Challenging Quarter

Alon USA, Delek US report losses

Published in CSP Daily News

DALLAS -- Alon USA Energy Inc. has announced results for the quarter ended March 31, 2008. Net loss for first-quarter 2008 was ($33.6) million, compared to net income of $35.6 million for the same period last year.

Jeff Morris, Alon's president and CEO, said, "The first quarter of 2008 has been the most challenging in the company's history due to the major fire at the Big Spring refinery combined with reduced industrywide refining margins from higher crude oil costs. The higher crude oil costs have also reduced refinery margins and resulted in limited production at our California refineries. [image-nocss] While the first quarter has been difficult, I am confident in our ability as an organization to meet these challenges and position our company for future growth opportunities. We remain very diligent in our efforts to return the Big Spring refinery to its full operating capacity."

He added, "We continue the initiatives discussed in our latest conference call on March 6, 2008. We are proceeding with an initial public offering [IPO] related to our retail and branded marketing businesses, which we will seek to complete by yearend. We are also continuing our evaluations of M&A activities that could potentially strengthen our company."

Based in Dallas, Alon USA is an independent refiner and marketer of petroleum products operating primarily in the southcentral, southwestern and western regions of the United States. It owns and operates four sour and heavy crude oil refineries in Texas, California and Oregon, with an aggregate crude oil throughput capacity of about 170,000 barrels per day. Alon markets gasoline and diesel products under the FINA brand name. It also operates more than 300 convenience stores in West Texas and New Mexico substantially under the 7-Eleven and FINA brand names and supplies motor fuels to these stores primarily from its Big Spring refinery. In addition, Alon supplies about 780 additional FINA branded stations.

Meanwhile, Brentwood, Tenn.-based Delek US Holdings Inc. has reported a net loss for first-quarter 2008 of ($5) million, compared with net income of $20.9 million for the first quarter 2007. The first-quarter 2008 loss includes a $6.5 million realized aftertax noncash loss associated with the company's equity investment in Lion Oil Co. and a recognized $2.1 million after-tax non-cash gain related to ethanol hedging positions.

Compared to the same quarter a year ago, Delek's first-quarter results were largely impacted by 68% higher crude prices, lower gasoline margins at the refinery and higher retail fuel prices at the c-stores, all of which were offset by higher refinery throughputs.

Uzi Yemin, Delek's president and CEO, said, "We recognize each of our operating segments had positive contribution to our consolidated contribution margin in what proved to be a challenging environment. At the same time, we strengthened our balance sheet by reducing our net debt position by $23 million and increased our ethanol blending in both our refining and retail segments."

The refining segment reported a contribution margin of $7.6 million for first-quarter 2008, compared to $36 million for first-quarter 2007. Net sales for the quarter were $552.8 million compared to net sales of $353.9 million for the same quarter last year.

The retail segment's contribution margin was $10.9 million for first-quarter 2008 compared to $11.9 million for first-quarter 2007. Net sales for the quarter were $481 million, an increase of 45.3% compared to the same period a year ago. The lower contribution margin was caused in part by higher retail fuel prices during the quarter, the corresponding higher credit card expenses and decreased consumer spending.

Merchandise sales for the quarter were $97.1 million and represented an 18.7% increase compared with the same period last year. The increase was driven by the $17.4 million in merchandise sales associated with the Favorite Markets stores acquired during second-quarter 2007. The merchandise margin for first-quarter 2008 was 32.3% compared to 32.5% and 31.6% for the same period last year and full year 2007, respectively.

Retail fuel margin for first-quarter 2008 increased to 12.6 cents per gallon from 12.3 cents per gallon for the same period last year, supported by the introduction of E-10 blended fuel in fourth-quarter 2007. Retail fuel gallons sold in first-quarter 2008 increased 13.8% compared to first-quarter 2007. The increase in gallons sold was primarily driven by sales associated with Favorite Markets stores acquired during second-quarter 2007.

The marketing segment reported a contribution margin of $6.4 million, an increase of 8.5%, compared to the same period last year. Net sales increased from $120.7 million in first-quarter 2007 to $184.3 million in first-quarter 2008. Net sales for first-quarter 2008 included $3.4 million of inter-company fees and sales from the refining segment. The marketing segment reported sales volume of 17,258 bpd compared to 16,978 bpd for first-quarter 2007.

Delek US Holdings is a diversified energy business focused on petroleum refining, marketing and supply of refined products and retail marketing of fuel and general merchandise. The refining segment operates a high conversion, independent refinery, with a design crude distillation capacity of 60,000 bpd in Tyler, Texas. The marketing and supply segment markets refined products through its terminals in Abilene, Texas, and San Angelo, Texas, as well as other third-party terminals. The retail segment markets gasoline, diesel and other refined petroleum products and convenience merchandise through a network of company-operated retail fuel and c-stores, operated under the MAPCO Express, MAPCO Mart, East Coast, Discount Food Mart, Fast Food and Fuel and Favorite Markets brands.

Keywords: 
M&A