Murphy USA Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also provides unaudited quarterly results, including Q4 2019; it is an annual report, not a standalone quarterly filing.
Business context
Murphy USA operates a single Marketing segment comprising retail fuel and convenience merchandise sales, plus product supply and wholesale activities. At year-end it operated 1,489 stores across 26 states; nearly all are near Walmart locations. The company sold approximately 4.4 billion gallons of fuel during 2019.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $14.035 billion | $14.363 billion |
| Operating income | $268.5 million | $325.1 million |
| Net income | $154.8 million | $213.6 million |
| Diluted EPS | $4.86 | $6.48 |
| Operating cash flow | $313.3 million | $398.7 million |
| Capital expenditures | $214.6 million | $193.8 million |
| Adjusted EBITDA | $422.6 million | $411.8 million |
Fuel contribution was $704.6 million, up from $685.6 million; retail fuel margin declined to 13.8 cents per gallon from 14.7 cents. Total fuel contribution was 16.1 cents per gallon versus 16.2 cents. Merchandise sales rose 8.1% to $2.620 billion and merchandise contribution increased to $419.4 million, while merchandise unit margin fell to 16.0% from 16.5%.
Year-end cash was $280.3 million, current ratio 1.41, and working capital $205.8 million. Debt was $1.038 billion, including $800 million of senior notes and a $250 million term loan, partially offset by debt discounts and issuance costs; long-term debt net of current maturities was $999.3 million. The ABL facility had no borrowings; its $325 million commitment was subject to a $238 million borrowing base. The company reported $100 million-plus of facility availability. No common dividends were declared.
Q4 revenue was $3.460 billion versus $3.502 billion in Q4 2018; net income was $47.6 million versus $77.5 million, and diluted EPS was $1.54 versus $2.38.
Changes versus prior period and notable items
- FY2019 revenue decreased 2.3%, primarily as lower average retail fuel prices (down 14 cents per gallon) outweighed higher volumes. Retail fuel volume rose 3.4%; same-store fuel volume increased 1.2%.
- Net income fell $58.8 million. The main factors included Deepwater Horizon settlement proceeds falling to $0.1 million from $50.4 million, higher operating and administrative costs and depreciation, and a $14.8 million loss on early debt extinguishment. Higher fuel and merchandise contribution partially offset the decline.
- RIN revenue declined to $34.8 million from $75.2 million, reflecting lower average sale prices ($0.18 versus $0.33 per RIN). Product supply and wholesale contribution improved.
- Operating cash flow fell 21.4%, with lower net income and a $51 million year-over-year decline in cash generated from working capital cited as drivers.
- The company issued $500 million of 4.75% notes due 2029 and redeemed its 6.00% notes due 2023; it also amended and extended its credit agreement and borrowed $250 million under a term loan due 2023.
Outlook, risks and contingencies
Management forecast 2020 capital expenditures of approximately $225 million to $275 million, including $170 million to $200 million for retail growth. Its stated development strategy targets up to 30 new-to-industry stores and up to 25 raze-and-rebuilds annually, subject to project availability, cash generation and financing. Management expects to fund the 2020 capital program primarily with operating cash flow, supplemented by borrowing if needed. No earnings or revenue guidance was provided in the supplied filing text.
Key risks include volatile fuel costs and retail margins, competition and seasonality, reliance on Walmart-related traffic and agreements, dependence on Core-Mark for more than 81% of merchandise purchases, and the potential for lower RIN revenue or changes to renewable-fuel rules. Other exposures include supply interruptions, environmental remediation, severe weather, regulation of tobacco and other products, cybersecurity, and floating-rate debt. The fixed-charge coverage ratio was 0.93 at year-end, below 1.0, but management said the covenant test was not then operative because facility availability exceeded the specified threshold. Environmental matters and routine legal proceedings were not expected by the company to materially affect results or liquidity; it reported no Superfund liability accrued at year-end for a site where it is a potentially responsible party.
Management reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls. The auditor identified assessment of impairment-triggering events for property and equipment as a critical audit matter.
Investor verification priorities
- Reconcile the debt and liquidity disclosures, including gross debt, current maturities, the ABL borrowing-base limit, availability and covenant thresholds.
- Assess whether retail fuel margins and merchandise margins can stabilize, and whether volume growth can offset lower fuel prices and operating-cost inflation.
- Evaluate the sustainability of RIN-related economics and the possible effects of changes to the Renewable Fuel Standard.
- Review the assumptions behind the 2020 capital plan and store-growth pipeline, along with cash flow available after capital spending and share repurchases.
- Track environmental remediation exposure, Core-Mark supply concentration, Walmart-related rights, and the company’s progress toward EMV pump compliance by October 1, 2020.