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NEW YORK -- As part of an ongoing strategy to focus investment in core growth markets, Delek US Holdings Inc. intends to exit the Virginia market, an announcement that came while reporting the company’s fourth-quarter and full-year 2008 financial results.
During the fourth quarter, the company’s Virginia operations were reclassified as discontinued operations, and the assets and liabilities associated with the remaining stores are now reflected as "held for sale" for all periods. As of year-end, Delek sold 12 of its 36 Virginia-based stores held for sale, according to the company’s release.
For the fourth quarter 2008, Delek reported net income from continuing operations, excluding special items, was $18 million. Including the special items, Delek’s net income from continuing operations was $0.5 million in the quarter, compared to a net loss from continuing operations of $12 million in the fourth quarter of 2007.
For the full-year 2008, the company reported net income from continuing operations, excluding special items, of $40.5 million, compared to net income from continuing operations of $95.4 million in the prior year.
Results for the three- and 12-month periods ended Dec. 31, 2008 were impacted by a fire at the company’s Tyler, Texas, refinery, which occurred Nov. 20, 2008. The refinery has been offline since the incident, and is currently expected to resume operations this May.
"The benefits of our diversified downstream business model were evident during 2008, positioning us to maintain profitability in a period of challenging market conditions and prolonged commodity price volatility," stated Uzi Yemin, president and chief executive officer of Delek US. "Our retail segment reported record contribution margin in 2008, due principally to elevated retail fuel margins during the second half of the year."
Retail segment contribution margins increased 63.8 percent to $19 million in the fourth quarter 2008, compared to $11.6 million in the fourth quarter 2007. Retail segment contribution margins for the full year 2008 increased 10.4 percent to a record $66 million, compared to $59.8 million in 2007, the company reported.
Although fourth-quarter results were adversely impacted by hurricane-related supply shortages that halted fuel sales at many retail locations early in the quarter, Delek said it benefited from elevated fuel margins during October and early November, which more than offset lower sales volumes in the period. Credit expenses declined from 9.3 percent of gross margin in the fourth quarter 2007 to 6.6 percent in the fourth quarter 2008, partially due to a decline in the average retail price per gallon of gasoline.
For the second consecutive quarter, Delek’s retail fuel margins achieved record levels. Retail fuel margins were 24.9 cents per gallon in the fourth quarter 2008, an increase of 10.8 cents per gallon when compared to the fourth quarter 2007. The increase in fuel margins served to partially offset a 6-percent decline in the total number of same-store retail gallons sold in the quarter, according to the company.
Delek reported an 8.2-percent same-store merchandise sales decline in the fourth quarter, attributable to a combination of regional fuel supply shortages during October and a general reduction in discretionary consumer spending. Merchandise margins for the three months ended Dec. 31, 2008 declined to 29.8 percent, compared to a merchandise margin of 30.7 percent in the year-ago period. Fourth quarter merchandise margins were adversely impacted by the markdown of legacy and trial products in all markets, which have since been phased out of the company’s new product marketing strategy, Delek said.
During 2008, the retail segment re-imaged 54 stores, bringing the total percentage of re-imaged stores to approximately 20 percent of the total store base.
"Entering 2009, our executive team established a number of strategic directives designed to improve the efficiency, competitive positioning and profitability of our core assets," Yemin stated. "At Tyler, we intend to proceed with a series of capital projects in the first half of 2009, which upon completion, will greatly improve our ability to process cost-advantaged crudes, while in our retail segment, the brand re-imaging and private label initiatives remain key areas of focus as we look ahead to the remainder of the year."
In other earnings news, Western Refining reported a net loss of $12.8 million in the fourth quarter of 2008, which is less than the reported loss in the year-ago period, essentially on lower expenses. The company also said it expects the first quarter to be profitable compared to a loss in the same period last year.
Excluding a non-cash, $46.4 million after-tax special item, net earnings were $33.6 million for the quarter ended Dec. 31, 2008. For the same period in 2007, the company saw a net loss of $25.5 million.
The non-cash special item was a result of the year-end value of crude oil and finished product inventories declining to a level below the cost of the inventories on the acquisition date of Giant Refining in mid 2007, the company said.
Western Refining reported net earnings of $64.2 million for full-year 2008. Excluding the non-cash special item, net earnings were $110.6 million for 2008. This compares to net earnings of $238.6 million in 2007.
Western’s Chief Executive Officer Paul Foster stated, "Given the significant volatility in crude oil and finished product prices that the industry experienced throughout the year, we are pleased with our operating earnings and operating cash flow generation ... As a result of initiatives implemented throughout 2008, and the low sulfur gasoline project at El Paso, which will be completed in the second quarter 2009, we believe we have positioned ourselves to be more profitable in the future, even in a low margin refining environment. ... Clearly, this is a dramatic improvement in our business and one we believe we can sustain."
Commenting on current market conditions, Foster said, "Refining margins in our markets are typically weaker in the first quarter. However, they were strong in the months of January and February, and we expect to have continued strong margins in our markets in the month of March as we move into the driving season. This is in stark contrast to the first quarter of 2008 when we posted a loss of $40.4 million. With the improvements we have made at our refineries and the robust margins we have experienced to date in the quarter, the first quarter of 2009 has the potential to be one of our most profitable quarters."