Murphy USA Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual report, not a standalone fourth-quarter filing; quarterly figures are noted separately where useful. Financial statement amounts below are in U.S. dollars.
Business context
Murphy USA operates a low-cost, high-volume retail fuel and convenience business. At year-end it had 1,335 stores in 24 states: 1,111 Murphy USA locations, largely near Walmart stores, and 224 Murphy Express locations. The company sold about 4.1 billion gallons of retail fuel in 2015 and reports one operating segment, Marketing.
Financial and operating performance
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $12.70 billion | $16.99 billion |
| Income from continuing operations | $137.6 million | $223.0 million |
| Net income | $176.3 million | $243.9 million |
| Diluted EPS | $4.02 | $5.26 |
| Operating cash flow | $215.8 million | $305.6 million |
| Capital expenditures | $205.2 million | $135.3 million |
| Adjusted EBITDA (non-GAAP) | $342.9 million | $445.7 million |
- Revenue fell 25.2%, primarily because lower fuel prices reduced reported sales; petroleum sales include excise taxes collected and remitted. Retail fuel volume nevertheless rose 3.6% chain-wide as store count expanded.
- Fuel margin declined to 12.5 cents per gallon from 15.8 cents. Per-store monthly fuel volume decreased 0.9%, partly because a Walmart discount promotion in 2014 did not recur.
- Merchandise sales increased 5.2% to $2.27 billion; merchandise margin improved to 14.4% from 14.0%, supported by non-tobacco sales and margins.
- Product supply and wholesale contribution excluding RINs was a loss of $16.8 million, versus a $13.4 million contribution in 2014. RIN sales rose to $117.5 million from $92.9 million.
- Free cash flow, as defined by the company as operating cash from continuing operations less property additions, was $28.5 million, down from $141.4 million. Working-capital use and higher investment contributed to the decline.
- Year-end cash was $102.3 million, including no restricted cash; a further $68.6 million of Hereford sale proceeds was restricted for like-kind exchange transactions. Working capital was $43.4 million and the current ratio was 1.11, versus $277.6 million and 1.67, respectively, in 2014.
- Long-term debt was $490.2 million, principally the $500 million of 6% senior notes due 2023, net of discounts and issuance costs. No borrowings were outstanding under the ABL at year-end; the borrowing base was approximately $134.5 million, subject to facility terms. Restricted-payment capacity was constrained by borrowing-base availability and covenant tests.
Changes, outlook and notable items
- Net income declined 27.7%. Management attributed the decrease mainly to lower retail fuel margins and per-site volumes, weaker wholesale and supply results excluding RINs, and higher SG&A, including business-improvement costs.
- Operating cash flow declined 29.4%, while capital spending increased with land purchases and new-store construction. The company added 73 stores in 2015, compared with 60 in 2014.
- The Hereford ethanol plant was sold in November 2015. Discontinued operations included $38.7 million of after-tax income, including a $60.8 million pretax gain on sale; this raised reported net income relative to continuing earnings.
- For 2016, management expected capital expenditures of approximately $250 million to $300 million. It described plans for 60–80 new sites annually in 2016 and 2017, with future growth dependent on land availability and site development.
- After year-end, the company announced an independent growth plan rather than continuing to acquire land from Walmart and authorized up to $500 million in total for growth investment and share repurchases through December 31, 2017. The filing does not specify how that amount will be divided between the programs.
- Subsequent events also included an agreement to sell the company’s CAM pipeline interest for about $85 million, subject to closing conditions, and a new $100 million term loan entered into in February 2016.
- Key risks include volatile fuel margins and commodity prices, dependence on Walmart-related traffic and site arrangements, uncertainty in RIN economics and regulation, supply disruption during the merchandise supplier transition to Core-Mark, competition, and environmental liabilities. The company reported ongoing remediation at certain sites; it considered the identified legal matters not expected to have a material adverse effect based on information then available.
Most important facts for investors to verify
- Whether fuel margins, per-site volumes, and wholesale contribution recover, and how much reported earnings depend on RIN revenue.
- Execution of the independent site-growth plan, availability and cost of suitable land, and delivery of the 2016–2017 store targets.
- Liquidity and covenant headroom, including the borrowing base, restricted-payment limits, and the effect of the new term loan and planned repurchases.
- Completion and net proceeds of the CAM pipeline sale, and the use and timing of restricted Hereford proceeds.
- Successful transition to Core-Mark and any material environmental, tax, or other contingent liabilities.