Murphy USA Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Results are unaudited. Murphy USA operates retail fuel and convenience stores and sells fuel wholesale; it reported 1,669 stores at quarter-end, including 158 QuickChek locations.
Financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $4,600.4 million | $2,839.0 million | $12,593.5 million | $8,403.4 million |
| Operating income | $158.3 million | $100.3 million | $443.1 million | $466.6 million |
| Net income | $104.0 million | $66.9 million | $288.1 million | $325.1 million |
| Diluted EPS | $3.98 | $2.27 | $10.72 | $10.88 |
| Adjusted EBITDA | $212.5 million | $141.5 million | $611.8 million | $586.4 million |
- Q3 retail fuel contribution was $264.4 million, versus $187.7 million; retail fuel margin rose to 24.0 cents per gallon from 19.0 cents. Total fuel contribution, including wholesale and RINs, was $292.9 million, or 26.6 cents per gallon.
- Q3 merchandise contribution was $187.3 million, up from $118.1 million. Merchandise unit margin increased to 19.6% from 15.6%.
- For the first nine months, total fuel contribution increased to $836.8 million from $781.3 million, while merchandise contribution rose to $520.2 million from $344.0 million. Nine-month retail fuel margin per gallon declined to 20.6 cents from 25.6 cents.
- Nine-month operating cash flow was $587.0 million, versus $467.8 million. Capital additions were $211.6 million; QuickChek acquisition payments, net of cash acquired, were $641.1 million. Cash and cash equivalents at September 30 were $301.3 million.
- Total debt, including capitalized lease obligations, was $1,814.1 million; current maturities were $14.8 million. The $350 million revolving facility was undrawn. The company reported a 2.40x total leverage ratio.
Changes and significant events
- Revenue rose 62.0% in Q3 and 49.9% year to date, reflecting higher fuel prices and volumes, increased merchandise sales, RIN revenue and QuickChek. Reported revenue includes excise taxes: $520.9 million in Q3 and $1.515 billion year to date.
- Q3 net income increased, supported by improved fuel and merchandise contribution and lower SG&A. Nine-month net income declined despite higher revenue, primarily due to higher store and payment costs, depreciation, SG&A, acquisition costs and interest expense.
- Murphy USA acquired QuickChek on January 29, 2021, for $641.9 million cash before acquired cash. Preliminary purchase accounting recorded $329.1 million of goodwill; allocation remained subject to finalization. Nine-month acquisition-related costs were $9.7 million.
- Debt increased following issuance of $500 million of 3.75% notes due 2031 and a $400 million term loan, used in part to fund the acquisition. Nine-month financing also included $231.5 million of share repurchases and $19.9 million in dividends.
Outlook, risks and contingencies
- Management forecast full-year 2021 capital expenditures of approximately $325–$375 million, including about $298 million for retail growth and $25 million for maintenance. The company expected to fund spending primarily from operating cash flow, with borrowing capacity available if needed.
- Management estimated an ongoing effective tax rate of 23%–25% for the rest of 2021. The board raised the quarterly dividend to $0.29 per share for payment in December 2021; management stated an intention to target double-digit per-share dividend growth over time.
- Management said fuel margins are volatile and sensitive to refined-product prices, supply disruptions, competition and demand. It also cited COVID-19 resurgence, severe weather, cybersecurity and supply-chain risks, changing fuel-economy and electric-vehicle adoption, tobacco regulation, interest rates and credit availability.
- QuickChek integration, realization of acquisition synergies, and expansion of food-and-beverage offerings are execution considerations. Store growth plans may change with operating cash flow and debt availability.
- The company reported routine legal matters and environmental exposures, including being a de minimis potentially responsible party at one Superfund site; it had not recorded a liability for that site. Management did not expect known environmental or legal matters to materially affect results or liquidity. Outstanding letters of credit totaled $10.5 million.
Important facts for investors to verify
- Whether elevated fuel margins, RIN economics and merchandise contribution persist, particularly given the lower nine-month retail fuel margin per gallon.
- QuickChek’s ongoing contribution, integration costs, final purchase-price allocation and realization of projected synergies.
- Cash generation relative to planned capital spending, share repurchases and dividends, alongside debt levels, interest costs and covenant headroom.
- Exposure to fuel-price volatility, supply disruption, regulatory changes, environmental claims and other contingencies.