Murphy USA Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results; comparisons are with the corresponding 2021 periods. Murphy USA operated 1,700 stores at quarter-end, including 157 QuickChek locations.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $6.195 billion | $4.600 billion | $18.080 billion | $12.594 billion |
| Net income | $219.5 million | $104.0 million | $555.2 million | $288.1 million |
| Diluted EPS | $9.28 | $3.98 | $22.76 | $10.72 |
| Adjusted EBITDA | $367.0 million | $212.5 million | $960.6 million | $611.8 million |
- Q3 revenue increased 34.7%; net income more than doubled. Management attributed the earnings improvement mainly to higher fuel and merchandise contributions, partly offset by increased store expenses, payment fees, SG&A and taxes.
- Q3 retail fuel margin was 39.3 cents per gallon versus 24.0 cents; total fuel contribution was 37.6 cents per gallon versus 26.6 cents. Retail fuel volume rose 13.2% year over year. Merchandise contribution increased 9.8%, and merchandise unit margin was 20.0% versus 19.6%.
- For the first nine months, revenue rose 43.6% and net income rose from $288.1 million to $555.2 million. Results included QuickChek for nine months in 2022 versus eight months in 2021, as well as higher fuel prices and volumes.
- Nine-month operating cash flow was $771.5 million, compared with $587.0 million. Property additions were $223.1 million; investing activities used $215.2 million. Financing activities used $620.0 million, including $566.9 million of share repurchases and $22.1 million of dividends.
- Cash was $192.7 million at September 30, down from $256.4 million at year-end 2021. Total debt, including capitalized lease obligations, was $1.809 billion; $15.2 million was current. The $350 million revolving facility was undrawn, with $4.7 million of letters of credit outstanding. Reported total leverage was 1.53x.
- Q3 operating income was $311.9 million and income before taxes was $290.7 million. The effective tax rate was 24.5% for the quarter and 24.2% year to date.
Material changes and capital allocation
- Retail fuel contribution improved substantially, while Q3 product supply and wholesale contribution, including RINs, fell to a $109.0 million loss from a $43.0 million loss in Q3 2021. The filing cites timing and price impacts in a falling market.
- Q3 store and other operating expenses rose 15.1%; the increase included higher payment fees and employee costs, including a one-time $4.0 million summer bonus. The nine-month period included $7.0 million of such bonuses.
- Year-to-date acquisition and integration costs declined to $1.4 million from $9.7 million. The prior-year comparison also included QuickChek acquisition financing and purchase costs.
- The company repurchased 2,482,804 shares for $566.9 million in the first nine months at an average $228.33 per share. Approximately $453.1 million remained under the $1 billion program at September 30. The quarterly dividend declared in October increased to $0.35 per share, payable December 1, 2022.
Outlook, risks and unusual items
- Management expected full-year 2022 capital expenditures of approximately $300–$350 million, including $250–$275 million for retail growth and $30–$40 million for maintenance. The filing estimated an ongoing effective tax rate of 23%–26% for the remainder of 2022.
- Management said operating cash flow and available credit were expected to support operations, debt service and planned investment, while noting there is no assurance of future cash generation or credit availability. Results are seasonal, and the first nine months may not indicate full-year performance.
- Key exposures include volatile crude and refined-product prices, fuel and merchandise margins, supply-chain disruption, inflation and consumer demand, severe weather, regulation and RIN prices, competition, cybersecurity, interest rates, and the adoption of electric vehicles or stricter fuel-efficiency requirements.
- The company disclosed climate-related lawsuits filed by the City of Charleston and the State of Delaware, among other routine legal and environmental matters. Outcomes and potential liability for the climate cases were not determinable; management did not expect currently known matters to have a material adverse effect. Outstanding letters of credit totaled $9.8 million and were not accrued because a draw was considered remote.
Investor verification priorities
- Check whether unusually strong retail fuel margins and volume growth persist, particularly as fuel prices fluctuate and Q3 wholesale/product-supply results were negative.
- Assess the sustainability of earnings and cash generation after accounting for working-capital movements, operating costs and seasonal patterns.
- Track share repurchases, dividends, capital spending and cash balances against debt levels, floating-rate exposure and covenant limits.
- Monitor QuickChek integration and food-and-beverage growth, new-store execution, and whether planned capital expenditures deliver expected returns.
- Follow RIN market and regulatory developments, and any changes in environmental, climate-litigation or other contingent exposures.