Delek US Reports Q2 Results

Delek US Holdings Inc. has announced its financial results for the second quarter of 2010.

For the three months ended June 30, 2010, Delek US reported net income from continuing operations of $15.0 million ($0.28 per diluted share) compared to $29.6 million ($0.54 per diluted share) in the second quarter 2009.

Excluding special items, the company reported adjusted net income from continuing operations of $12.3 million ($0.23 per diluted share), in the second quarter 2010, versus adjusted net income of $13.0 million ($0.24 per diluted share), in the second quarter 2009.

“Our second quarter profitability was primarily attributable to a combination of strong demand for refined products in each of our operating segments, improved Gulf Coast refining economics and elevated retail fuel margins,” Uzi Yemin, president and CEO of Delek US.

“Within our refining segment, we operated the Tyler refinery at or near peak capacity for the duration of the second quarter 2010, largely in response to increased regional demand and significantly improved refined product margins,” said Yemin. “In our retail segment, strong same-store sales of fuel (gallons) and merchandise helped to produce one of our best quarters at retail in nearly two years. Finally, in our marketing segment, we continued to grow the business, as total sales volumes increased for the third consecutive quarter.”

During the second quarter 2010, the company received final payment on outstanding property damage and business interruption insurance claims in the amount of $17.0 million related to a fire at the Company’s Tyler, Texas refinery that occurred in November 2008. For the three months ended June 30, 2010, Delek US recorded income of $12.8 million related to claims under the company’s business interruption insurance policy and $4.2 million related to claims under the company’s property damage insurance policy. Delek US recorded income of $57.6 million related to claims under the company’s property damage and business interruption insurance policies during the second quarter 2009. To date, Delek US has received $141.4 million in gross insurance proceeds related to the accident.

“Entering the third quarter, demand for refined products in the Tyler market remains on pace with second quarter levels. Within our retail business, same-store sales of fuel (gallons) and merchandise continue to improve as well, driven in part by continued contributions from the Company’s reimaged store locations,” Yemin said.

Second quarter net income from continuing operations was impacted by several factors, including a capital loss on the sale of three retail locations, accelerated depreciation resulting from the closure of six retail locations, write-down of DHT catalyst cost at the Tyler refinery, as well as flood-related property damage resulting from the May 2010 storms that affected portions of Middle Tennessee. Collectively, these factors negatively impacted net income from continuing operations by $1.7 million, or $0.03 per diluted share, during the second quarter 2010.

As of June 30, 2010, Delek US had $72.9 million in cash and $300.0 million in debt, resulting in a net debt position of $227.1 million. During the second quarter 2010, the company received a federal tax refund of $39.6 million cash related to a net operating loss carryback.

 

Refining Segment

The refining segment operated for 91 days during the second quarter 2010, versus only 44 days in the second quarter 2009, due to a fire at the Tyler refinery on November 20, 2008.

Refining contribution margin was $38.7 million in the second quarter 2010, versus $2.5 million in the first quarter 2010. Total throughputs exceeded 60,000 barrels per day in the second quarter 2010, versus 55,788 barrels per day in the first quarter 2010. Capacity utilization at the Tyler refinery was 95% in the second quarter 2010 – the highest average quarterly utilization rate recorded since Delek US purchased the refinery in 2005.

Gulf Coast refining economics improved significantly during the second quarter, as evidenced by a more than 40% increase in the benchmark Gulf Coast 5-3-2 crack spread, when compared to the first quarter 2010. The Gulf Coast 5-3-2 crack spread was $9.54 per barrel in the second quarter 2010, versus $6.62 in the first quarter 2010.

Direct operating expense per barrel sold was $4.39 per barrel in the second quarter 2010, versus $5.14 per barrel in the first quarter 2010. Higher utilization and lower natural gas prices contributed to the decline in operating expense per barrel.

Refining margin, adding back inter-company product marketing fees of $0.55 per barrel, was $8.96 per barrel sold in the second quarter 2010, compared to $6.24 per barrel sold in the first quarter 2010.

 

Retail Segment

Retail segment contribution margin was $18.1 million in the second quarter 2010, compared to $10.2 million in the second quarter 2009. The year-over-year improvement in contribution margin was primarily attributable to a same-store increase in fuel (gallons) and merchandise sales, increased gross profit generation on select in-store merchandise, as well as a significant increase in the retail fuel margin, when compared to the year-ago period.

On a year-over-year basis, same-store fuel gallons sold increased 3.4%  in the second quarter 2010, versus a decline of  0.8% in the second quarter 2009. The retail segment sold a total of 109.1 million gallons during the three months ended June 30, 2010, versus 110.4 million gallons in the prior year period. During the second quarter 2010, the retail segment operated 425 locations, versus 465 locations in the prior-year period.

The company’s retail fuel margin was 18.6 cents per gallon in the second quarter 2010, compared to 12.4 cents per gallon in the prior year period. The increase in retail fuel margin is mainly attributable to a favorable spread between wholesale and retail fuel prices in the quarter, in addition to favorable blending economics associated with the company’s ongoing E-10 (ethanol) blended fuel program.

On a year-over-year basis, same-store merchandise sales increased 4.6% in the second quarter 2010, compared to a same-store decline of 1.4% in the second quarter 2009, marking the fourth consecutive quarter of same-store merchandise sales growth. The improvement in same-store merchandise sales is attributable to several key factors, including strong contributions from the company’s “reimaged” MAPCO store locations, successful promotional efforts within the beer and dairy categories, consumer acceptance of newly introduced private label products, as well as continued growth in fresh food sales.

Same-store sales of food and fountain increased 16.4% in the second quarter 2010 when compared to the year-ago period, due primarily to increased contributions from the company’s QSR locations, in addition to improved sales resulting from the company’s ongoing fresh grab-n-go food initiative.

Merchandise margin increased to 31.3% in the second quarter 2010, versus 30.3% in the year-ago period, due primarily to increased gross profit contribution across several leading categories.

 

Marketing Segment

Marketing segment contribution margin was $6.7 million in the second quarter 2010, compared to $7.7 million in the second quarter 2009. Total sales volumes within the marketing segment increased for the third consecutive quarter to 14,652 barrels per day in the second quarter 2010, compared to 14,231 barrels per day in the prior-year period.

Source: Delek US Holdings Inc.

 

 

 

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