Speedway Sees 'Long-Term Value' in Hess Deal

FINDLAY, Ohio – Speedway LLC’s pending acquisition of Hess Corp.’s 1,256-store retail division will be an excellent “source of long-term value” for parent company Marathon Petroleum Corp. (MPC), President and CEO Gary R. Heminger stated Thursday during MPC's 2014 fiscal second-quarter earnings call.

Heminger added that the Federal Trade Commission has already reviewed the proposed $2.87-billion purchase, and MPC expects the acquisition to close by the end of the year. As CSNews Online reported Wednesday, Hess CEO John Hess anticipates the same closing timeline.

Once Speedway's purchase of Hess Retail Holdings LLC is completed, the chain will operate 2,733 convenience stores and gas stations in 23 states, enough to become the second-largest U.S. c-store retailer in terms of store count. MPC will also add transport and shipping operations via the transaction.

The Hess Retail Holdings acquisition should certainly be a boost to the Speedway c-store division, which suffered a decline in earnings during its most recent quarter. Speedway earned a net profit of $94 million in the quarter ended June 30. In comparison, the retail division earned $123 million in its 2013 fiscal second quarter.

Lower gasoline and distillate gross margin, along with higher operating expenses associated with an increase in the number of Speedway stores compared to 2013, were cited as the main reasons for the decline in retail earnings year over year. Speedway operated 1,492 locations as of June 30, an increase of 24 stores compared to the year-ago period.

Although overall Speedway earnings dropped, the company noted that in-store merchandise margins were strong in the second quarter. Merchandise sales improved by $24 million to $830 million, while merchandise margins rose $12 million to $224 million. Merchandise gross margin percentage increased 0.8 percent year over year to 27.1 percent.

In addition, when excluding cigarettes, Speedway’s same-store merchandise sales rose 4.6 percent year over year, MPC executives noted during Thursday's call.

Companywide, Findlay-based MPC earned $855 million in its 2014 fiscal second quarter, vs. $593 million during the same period last year. The company announced it will increase its quarterly dividend by 19 percent, reflecting the confidence it has in its business moving forward.

"We had an outstanding quarter, with our focus on top-tier operational performance across the MPC refining, marketing and transportation system continuing to yield excellent results," concluded Heminger. "Our integrated system operated very well, enabling us to efficiently meet consumers' needs and capture higher product price realizations in the markets where we do business.”