Murphy USA Inc. (MUSA) Q3 2022 Earnings Call Transcript

Murphy USA Inc. (MUSA)

Q3 2022 Earnings Conference Call

October 27, 2022 11:00 AM ET

Company Participants

Christian Pikul - Vice President, Investor Relations

Andrew Clyde - President and Chief Executive Officer

Mindy West - Executive Vice President, Fuels and Chief Financial Officer

Conference Call Participants

Ben Bienvenu - Stephens

Anthony Bonadio - Wells Fargo

Robert Dickerson - Jefferies

John Royall - JP Morgan

Carla Casella - JP Morgan

Bobby Griffin - Raymond James

Bonnie Herzog - Goldman Sachs



Good morning, my name is Emma and I will be your conference operator today. At this time, I would like to welcome everyone to the Murphy USA Third Quarter Earnings Conference Call. All lines have been placed on-mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

Christian Pikul, Vice President of Investor Relations, you may begin your conference.

Christian Pikul

Great. Thank you Emma. Good morning, everyone. With me, as usual, are Andrew Clyde, President and Chief Executive Officer; Mindy West, Executive Vice President and Chief Financial Officer; and Donnie Smith, Vice President and Controller. After some opening comments from Andrew, Mindy will give us some brief overview of the financial results and then we'll open up the call to Q&A.

Please keep in mind that some of the comments made during this call, including the Q&A portion will be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. As such, no assurances can be given that these events will occur or that the projections will be attained. A variety of factors exist that may cause actual results to differ. For further discussion of risk factors, please see the latest Murphy USA Forms 10-K, 10-Q, 8-K, and other recent SEC filings. Murphy USA takes no duty to publicly update or revise any forward-looking statements.

During today's call, we may also provide certain performance measures that do not conform to Generally Accepted Accounting Principles or GAAP. We have provided schedules to reconcile these non-GAAP measures with the reported results on a GAAP basis as part of our earnings press release, which can be found on the Investors section of our website.

With that, I'll turn the call over to Andrew.

Andrew Clyde

Thank you, Christian. Good morning, and welcome to everyone joining us today. Third quarter results clearly demonstrate that the earnings power of our business has been and we expect will continue to be sustained throughout a variety of different macroeconomic environments and business conditions.

Looking back over the past three years, we performed well during the onset of the COVID-19 pandemic. Successfully navigated supply-chain challenges during the early period of recovery and widened our advantage in the most recent period of higher-cost and inflationary wage pressures. We have prospered during periods of sharp rising product prices that threaten broader consumer spending and the most recent quarter delivered strong financial results, as prices fell and interest rates rose. If our advantage business can thrive across these varied macroeconomic environments, each characterized by unique challenges and opportunities, we remain confident in our ability to perform if the economy worsens or if we embarked upon a period of economic recovery.

Our distinct model and enduring strategy have served our shareholders well and we see no reason to believe the future will be any different in Murphy USA. Affordability matters, and we are clearly seeing the benefits of our everyday low-price strategy in our third quarter results. On a same-store basis, Q3 gallons were up 9%, tobacco margins were up nearly 6% and non-tobacco margins were up nearly 9%, powerful proof points that our low-price offer is resonating across categories, resulting in volume growth and market-share gains.

The QuickChek offer also continues to resonate with customers as it delivers high-quality food and convenience items at value prices. We continue to invest in our customer value proposition at QuickChek and grow in the markets where it has already earned a loyal customer base and valuable brand recognition. The strong in-store performance admits a challenging and uncertain economic backdrop further solidifies our view that for most consumers a trip to Murphy USA represents a largely non-discretionary occasion. A trend that we're seeing continue into the fourth-quarter.

Our affordable offer continues to be underpinned by the low-cost DNA of our organization and our efficient operating model. While higher costs have impacted both our business and other industry operators, we continue to be advantaged from a labor perspective. The operating expense comparisons are beginning to moderate as we start to lap some of the targeted wage adjustments and other inflationary impacts over the last 12 months.

OpEx at the store-level was up 6.4% for the quarter, including roughly $4 million of special incentives to our store associates. We could not be more pleased with the impact of this appreciation program, which increased the engagement of our associates and allow them to do what they do best, serve customers, drive merchandise sales, and recruit like-minded new associates.

As we exited the summer store-level engagement has maintained at a high-level and while staffing remains a challenge for the industry, we have seen a positive impact on recruiting in applicant flow-in recent months. Alongside these short-term investments in our affordable offer and operating model we continue to prioritize disciplined capital allocation as we think about long-term investments. Our organic growth program continues to be the single most impactful driver of long-term sustainable growth in EBITDA and earnings per share.

I'm pleased to report that we're on-track to deliver between 40 and 45 new stores in 2022 and expect a similar level of activity in 2023. Importantly all of our new stores are exceeding internal expectations and are incrementally positive to the network averages as evidenced by the stronger APSM versus same-store sales figures in the fuel and non-tobacco categories.

In addition, we are on-track to complete 38 raze-and-rebuilds, which replace high-performing kiosks with a larger 1,400 square-foot store that features a broader assortment of higher margin merchandise, better grab-and-go food offer and a more favorable customer experience. In addition to organic growth, share repurchase remains a key element of our broader capital allocation strategy and underpins our value creation pledge to investors.

Given recent performance in our view of the sustainability of this performance, we believe our stock offers a compelling value based on, both current and long term earnings outlook. We continue to believe share repurchase represents the most impactful use of free cash flow, for long-term investors beyond capital allocated to organic growth. As such, we continue to be active in share repurchase, buying back nearly 800,000 shares during the third quarter for $212 million at an average price of $276 per share. This amount represents significant progress against the five year $1 billion program our Board approved in December of 2021 and we are currently on-track to complete that program well-ahead of schedule.

Finally. I would note that while the [Biden] (ph) uncertainty continue to exist with respect to the new baseline for long-term fuel margins, the excess cash generated and used to buy-back shares over the past three years represents real and enduring value to long-term investors, with more than 25% of outstanding shares being repurchased over that period.

Investors who have held throughout this period has not only enjoyed significant price appreciation, but can we expect to enjoy a greater percentage of future earnings and shareholder distributions without having allocated more capital to the Murphy USA Investment.

With that, I will turn the call over to Mindy.

Mindy West

Thank you Andrew. And good morning, everyone. Revenue for the, third quarter was $6.2 billion compared to $4.6 billion in the year-ago period. Average retail gasoline prices were $3.67 per gallon versus $2.89 per gallon in the third quarter of 2021.

Third quarter EBITDA was $367 million versus $212.5 million in the year-ago period. Net income for the quarter was $219.5 million versus $104 million in 2021, resulting in reported earnings per share of $9.28 versus $3.98 in the year-ago period. And the effective tax-rate in the third quarter was 24.5%.

The business continues to generate significant free-cash flow and that is reflected in our cash position. Cash balances did declined slightly to $193 million from $240 million in the second-quarter, or a total net decrease of approximately $47 million, despite capital expenditures of roughly $78 million and roughly $220 million of shareholder distributions, including the, $212 million of share repurchases Andrew mentioned in the third quarter.

Total debt on the balance sheet as of September 30, 2022 remained at approximately $1.8 billion, of which approximately $15 million is captured in current liabilities, representing the 1% per annum amortization of our term-loan and the remainder of reduction in long-term lease obligations. Our $350 million revolving credit facility had a zero outstanding balance at quarter-end and is still currently undrawn. These figures result in gross adjusted leverage that we report to our lenders of approximately 1.5 times.

And with that, I will turn it back over to Andrew.

Andrew Clyde

Thanks, Mindy. Before taking any questions, I would note that third quarter average per store most volumes not only exceeded 2019 levels, but are the strongest since the third quarter of 2016. October performance continues this trend of taking share and growing volumes, which were up high-single-digits year-over-year. Current margins approximately $0.30 per gallon, up from about $0.20 per gallon to start the month.

It is important to note, we see recent margins reactive to and reflective of typical volatility related to the up and down swings in product prices. So while, some may be tempted to label third quarter retail margins as an outlier, this level may simply be reflective of what the industry can expect in future periods of falling prices and indicative of a higher equilibrium industry structure that reflects the higher-cost of doing business for the marginal convenience store retailer.

With that operator, let's open up the call to questions.

Question-and-Answer Session


Thank you. [Operator Instructions] Your first question today comes from the line of Ben Bienvenu with Stephens. Your line is now open....

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