You are here
FINDLAY, Ohio — Speedway LLC turned in a record second quarter as questions remain whether its parent company, Marathon Petroleum Corp. (MPC), will hold on to the convenience retail network.
"We delivered strong operational and financial performances across all segments of the business in the second quarter. Speedway continues to perform very well, reporting its third best quarter ever," Gary R. Heminger, chairman and CEO of Marathon Petroleum, shared Thursday during the company's second-quarter 2017 earnings call.
Overall, Findlay-based MPC reported 2017 second-quarter earnings of $515 million.
Enon, Ohio-based Speedway delivered record second-quarter segment income from operations of $239 million, surpassing the previous record set in the same quarter last year by $71 million on a normalized basis, Heminger explained.
The retail network's "exceptional results" were driven primarily by higher light-product and merchandise gross margins, and "outstanding expense control," the chief executive noted.
An increase in light-product margin had a $31-million favorable impact, as margins averaged 18.4 cents a gallon in the second quarter of 2017, up from 15.5 cents a year ago, on nearly 1.5 billion gallons sold in the quarter, according to Timothy Griffith, senior vice president and chief financial officer.
Merchandise margin contributed a $2-million favorable impact to segment income, he added.
"As a reminder, comparability of Speedway's results to prior years' second quarter was also impacted by the transfer of Speedway travel centers into the newly formed joint venture with Pilot Flying J, called PFJ Southeast LLC, in the fourth quarter of 2016," Griffith clarified.
The two companies announced in June 2016 that the joint venture would consist of 120 travel plazas located primarily in the southeastern United States. The new entity was initially supposed to consist of 41 locations contributed by Speedway and 79 locations contributed by Pilot Flying J. All of these locations are operated by Pilot Flying J and carry either the Pilot or Flying J brands, as CSNews Online previously reported.
"We continue to focus on delivering top-tier performance and expect continued growth in Speedway's earnings as we drive marketing enhancement opportunities, build new stores, remodel stores and rebuild existing locations across our footprint," Heminger said.
"We continue to be very encouraged by the attractive investment opportunities that are available to us," he continued.
A special committee of the MPC board and an independent advisor are continuing to work through the assessment of Speedway. They expect to complete the review with recommendations by the end of the third quarter.
"We are executing the strategic actions announced earlier this year to further enhance shareholder value," Heminger said, noting that following the completion of several planned dropdowns in the first quarter, MPC used substantially all after-tax cash proceeds from the transaction to repurchase shares, including $750 million in the second quarter.
As CSNews previously reported, MPC dropped down certain terminal, pipeline and storage assets to MPLX for a total consideration of approximately $2 billion in March. The assets include 62 light-product terminals with approximately 24 million barrels of storage capacity; 11 pipeline systems consisting of 604 miles of pipeline; and 73 tanks with approximately 7.8 million barrels of storage capacity.
In the third quarter, MPC is planning the dropdown of its joint-interest ownership in certain pipelines and storage facilities to MPLX. These assets are projected to generate approximately $135 million of annual EBITDA, according to the company.
Work remains on schedule to prepare the remaining assets, with annual EBITDA of approximately $1 billion, for dropdown to MPLX no later than the end of the first quarter of 2018.
As the company enters the second half of the year, Heminger also provided some observations on the macro environment impacting the business.
"We believe the global and U.S. macro picture remains solid and expect that good economic growth will continue to support strong demand for our products as inventory levels come down in the second half of this year and into 2018," he said.
MPC is the nation's third-largest refiner, with a crude oil refining capacity of approximately 1.8 million barrels per calendar day in its seven-refinery system. Marathon brand gasoline is sold through approximately 5,600 independently owned retail outlets across 19 states. In addition, Speedway owns and operates the nation's second-largest convenience store chain, with approximately 2,730 convenience stores in 21 states.