OPIS: First Half of 2010 Shows Strong Profit Margins for Gas Retailers

GAITHERSBURG, Md. -- When public companies in the retail gasoline segment report their second quarter earnings later this month, there will likely be upside surprises, according to new analysis by the Oil Price Information Service (OPIS).

While it’s a mixed bag in terms of overall petroleum refining and marketing profits, the retail segment stands out as a stellar performer through the first two quarters of 2010.

OPIS’ analysis found retail gasoline operators enjoyed their best January-to-June period for gross margins in this century. Higher margins were driven by steady demand at the pump and stumbling wholesale prices. The OPIS report is based on more than 110,000 service stations, supermarkets and big-box stores that sell gasoline, as well as wholesale costs for nearly 2,000 petroleum terminals in the United States.

Nationwide, gross gasoline margins averaged 16.9 cents per gallon in the first half of 2010, compared with just 10.3 cents per gallon last year, and as little as 9.6 cents per gallon in 2002 -- one of the notoriously poor years for c-store returns.

There are some clear standouts among the 150 or more companies that fly major or private brands in the U.S. OPIS measured Sunoco’s average year-to-date gross margin on unleaded regular gas at 18.7 cents per gallon, up more than 6 cents per gallon from the same period last year. Southeast retailer The Pantry saw gross margins nearly double from 2009, with April, May and June returns particularly robust. And within diversified companies such as Valero, Tesoro, Murphy and Marathon, the performance of the retail segment will almost certainly outperform refining and wholesaling, OPIS stated.

The strong returns could energize already busy buy/sell action across the country. Multi-national oil companies such as BP, Chevron, ConocoPhillips, ExxonMobil and Shell continue to divest large portions of company-owned or -operated retail real estate. Active buyers include public chains such as The Pantry, Sunoco, Susser Holdings, Global Partners LP, and a host of entrepreneurial companies backed by public and private equity.

Meanwhile, on center stage, the strong performance raises the stakes in a stormy battle in the heartland where the nearly 1,500 c-store holdings of Casey’s General Stores are the target of a hostile takeover by North American consolidator Alimentation Couche-Tard. Casey’s gross fuel margins for the first half of 2010 are running about 5.8 cents per gallon, or nearly 62 percent above last year, according to OPIS data.

Even the big-box chains such as BJ’s, Costco, and Sam’s Club were able to sell gasoline not as a “loss leader,” but as a profit center unto its own. The wholesale clubs continue to sell fuel at aggressive prices, but these high-volume retailers sold gas at 6 to 9 cents per gallon above cost in 2010, compared to sometimes negative gross margins in 2009.

OPIS retail fuel analyst Fred Rozell, however, noted the brisk 2010 start should be viewed with caution. “Six of the last eight years have actually seen better second half fuel margins than in the first two quarters, so this year’s performance could simply be ‘front-end loaded,’” he said.