BRENTWOOD, Tenn. -- Foodservice helped Delek US Holdings Inc. report overall positive financial results for first-quarter 2011. For the three months ended March 31, 2011, Delek US reported net income from continuing operations of $16.9 million, or 31 cents per diluted share, versus a net loss from continuing operations of $14.1 million, or a loss of 26 cents per basic share, in first-quarter 2010.
At the retail level, same-store merchandise sales increased on a year-over-year basis for a seventh consecutive quarter, as foodservice and private-label sales initiatives [image-nocss] continued to gain momentum, and same-store foodservice sales increased 13.7% during first-quarter 2011, compared to a same-store increase of 9.2% in the prior year period, as fresh and prepared food concepts gained traction throughout the retail network
Meanwhile, during the quarter, the company incurred approximately $2.3 million of pre-tax transaction expenses related to the acquisition of a majority equity interest in Lion Oil Co., which impacted results by 3 cents per diluted share. Delek US said that it anticipates additional transaction expenses related to the Lion Oil transaction will be incurred during second-quarter 2011.
Uzi Yemin, president and CEO of Delek US, said, "Our strong first-quarter results were driven by a significant improvement in Gulf Coast refining economics, when compared to the prior-year period. Our refining segment generated more than $54 million in contribution margin during first-quarter 2011, as elevated refined product margins, an ongoing recovery in regional demand and reliable operations at our Tyler refinery contributed to profitability in the period."
On April 29, 2011, Delek US completed the purchase of a 53.7% majority equity interest in Lion Oil previously held by Ergon Inc., bringing Delek US's total equity ownership in Lion Oil to 88.3%. As the new majority shareholder of Lion Oil, Delek US has assumed management and operational control of Lion Oil's El Dorado, Ark., refinery and certain related assets. Lion Oil's financial performance will be included as part of Delek US' consolidated financial results beginning in second-quarter 2011.
"As we assume management responsibilities for Lion Oil, one of our top priorities will be to increase the supply of cost advantaged, WTI-linked crude oil delivered to the El Dorado refinery. Historically, El Dorado has processed approximately 20% local Arkansas crude oil purchased at a significant discount to WTI, while the remainder of the refinery's crude slate has been comprised of offshore domestic and foreign crudes. We are currently evaluating a number of potential sources that will enable us to increase the quantities of WTI-linked crude oil delivered to El Dorado," added Yemin.
Refining contribution margin increased to $54.3 million in first-quarter 2011, versus $2.5 million in first-quarter 2010. The year-over-year increase in contribution margin was attributable to improved refined product margins, widening crude differentials, a lingering WTI contango benefit, a lower volumetric loss and strong sales of refined products in the period.
Retail segment contribution margin declined to $6.5 million in first-quarter 2011, compared to $7.4 million in first-quarter 2010. Elevated crude oil prices applied downward pressure on retail fuel margins during the first quarter and led to higher retail fuel prices in the period. Higher retail fuel prices contributed to a modest decline in same-store fuel sales (gallons) during first-quarter 2011.
Same-store merchandise sales increased 4% in first-quarter 2011, compared to a same-store sales increase of 1.2% in first-quarter 2010. Merchandise margin was unchanged at 30.8% in first-quarter 2011, when compared to the prior-year period.
Same-store sales of fuel (gallons) declined 2.3% in first-quarter 2011, versus a decline of 0.3% in first-quarter 2010. The company's retail fuel margin was 12.5 cents per gallon in first-quarter 2011, compared to 12.9 cents per gallon in first-quarter 2010.
At the conclusion of first-quarter 2011, the retail segment operated 404 locations, versus 434 locations in the prior-year period.
Marketing segment contribution margin increased more than 40% to $8.3 million in first-quarter 2011, versus $5.8 million in first-quarter 2010.
Delek US Holdings is a diversified downstream energy business focused on petroleum refining, the wholesale distribution of refined products and convenience store retailing. The refining segment consists of refineries operated in Tyler, Texas, and El Dorado, Ark., with a combined nameplate production capacity of 140,000 barrels per day. The marketing and supply segment markets refined products through a series of owned and third-party product terminals and pipelines. The retail segment supplies fuels and merchandise through a network of approximately 400 company-operated convenience store locations operated under the MAPCO Express, MAPCO Mart, East Coast, Fast Food & Fuel, Favorite Markets, Delta Express and Discount Food Mart brand names.
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