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    Earnings Roundup

    Sunoco, Delek, Susser, Alon and Western Refining report strong third quarters.

    NEW YORK – Third quarter results are in for many convenience retailers and petroleum marketers, and companies are overwhelmingly reporting positive results in the wake of increased refining and retailing margins.

    Sunoco Inc

    Sunoco Inc., headquartered in Philadelphia, reported net income of $549 million for the third quarter of 2008, an increase of 154 percent from a year-ago. Excluding special items, Sunoco’s income for the 2008 third quarter was $559 million.

    For the first nine months of 2008, Sunoco reported net income of $572 million, a decline of 36 percent. Excluding special items, income in the first nine months of 2008 was $561 million, a decline of 31 percent.

    “After an extremely challenging market environment in the first half of 2008, very strong margins in our refining and supply and retail marketing businesses led to a record result in the third quarter,” said Lynn Elsenhans, Sunoco’s CEO and president.

    Demonstrating the diversity of its earnings base, Sunoco’s non-refining businesses earned $140 million during the third quarter – its highest quarterly contribution ever.

    Retail marketing earned $72 million in the third quarter, a 132 percent increase over a year ago, despite lower year-over-year sales volumes, as falling wholesale gasoline prices through most of the quarter led to expanded retail margins. Results for the quarter included a $5 million after-tax charge related to asset impairment losses and associated costs in conjunction with the company's Retail Portfolio Management (RPM) program. The company anticipates future gains from the divestment of sites will exceed the impairment losses and associated costs recognized during the quarter.

    Delek US Holdings Inc.

    Delek US Holdings, based in Brentwood, Tenn., reported total revenue of $1.46 billion for the three months ended Sept. 30 -- an increase of 37 percent over the year ago period. Third quarter 2008 net income increased 24 percent to $25.4 million, driven principally by improved profitability in the retail and refining segments.

    “Our third quarter 2008 contribution margin grew by 25 percent compared to the year-ago period, supported by a continued downward trend in commodities prices,” Uzi Yemin, president and CEO of Delek US, said in a released statement. “Our Tyler refinery remained fully operational in the wake of Hurricanes Ike and Gustav, allowing us to benefit from elevated Gulf Coast pricing in early September. While hurricane-related fuel shortages impacted retail sales volumes in core regional markets late in the quarter, a general trend of declining wholesale fuel costs contributed to higher fuel margins in August and September, resulting in improved profitability at our retail subsidiary.”

    The retail segment contribution margin increased 12 percent to $23.7 million in the third quarter of 2008. Although hurricane-related supply shortages adversely impacted fuel sales at many retail locations during September, Delek US benefited from higher fuel margins throughout the third quarter, which served to more than offset lower sales volumes in the period.

    Retail fuel margin increased on a year-over-year basis by 8.7 cents per gallon to 23.9 cents per gallon during the third quarter of 2008, serving to partially offset an 8.9 percent same-store decline in the total number of retail gallons sold in the quarter. The increase in fuel margins is mainly attributable to a favorable spread between wholesale and retail fuel prices in the quarter, in addition to favorable blending economics associated with the company’s ongoing E10 (ethanol) blended fuel program.

    For the three months ended Sept. 30, Delek US reported a 7.6 percent same-store merchandise sales decline, primarily attributable to regional fuel supply shortages during September and a reduction in discretionary consumer spending. The decline in same-store merchandise sales was partially offset by an increase in merchandise margin at 32.4 percent, compared to merchandise margin of 31.9 percent in the year-ago period.

    Delek’s retail segment markets gasoline, diesel and other refined petroleum products and convenience merchandise through a network of company-operated retail fuel and convenience stores under the MAPCO Express, MAPCO Mart, East Coast, Discount Food Mart, Fast Food and Fuel, and Favorite Markets brand names.

    Susser Holdings

    Corpus Christi, Texas-based Susser Holdings Corp. reported third quarter 2008 merchandise sales -- including sales from the company's Stripes stores and the Town & Country stores it acquired in November 2007 -- increased by 74.9 percent to $189.3 million vs. the same quarter a year ago for stand-alone Susser operations.

    Total revenues for the combined organization were $1.2 billion, an increase of 80.1 percent from the third quarter of last year on a reported basis, and up 32.2 percent pro forma, assuming the Town & Country acquisition had taken place on Jan. 1, 2007. Gross profit was $118.8 million, up 78.7 percent on a reported basis and up 13.5 percent on a pro forma basis vs. a year ago.

    Net income was $6.9 million, a 44 percent increase over the year-ago quarter. Pro-forma net income in the 2007 period was $5.5 million, taking into account the Town & Country acquisition and the related impact on Susser's tax position.

    The increase in net earnings was driven by the contribution from new stores -- including Town & Country stores -- and higher merchandise and fuel margins, partly offset by higher interest, utilities, credit card, hurricane-related impacts and income tax expense.

    "The 6.7 percent pro forma same-store merchandise sales increase and the 34.9 percent merchandise margin we realized in the third quarter demonstrate the continued vitality of the consumer economies in the primary markets we serve," said Sam L. Susser, Susser Holdings president and CEO. "During the quarter, we saw very strong performance from both the legacy Stripes stores in South Texas and Oklahoma, and even stronger performance from the newly acquired Town & Country stores in West Texas and Eastern New Mexico. We believe this performance reflects the continued positive impact of improved execution by our team on our merchandise and customer-facing initiatives, and a regional economy that continues to outperform national trends.

    "Although consumers continued to reduce their driving in the face of record fuel prices over the summer, the impact was more than offset by higher fuel margins per gallon,” Susser continued. “Retail margins averaged 22.2 cents per gallon -- up more than 3 cents from a year ago on a pro-forma basis. While the third quarter is generally one of our most profitable for fuel sales, this year’s margins were bolstered by falling oil prices, which tends to improve our margins," he stated.

    The company opened one new large retail unit in the Rio Grande Valley of Texas and closed another low-volume store in Corpus Christi during the third quarter, leaving the total store count at 509 as of Sept. 30, with 287 in-store restaurants. Two more stores with restaurants opened in the fourth quarter, and a Laredo Taco Company restaurant was added to another existing store. Four more stores are now under construction.

    Convenience store merchandise sales were $189.3 million during the third quarter, up 74.9 percent on a reported basis and 10.4 percent on a pro forma basis. Same-store merchandise sales increased 4.8 percent in the third quarter on a reported basis, or 6.7 percent pro forma. Sales growth was driven primarily by strong increases in the sales of cigarettes, foodservice and beer. Total merchandise gross profit, net of shortages, was $66 million, up 83.6 percent on a reported basis and 16.1 percent pro forma.

    Net merchandise margin increased to 34.9 percent for the quarter -- up from 33.2 percent on a reported basis for the third quarter of last year and 33.1 percent on a pro forma basis.

    Retail fuel volumes increased to 163.4 million gallons for the quarter, up 50.1 percent on a reported basis, but down 3.6 percent on a pro forma basis. Average gallons sold per retail location were 325,900, which was down 2.3 percent from the third quarter of last year on a reported basis and down 6.2 percent on a pro forma basis. The volume decline reflects the impact of significantly higher pump prices versus a year ago that reduced fuel demand, especially near the Texas-Mexico border.

    Retail fuel revenues increased to $619.7 million, up 112.7 percent on a reported basis and 32.9 percent on a pro forma basis. Fuel revenues were driven by the Town & Country contribution and by a $1.11-per-gallon increase in the retail price of fuel vs. a year ago, or $1.04 on a pro forma basis.

    Retail gross margins for fuel increased 6.4 cents per gallon to 22.2 cents on a reported basis and by 3.3 cents a gallon pro forma. Retail fuel gross profit totaled $36.3 million, up 110.4 percent on a reported basis and 13.2 percent pro forma. Susser reports retail fuel margins before credit-card and other fuel-related expenses.

    Credit-card fees in the third quarter were approximately 5.2 cents per gallon, vs. 3.4 cents per gallon a year ago on a pro forma basis, or an increase of $2.8 million. Utility costs, which are also tied to the cost of energy, were up $3.4 million on a pro forma basis.

    For the first nine months of 2008, Susser reported merchandise sales of $545.9 million, an increase of 77.5 percent on a reported basis and 12.2 percent pro forma, vs. the comparable period a year ago. Same store sales increased by 6.7 percent, or 8 percent on a pro forma basis.

    Alon USA

    Alon USA Energy Inc., based in Dallas, reported its net income for the third quarter 2008 was $37.3 million, a 196 percent increase over the same period last year. Excluding special items, Alon recorded net income of $24.3 million for the third quarter of 2008, a 104 percent gain over the same period last year.

    Net income for the nine months ended Sept. 30 was $21.9 million, an 84 percent decline compared to the same period last year. Excluding special items, Alon recorded a net loss of $60.6 million for the nine months ended Sept. 30, compared to net income of $141.0 million for the same period last year.

    “We successfully completed the acquisition of the Krotz Springs, La. refinery this quarter. With the completion of the acquisition, our crude oil refining capacity increased by 50 percent to approximately 250,000 barrels per day (bpd), including four refineries located on the West Coast, West Texas and Gulf Coast. I am also pleased that we have completed work on the Fluid Catalytic Cracking Unit (FCCU) at our Big Spring refinery that was damaged in the Feb. 18, 2008 fire. With the completion of this work, we were able to restart the FCCU and return to our normal operating capabilities. We are grateful for the support of our insurers who have already advanced us $280 million to date,” Jeff Morris, Alon's president and CEO, commented in the earnings statement.

    "At our California refineries, we optimized our refining economics during the third quarter of 2008, lowering throughput rates to balance production with demand for our asphalt products. We also faced challenges during the quarter at our Krotz Springs refinery with Hurricanes Gustav and Ike. These hurricanes caused minimal damage to the refinery, but disrupted crude supply receipts into the refinery and product movements from the refinery while power was being restored to the area.”

    Alon USA owns four crude oil refineries in Texas, California, Louisiana and Oregon, with an aggregate crude oil throughput capacity of approximately 250,000 bpd. The company markets gasoline and diesel products under the FINA brand name and also operates more than 300 convenience stores primarily in West Texas and New Mexico, substantially under the 7-Eleven and FINA brand names. Alon supplies motor fuels to these stores primarily from its Big Spring refinery. In addition, the company supplies approximately 800 additional FINA-branded stations.

    Western Refining

    El Paso, Texas-based Western Refining Inc. reported third quarter 2008 net income of $109.2 million, a 134 percent increase over the year-ago period. For the first nine months of 2008, the company reported net earnings of $77 million, a decline of 71 percent from the first nine months of 2007.

    The improvement in operating income in the quarter was due to higher refined product margins. The increase in margins was primarily the result of an increase in the amount of lower-cost crude oil processed at the company's refineries during the quarter. Margins also improved as the cost of crude oil declined faster than the prices of finished products.

    "We are pleased with our third quarter financial results. Although Hurricanes Gustav and Ike had a positive impact on margins in the quarter, the actions we have taken to improve and enhance our Four Corners and Yorktown refineries contributed significantly to earnings in the quarter and should continue to do so in future quarters," Paul Foster, Western's president and chief executive officer stated.

    Commenting on the fourth quarter, Foster said, "Despite the ongoing economic uncertainty, refining margins remained strong at our four refineries throughout the month of October. In fact, our combined refining gross margin for the month exceeded the third quarter level of $15.03 per barrel. Our retail and wholesale operations also posted strong financial results for the month. Looking at the remainder of the quarter, distillate margins look good as a result of steady demand and continued tight supply. While gasoline demand has declined the last couple of months, we believe the significantly lower prices at the pump today could stimulate demand and improve gasoline margins."

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

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