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FINDLAY, Ohio — As profits from its refinery operations have begun to dwindle, Speedway LLC provides the perfect diversification for parent company Marathon Petroleum Corp.’s (MPC) portfolio, Gary R. Heminger, MPC’s chairman, president and CEO, stated Thursday during the company’s 2016 fiscal second-quarter earnings call.
“Speedway provides significant and growing stable cash flow, complementing MPC’s integrated and refining network,” Heminger said. “Speedway is MPC’s most ratable distribution channel, provides a solid base to enhance overall supply reliability, and allows us to optimize our entire refining, pipeline and terminal operations.”
Hence, when questioned by a Wall Street analyst during the call, Heminger responded that MPC continues to analyze Speedway “critically” regarding a potential spinoff or dropdown into its MPLX LP master limited partnership sister company. But he added that he is “very happy with Speedway” and “plans to stay on course.”
Considering Speedway’s second-quarter 2016 results, MPC perhaps has excellent reason to keep its retail division under its main corporate umbrella. Speedway achieved record second-quarter results for the period ending June 30, earning a net profit of $193 million compared to $127 million in 2015’s second quarter.
These results included a $25-million one-time gain from lower-cost-to-market inventory reserves, although the results improved significantly year over year even when backing out this amount.
“We are pleased with our progress to realize synergies across the Speedway network earlier than originally planned and believe this will be a continuing source of value to the business,” said Heminger, referring to the retailer’s integration of the former Hess Retail network it acquired.
In-store merchandise sales were Speedway’s strongest earnings driver in the latest quarter, rising by $23 million year over year to $1.287 billion. Merchandise gross margins increased by $7 million year over year to $365 million, while merchandise gross margin percentage came in at 28.7 percent, a slight uptick compared to the same period last year.
Same-store merchandise sales increased by 2 percent year over year, but this growth slowed when comparing it to the gain of 4.6 percent that Speedway saw in this category in its 2015 second quarter.
On the fuels side, gasoline and distillate sales improved by 33 million gallons to 1.547 billion gallons. Gasoline and distillate gross margins achieved a healthy rise of nearly 2 cents per gallon to 15.49 cents per gallon.
THE M&A ENVIRONMENT
Given the steady earnings and cash flow that its retail operations provide, MPC “continues to be interested in retail acquisitions,” according to Heminger.
He did not discuss any specific acquisition targets. Media reports have stated MPC could be one of the bidders interested in CST Brands Inc., but this possibility was not touched upon during Thursday's call by either Heminger or Wall Street analysts.
The CEO did make a more generic comment about retail acquisitions, revealing: “There has been some movement in the retail space.” He did not elaborate.
Companywide, Findlay-based MPC earned a net profit of $801 million for second quarter, a decline of $25 million compared to its 2015 second quarter. Heminger emphasized, though, that the parent company performed quite well in its most recent quarter. Earnings benefited from improving crack spreads, robust product demand entering the summer driving and asphalt season, strong retail margins, and more.