Delek US Holdings Reports Q4 and 2010 Results

“As we look to the year ahead, we remain focused on the expansion of our retail footprint through new store construction,” says CEO.

Delek US Holdings Inc., a diversified energy company with assets in the petroleum refining, marketing and retail industries, has released the financial results for its fourth quarter and full-year 2010.

“During 2010, we secured more than $500 million in long-term financing for our subsidiaries and continued to invest in our retail store network. Having completed a series of major capital projects at Tyler (refinery) in recent years, we anticipate maintenance-level capital expenditures in the refining segment during 2011,” said Uzi Yemin, president and CEO of Delek US Holdings.

For the three months ended Dec. 31, 2010, Delek US reported a net loss from continuing operations of $70.9 million, or ($1.30) per basic share, versus a net loss from continuing operations of $21.1 million, or ($0.39) per basic share, in the fourth quarter 2009.

Since 2007, Delek US has owned a 34.6% minority equity interest in Lion Oil Co. During the fourth quarter 2010, Delek US evaluated the fair value of its investment in Lion Oil. This evaluation resulted in the recognition of a non-cash $60.0 million impairment to the company’s investment, or ($1.16) per basic share.

Excluding non-cash and other special items, the company reported an adjusted net loss from continuing operations of $7.8 million, or ($0.14) per basic share in the fourth quarter 2010, versus an adjusted net loss from continuing operations of $27.0 million, or ($0.50) per basic share, in the fourth quarter 2009.

For the full-year 2010, the company reported a net loss from continuing operations of $79.9 million, or ($1.47) per basic share, versus net income from continuing operations of $2.3 million, or $0.04 per diluted share, in 2009. Excluding non-cash and other special items, the company reported an adjusted net loss from continuing operations of $19.4 million, or ($0.36) per basic share, in 2010, versus an adjusted net loss from continuing operations of $22.4 million, or ($0.41) per basic share, in 2009.

“Gulf Coast refining economics have improved significantly during the first quarter 2011, when compared to the year-ago period, Yemin noted. “During the first two months of the year, the Gulf Coast 5-3-2 crack spread reached elevated levels, supported by improved gasoline and distillate margins. Moreover, West Texas Intermediate crude oil – our primary feedstock at the Tyler refinery – continues to enjoy a significant cost advantage over competing benchmark crudes, as price differentials have widened substantially in recent weeks.”

He added, “As we look to the year ahead, we remain focused on the expansion of our retail footprint through new store construction. In addition, we have retained Morgan Keegan to assist MAPCO in locating and evaluating retail acquisition opportunities in both new and existing markets.”

As of Dec. 31, 2010, Delek US had $49.1 million in cash and $295.8 million in debt, resulting in a net debt position of $246.7 million. During the fourth quarter 2010, the retail segment entered into a five-year, $200 million revolving credit facility that extended and increased an existing revolver, while extinguishing an associated term loan. The primary purpose of the facility is to help finance working capital requirements and the strategic growth of the company’s retail segment.

Refining Segment

Refining contribution margin increased to $11.7 million in the fourth quarter 2010, versus $4.9 million in the fourth quarter 2009.

Gulf Coast refining economics improved during the fourth quarter when compared to the prior year period, driven by elevated gasoline and distillate margins, particularly during the month of December. The Gulf Coast 5-3-2 crack spread averaged $8.09 per barrel during the fourth quarter 2010, versus $4.50 per barrel in the fourth quarter 2009.

Total throughput increased 9% to 55,318 barrels per day during the fourth quarter 2010, versus 50,737 barrels per day in the prior year period. Total sales volumes increased by more than 10% to 54,405 barrels per day during the fourth quarter 2010, when compared to the prior-year period.

Direct operating expense per barrel sold declined to $5.51 per barrel in the fourth quarter 2010, versus $5.73 per barrel in the fourth quarter 2009. The decline was due primarily to a year-over-year decline in insurance and maintenance expenses, in addition to lower utility costs.

Tyler’s refining margin, excluding inter-company product marketing fees of $0.51 per barrel, was $8.36 per barrel sold in the fourth quarter 2010, compared to $3.91 per barrel sold for the same quarter last year. The company’s refining margin benefited from several factors during the fourth quarter 2010, including improved margins on gasoline and distillate products, a lingering WTI contango market structure, a lower volumetric loss, as well as the decision to process more intermediate feedstock inventories that carried a production cost below the cost of crude oil during the period.

Retail Segment

Retail segment contribution margin increased to $8.2 million in the fourth quarter 2010, compared to $0.3 million in the fourth quarter 2009. During the fourth quarter 2009, retail segment contribution margin was negatively impacted by a $7.0 million goodwill impairment charge, whereas no such charge was incurred during the fourth quarter 2010.

Same-store merchandise sales increased on a year-over-year basis for a sixth consecutive quarter, as food service and private label sales initiatives continued to gain momentum. Higher crude oil prices put downward pressure on retail fuel margins during the fourth quarter, while also contributing to higher retail fuel prices, the latter of which contributed to a modest decline in same-store fuel sales (gallons) during the period.

Same-store merchandise sales increased 4.4%  in the fourth quarter 2010, compared to a same-store sales increase of 5% in the fourth quarter 2009. Same-store food service sales increased 14.3% during the fourth quarter 2010, driven by increased penetration of fresh and prepared food concepts throughout the retail network. Same-store private label sales were approximately 4% of total merchandise sales during the fourth quarter 2010, increasing more than 60% when compared to the prior-year period.

Merchandise margin declined to 29.8% in the fourth quarter 2010, versus 30.2% in the fourth quarter 2009. The decline was primarily attributable to increased promotional activity surrounding the launch of new private label products and event-related discounts throughout the holiday season.

Same-store sales of fuel (gallons) declined less than 1% in the fourth quarter 2010, versus an increase of 4.2% in the prior-year period. The retail segment sold a total of 103.2 million retail gallons during the three months ended Dec. 31, 2010, versus 108.7 million gallons in the prior year period. At the conclusion of the fourth quarter 2010, the retail segment operated 412 locations, versus 442 locations in the prior-year period.

The company’s retail fuel margin was 13.1 cents per gallon in the fourth quarter 2010, compared to 12.9 cents per gallon in the fourth quarter 2009. During the fourth quarter 2010, the retail segment blended fewer gallons of ethanol due to less favorable blending economics, when compared to the prior-year period.

As of Dec. 31, 2010, more than 30% of the 412 stores in operation were classified as locations that had been either reimaged or recently constructed. During 2011, the company intends to reimage at least 25 locations and build 10-20 sites in both new and existing markets.

Marketing Segment

Marketing segment contribution margin declined to $6.6 million in the fourth quarter 2010, versus $7.1 million in the fourth quarter 2009.

Total sales volumes in west Texas increased for the fourth consecutive quarter, when compared to prior year periods. Total sales volumes increased 2.2% to 14,352 barrels per day in the fourth quarter 2010 when compared to the fourth quarter 2009, driven by increased demand for distillate products.

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