Yahoo Finance Murphy USA Inc. (NYSE:MUSA) Q1 2024 Earnings Call Transcript
Murphy USA Inc. (NYSE:MUSA) Q1 2024 Earnings Call Transcript May 2, 2024
Murphy USA Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. My name is Alex, and I will be your conference operator today. At this time, I would like to welcome everyone to the Murphy USA First Quarter 2024 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Christian Pikul, Vice President of Investor Relation. Please go ahead.
Christian Pikul: Thank you, Alex. Good morning, everyone. Thanks for joining us today. With me are Andrew Clyde, Chief Executive Officer; Mindy West, Chief Operating Officer; Galagher Jeff, Chief Financial Officer; and Donnie Smith chief accounting officer. After some opening comments from Andrew, Galagher is going to provide some additional color commentary and then we will 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 and 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 will turn it over to Andrew.
Andrew Clyde: Thanks, Christian, and thank you everyone for joining us today. In addition to discussing our first quarter results, I'd like to welcome our new CFO, Galagher Jeff, to the call. Galagher hit the ground running at our March Investor Conference and is already having a tremendous impact with the team. And likewise, Mindy has fully embraced her broader COO role and with Galagher’s support, she is standing up the productivity improvement initiative we introduced at the conference. I continue to be very grateful for the incredible leadership team supporting the business here at Murphy USA. In addition to the benefit of having great leaders on your team, another thing I've learned about this business is that every quarter is a little bit different and when it comes to evaluating performance and measuring wins and losses, understanding that context is absolutely critical, especially when your efforts and energy are focused on long term value creation.
Q1 2024 had a few unique factors that separated it from its year ago counterpart. Product prices were up $0.50 compared to $0.08 in the prior year. We also didn't see a repeat of the beneficial fall off in prices mid quarter and overall saw less volatility. In addition, severe weather events were abnormally higher, especially those concentrated on the Atlantic Coast from Florida to New Jersey. In that setting, our core fuel and tobacco businesses performed exceptionally well. APSM fuel gallons were essentially flat year-over-year and up 2% on a two-year stack on comparable retail margins of $0.22 per gallon, with January retail margins the highest on record. This level of performance in what would historically be a very challenging environment strongly supports our view of the sustainability of the structural industry dynamics that continue to favor Murphy USA.
And while the OPUS industry volume data may not fully represent all competitors in the market, it certainly highlights that Murphy and QC are taking share in our respective markets. Similarly, the tobacco category saw very strong sales and margin growth, up 6% and 4.5%, respectively, and units remained healthy across all nicotine categories. Looking at broader industry data, we continue to take share profitably. The stickiness and share gains in fuel and tobacco are two largest categories, reinforce the non-discretionary nature of these categories for our value seeking consumers. Indeed, we saw a comparable year-over-year purchase behavior across all income cohorts and we continue to see consumer stock up on fuel and tobacco around major weather events.
We also continue to see new to Murphy customers behave the same as they trade down from higher priced retailers. But the bottom line is that the fundamental drivers of our largest and most EBITDA accretive categories continue to grow despite a more acute set of conditions in Q1 2024 relative to the benign conditions of Q1 2023. That said, the same conditions impacted the more discretionary center store categories due to fewer trips reflecting lower absolute fuel prices and less stocking up behavior for these categories. We also witnessed a lag in Lotto Lottery as it took longer to build up to similar jackpots and we believe there is some switching to new and newly legalized online betting sites, which saw significant growth in some of our states.
While below our Q1 expectations, there were still bright spots. Murphy branded stores grew non-tobacco margin dollars by 3.6% APSM, led by innovative dispensed beverage offers with sales up 19% APSM. Packaged beverage sales were up 1.8% APSM, yet contribution margin dollars for the category grew 3% due to pricing and promotionally driven product mix changes. Overall, the two-year stacks for Murphy stores provide a more fulsome view of our performance indicating APSM non tobacco sales and margin growth of 12% and 17.2%, respectively. At QuickChek, food and beverage sales were up 3.7% APSM and contribution margin dollars were up 1.2%. This is despite fuel gallons down 1.2% APSM. Having seen the recently reported earnings for a number of QSRs where same store sales results were mixed, we believe our prior decision to stay focused on value pricing amidst some of the increasing food cost inflation is paying off.
A recent brand survey further updates and reinforces our strong positioning with consumers. And with more innovative offers to come alongside the enhancements from our digital initiatives, we believe we are very well positioned in the current environment compared to the food brands that are having to make a sharp pivot towards value. Looking ahead to the rest of the year, our core innovation, growth and productivity initiatives that largely focus on food and beverage and center store opportunities remain on track with benefits weighted to the second half of the year. Coupled with softer Q3 and Q4 2023 comps, we remain confident about the trajectory of this part of the business. The PS&W and RINs component performed in line with our Q1 plan, which accounted for not repeating the higher Q1 2023 RIN sales, which were a carryover from Q4 2022 when the EPA announced a proposed rule to establish RFS volumes for 2023, 2024 and 2025, which created uncertainty as the market absorbed that information.
Moreover, we anticipated tight supply in Q1 2023 in a few markets and our supply model enabled us to capture an advantage in supply constrained markets that did not repeat in Q1 2024. We continue to believe our supply model provides an advantage that differentiates us from some of our competitors and expect it will continue to provide value within the historical range of $0.02 to $0.03 plus per gallon. OpEx was also favorable to our internal plan as higher labor costs for specific cohort investments were implemented as planned. We are closely watching the proposed FLSA changes and believe the 2024 impact to be minimal. We are running scenarios and have developed options to address what would be a larger impact in 2025 if the changes go through as proposed.
Of note though, to the extent that the marginal retailers have salaried managers impacted by the regulation, the impact to their business on a cents per gallon basis would be 3 to 6 times higher due to their lower volumes. As discussed before, Murphy USA is certainly not immune to the headwinds that arise from inflation or regulations. It's just that our hyper focused everyday low price and everyday low-cost model ensures we are not only not disadvantaged from the changes but that the vicious cycle experienced by some retailers results in a virtuous cycle for Murphy if the changes ultimately result in higher unit costs being passed through at the gas pump. Looking ahead, with steady momentum from the January through March months, we expect to capitalize on key promotional opportunities around our primary traffic drivers and fully expect to see results improving in the second half.
To add a little color to the anticipated lift in merchandise performance, we expect to see continued strength in tobacco, center store improvement as new pricing and promotional initiatives take hold. As it is still very early in the year and given all the initiatives underway and the expected second half impact, we remain confident delivering merchandise results within our guided range, albeit probably something closer to the lower end of the range as we are unlikely to be able to claw back some of the first quarter headwinds versus our plan. Nevertheless, the run rate impact on next year's merchandise results remains significant and reflects the hard work and highly impactful digital transformation initiatives underway, including a relaunch of the QuickChek loyalty program, which is underway and should be rolled out in the fourth quarter.
In summary, the entire team and I are really excited about all the activity we have going on to build upon the underlying strength of the business, and we look forward to updating you on our progress next quarter. And with that, I'll turn it over to Galagher.
Galagher Jeff: Hello everyone and good morning. Thanks for the introduction, Andrew. It's been an amazing experience for me so far here at Murphy. I'm extremely impressed by the team and the commitment to creating shareholder value through our advantaged business model and focused strategy. I've spent my first few months learning our business and meeting our team members and customers, And I'm very much looking forward to getting to know our shareholders and invest in building these long-term relationships. Also wanted to thank Mindy for building such a solid foundation and strong team that I've come into here at Murphy. This morning, I'm going to switch up the content a bit versus prior calls. Most of the financial information typically discussed is already provided in our earnings release.
So, to avoid redundancy, going forward, I'm going to focus my comments on incremental elements of the business, adding clarity where it may be needed to better understand our financial and operational results as well as our overall financial health and capital allocation strategy. First, I wanted to add some perspective on our new to industry store or NTI program, which we have stated previously remains a significant driver of EBITDA growth over time. As mentioned in the earnings release, we have opened three new stores including one QuickChek store during the quarter. We closed three QuickChek stores that did not have a fuel offer and were not materially additive to our EBITDA. Since quarter end, we have opened one new Murphy banner store with two more scheduled to open in the next few weeks.
Current construction activity is accelerating with 22 raze-and-rebuild underway as well as nine new-to-industry stores, including the new QuickChek branded stores. Effective new construction starts in May and June, but is on track to deliver the 30 to 35 new stores this year, which is in line with our guidance and a projected increase versus the 28 new stores that were opened last year. The new store pipeline is also in great shape and right now stands at the highest level it has been since COVID, which means we're getting line of sight to a more robust 2025 opening pace. I'll update you more on our progress in new store openings later in the year. From a capital spending perspective, we spent $82 million in the first quarter with $61 million of that for new store growth and the rest going to maintenance capital and the digital transformation initiatives that we have discussed in prior quarters.
These initiatives are on track and we expect to stay within our guided range of $400 million to $450 million of spending for the full year 2024. I'd also like to talk a bit about our share repurchase activity. Per the release, we repurchased 216,000 shares in the quarter and remain committed to our goal of buying back around one million shares annually. We intend to continue our repurchase activity utilizing cash on hand and other available means of liquidity, particularly if we feel the market price of our stock does not accurately reflect our ability to grow and improve the business. We maintain a high level of confidence in our ability to execute against our multiyear plans, and we think this is a great opportunity to be buyers of our stock.
We continue to operate under the Board authorization to repurchase up to $1.5 billion of our stock, which extends through 2028. With that, I'll turn the call back over to Andrew.
Andrew Clyde: Thank you, Galagher. Let me close with some comments on the preliminary April fuel performance where prices have trended higher throughout most of the month. Nevertheless, APSM fuel volumes approximated just over 100% of prior year levels and retail margins look to be roughly three pennies above Q1 results or about $24.5 per gallon. The continued run up in price sets us up nicely for an eventual fall off in prices during the higher volume summer months, which is a win, not an if event. To that point, we have seen a recent drop in prices over the past week and we are currently sitting on retail margins in the low to mid $0.30 range. I'll now turn the call back to the operator and we'll open up the call to questions.
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