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    Tesoro Combines Retail & Wholesale Ops

    Future of its new marketing segment could include a spinoff.

    By Melissa Kress, Convenience Store News

    SAN ANTONIO — Tesoro Corp. has changed the way it looks at its retail business, moving from company-owned operations to a multi-site operator (MSO) model.

    Therefore, Tesoro has combined its wholesale and retail operations into one segment, now referred to as marketing, which reflects its current business model and shows the combined value of the sales channels the company uses to reach customers, according to Steven Sterin, executive vice president and chief financial officer.

    He revealed the change Thursday during the San Antonio-based company's second-quarter 2015 earnings call.

    "This segment contributed significantly to our performance in the first half of the year, and we improved our marketing integration to 93 percent from 85 percent a year ago," Chairman and CEO Greg Goff reported. "We have undertaken initiatives to realign our marketing business. For instance, we recently transitioned our company-owned operations to a multi-site operator model."

    Tesoro is evaluating its long-term growth strategy for the marketing segment and will provide an update later this year, Goff added. 

    The changes are two-pronged: reporting and strategic, according to Sterin.

    "As we moved to the MSO model on our retail business, we created this marketing segment so you can see all of our customer-facing business in one place. That's the reporting change," Sterin said. "The real focus is on creating value to our strategy. You look at the performance of that business over the last couple of years and it's improved dramatically."

    In fact, over the last 12 months, the marketing business generated more than $800 million of EBITDA on its own.

    "As we look forward, we are going to lay out our strategy at the end of the year, as [Goff] mentioned, to create further value in the marketing segment," Sterin added. 

    On the topic of spinning off Tesoro's marketing business, Goff said the company believes "it's critical that we maintain that high integration in our refining and marketing business. It's a fundamental part of our business model. That's extremely important."

    The CEO acknowledged, however, that Tesoro needs to look at "how you can get the optimal contribution from that business with the amount of money you deploy in that business, as well as how you capture returns. That is something we fully intend to answer and will share with everyone before the end of the year." 

    The company is going "to look at every possible idea" and how it can create the maximum value for the owners of the company, Goff said.

    Tesoro's marketing segment reported an operating income of $212 million, up from $88 million in the second quarter of last year. The increase was due to strong market conditions and growing consumer demand, according to the company.

    Companywide, Tesoro reported second-quarter net earnings of $582 million vs. $224 million for the second quarter of 2014. 

    San Antonio-based Tesoro is an independent refiner and marketer of petroleum products. Its retail-marketing system includes more than 2,265 retail stations under the ARCO, Shell, Exxon, Mobil, USA Gasoline and Tesoro brands. Through its subsidiaries, Tesoro operates six refineries in the Western United States and has ownership in a logistics business which includes a 36-percent interest in Tesoro Logistics LP and ownership of its general partner. 

    By Melissa Kress, Convenience Store News
    • About Melissa Kress Melissa Kress joined EnsembleIQ's Convenience Store News and Convenience Store News for the Single Store Owner in November 2010. Her primary beats include alcoholic beverages and tobacco. Kress has been a professional journalist since 1995. A graduate of West Virginia University, she began her career in community journalism before moving to business-to-business publishing in 2000, covering commercial real estate.

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