter months.

    Susser’s same-store merchandise sales for the first quarter, ended March 29, 2009, increased by 6.0 percent. Retail merchandise margin increased to 34.3 percent, from 33.6 percent a year ago. First quarter convenience store merchandise sales totaled $181.9 million, an increase of 7.8 percent from the same quarter a year ago.

    Merchandise gross profit—net of shortages—totaled $62.4 million, up 10.1 percent from a year ago.

    Retail merchandise sales growth was driven primarily by strong performances in packaged drinks, foodservice, beer and snacks, according to the company’s news release.

    Meanwhile, the strong margin increase reflects the ongoing benefits of operating synergies the chain is realizing from its integration of Town & Country and associated savings in merchandise and fuel procurement costs, plus an increase in higher-margin foodservice sales at new stores opened during the last year, Susser stated.

    "Given the backdrop of a softening economy, we are very pleased with the robust same-store merchandise sales gains we realized in the latest quarter," stated Sam L. Susser, president and CEO. "In the first quarter, we also saw a return to more normal fuel price levels, which may have spurred an increase in gasoline volumes versus a year ago, and our fuel margins were in line with our first quarter historic trends.

    "As we look to the seasonally stronger spring quarter, we expect ongoing growth in merchandise sales, and [for] lower credit card fees and utility expenses to be helpful as we cycle past unusually strong fuel margins in the second and third quarters of 2008," he continued.

    Retail store fuel volumes increased to 179.4 million gallons for the first quarter, up 6.0 percent from a year ago. Average fuel gallons sold per store were 356,000, up 4.6 percent from the first quarter of last year. Retail fuel revenues totaled $322.1 million, down 38.0 percent due to a 41.5 percent decrease in the average retail price of fuel. Retail fuel gross margins in the first quarter were 11.8 cents per gallon vs. 12.0 cents a year ago. Lower credit card fees, however, increased per-gallon retail fuel margins from 8.2 cents to 9.1 cents after deducting credit card expense. Retail fuel gross profit increased by 4.7 percent to $21.2 million.

    During the first quarter of 2009, the company opened one new retail unit, bringing its total number of stores to 513 at the end of the quarter. Susser has opened one additional retail unit to date during the second quarter, and three additional stores are currently under construction. In its wholesale operations, Susser added one new dealer site and discontinued two, for a total of 371 dealer sites in operation at the end of the quarter.

    Tesoro Corp.
    SAN ANTONIO -- Tesoro Corp. reported first quarter 2009 net earnings of $51 million compared to a net loss of $82 million for the first quarter of 2008. The 2008 results included a $27 million after-tax benefit related to a legal settlement.

    First quarter segment operating income was $162 million vs. a $115 million segment operating loss in the first quarter of 2008. The $277 million positive variance was primarily due to higher gross margins and lower operating costs, partially offset by lower throughput, according to the company’s earnings release.

    Capital expenditures for the quarter were $107 million, including deferred turnaround spending. Tesoro ended the quarter unborrowed on its revolving credit facility.

    "We increased cash during the quarter, eliminated a small year-end revolver borrowing, and had over $1 billion of availability on our revolving credit facility," stated Bruce Smith, chairman, president and CEO. “With an unusually high level of refinery maintenance activity on the West Coast, we benefited from strong crack spreads during the first quarter. Even though the start to 2009 has been better than expected, we will continue to pursue our program to reduce our cash break even. A large piece of that program is intended to increase our margin capture realizations, and, in the first quarter, they were above their average historical levels in each region. These results reinforce our expectations to continue delivering on our goals this year,” said Smith.

    Western Refining Inc.

    EL PASO, Texas -- Western Refining Inc. reported net earnings of $58.9 million for the first quarter ended March 31, 2009 vs. a net loss of $40.4 million for the same period in 2008. This earnings increase was primarily due to stronger refining margins, which resulted from improved market conditions and a reduction in the cost of the company’s crude oil, primarily from processing a lower-cost, heavier crude oil slate.

    Western generated cash flow from operations of $96.8 million in the first quarter. As of March 31, 2009, the company said there were no cash borrowings outstanding under its revolving credit facility, and since that date, it has not made any cash borrowings.

    "We are pleased with our first quarter results. This was one of the most profitable first quarters in the history of our company," stated Paul Foster, Western’s CEO. "Our earnings growth reflects the operational improvements we have made, as well as strong refining margins in January and February. We are taking a number of actions to continue this momentum."

    In addition to raising sour crude throughput, Western’s recent start-up of its gasoline hydrotreater unit at the El Paso refinery also gives the company the capability to increase its production of Phoenix grade gasoline from approximately 12,000 barrels per day to in excess of 20,000 barrels per day. Historically, Phoenix has been one of its best markets in terms of both product demand and gross margin, the company stated.

    "In the past year, we have significantly improved our refining operations. The improvements we made have positioned us to process a wide range of crude oils and intermediate feedstocks at our refineries. This flexibility should contribute to continued earnings and cash flow growth in the future," Foster said.

    Commenting on current market conditions, he said, "As we begin the spring and summer driving season, we are cautiously optimistic in our outlook for margins as a result of inventory draws, increased gasoline demand, and continued low refinery utilization rates."

    Western Refining has a refinery in El Paso, two refineries in the Four Corners region of northern New Mexico and one in Yorktown, Va. Its asset portfolio also includes retail service stations and convenience stores in Arizona, Colorado and New Mexico.

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