Murphy USA Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited results compared with Q1 2022. Murphy USA operates 1,720 convenience stores in 27 states and sells retail and wholesale fuel and merchandise.
Financial results
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $5,077.2 million | $5,118.4 million | Down 0.8% |
| Operating income | $162.8 million | $220.7 million | Down 26.2% |
| Net income | $106.3 million | $152.4 million | Down 30.2% |
| Diluted EPS | $4.80 | $6.08 | Down 21.1% |
| Adjusted EBITDA | $220.2 million | $277.0 million | Down 20.5% |
| Operating cash flow | $149.7 million | $339.2 million | Down $189.5 million |
Revenue included $544.8 million of excise taxes collected and remitted. The filing does not provide a consolidated gross-margin percentage. Total fuel contribution was $329.9 million, or 28.9 cents per gallon, versus $369.8 million and 34.0 cents per gallon. Retail fuel contribution rose to $264.7 million from $253.6 million, while product supply and wholesale contribution, including RINs, fell to negative $50.1 million from positive $39.6 million. Merchandise contribution increased 6.5% to $187.1 million; merchandise sales rose 8.3% to $966.2 million.
Operating cash flow declined mainly because working capital used $30.4 million in Q1 2023, compared with providing $118.9 million in Q1 2022, and because net income was lower. Capital expenditures were $72.7 million in the cash flow statement; reported capital spending and investments were $73.4 million.
Balance sheet and liquidity
At March 31, 2023, cash and cash equivalents were $102.1 million and marketable securities were $17.9 million. Total assets were $4.119 billion, total liabilities $3.402 billion, and stockholders’ equity $716.8 million. Long-term debt, including capitalized lease obligations, was $1.804 billion, with $14.7 million current maturities. The $350 million revolving credit facility was undrawn, apart from $4.7 million in letters of credit. Management reported a total leverage ratio of 1.58 to 1.0 and said liquidity was adequate for anticipated needs.
Material changes and management commentary
- Fuel revenue declined as retail fuel prices were 8.2% lower year over year, partly offset by 4.9% higher retail volumes. Retail fuel margin was nearly flat at 23.2 cents per gallon.
- Lower timing and inventory pricing adjustments and more negative spot-to-rack margins weighed on product supply and wholesale results. RIN sales revenue rose to $115.3 million from $76.6 million; the company sold 72.0 million RINs at an average $1.60 each, versus 68.5 million at $1.12.
- Store and other operating expenses increased 7.0% to $238.3 million; SG&A increased 27.7% to $59.0 million. Management cited employee costs, maintenance, payment fees, professional and technology fees, and incentive compensation.
- Interest expense rose to $24.9 million from $19.6 million. The term loan’s effective interest rate was 6.45% at quarter-end, up from 5.95% at year-end 2022.
- Management noted that sales and operating income are typically strongest in the second and third quarters and weakest in winter, so Q1 may not indicate full-year results.
Outlook, capital allocation, and risks
- 2023 capital expenditures are expected to be approximately $375–$425 million, including $285–$315 million for retail growth and $50–$60 million for maintenance. Management expects to fund the program primarily from operating cash flow, supplemented by borrowings if needed.
- The company estimated an ongoing effective tax rate of 24%–26% for the remainder of 2023.
- The May 4, 2023 quarterly dividend declaration was $0.38 per share, payable June 1. On May 2, the board authorized a new $1.5 billion repurchase program to begin after the existing $1 billion authorization is completed; approximately $200 million remained under the existing authorization at March 31.
- Key stated risks include volatile fuel margins and commodity prices, supply-chain disruption, inflation and competition, execution and construction of new stores, cybersecurity, changing fuel demand and electric-vehicle adoption, tobacco regulation, interest rates, credit availability, and debt-covenant compliance.
- Environmental matters and routine legal proceedings are described, including climate-related lawsuits filed by Charleston, South Carolina, and Delaware seeking unspecified damages and abatement. The company says outcomes are uncertain and does not expect currently known matters to have a material adverse effect. It reported $9.8 million of outstanding letters of credit and no related accrued liability because a draw was considered remote.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the sharp reduction in product supply and wholesale contribution and total fuel contribution persists or reflects temporary market and inventory effects.
- Whether merchandise growth and retail fuel volumes can offset continued cost inflation and higher operating and financing expenses.
- Whether operating cash flow recovers from the working-capital-driven year-over-year decline while funding the $375–$425 million capital program and shareholder distributions.
- Debt, floating-rate exposure, covenant headroom, and the conditions and timing for use of the new share repurchase authorization.
- Developments in RIN markets, climate litigation, environmental obligations, and other regulatory or legal contingencies.