Murphy USA Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Figures are unaudited and in millions of dollars unless noted. Murphy USA operates 1,488 fuel and convenience stores across 25 states, with retail and wholesale fuel operations reported as one Marketing segment.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $2,839.0 | $3,657.6 | $8,403.4 | $10,574.4 |
| Operating income | $100.3 | $120.7 | $466.6 | $195.0 |
| Net income | $66.9 | $69.2 | $325.1 | $107.2 |
| Diluted EPS | $2.27 | $2.18 | $10.88 | $3.33 |
| Adjusted EBITDA (non-GAAP) | $141.5 | $158.7 | $586.4 | $310.2 |
- Q3 revenue declined 22.4%; nine-month revenue declined 20.5%, primarily reflecting lower fuel prices and reduced fuel volumes during the COVID-19 pandemic.
- Q3 net income was slightly lower year over year, while diluted EPS increased as the average share count fell. Nine-month net income more than doubled, principally from higher retail fuel contribution and merchandise contribution, as well as the absence of 2019 debt-extinguishment costs.
- Q3 total fuel contribution was $219.8 million, versus $225.6 million; contribution per gallon rose to 22.3 cents from 20.1 cents, while retail fuel volume fell 11.9%. Nine-month fuel contribution increased to $781.3 million from $521.5 million, and contribution per gallon rose to 27.1 cents from 15.8 cents.
- Merchandise contribution increased to $118.1 million in Q3 from $111.2 million and to $344.0 million for nine months from $314.2 million. Merchandise sales rose 11.1% in Q3 and 13.6% year to date; the merchandise unit margin declined to 15.6% from 16.3% in Q3.
- Nine-month PS&W contribution, excluding RINs, was a $21.5 million loss versus $46.6 million income in 2019. RIN sales revenue increased to $63.3 million from $28.6 million for the nine-month period.
Cash flow, balance sheet and liquidity
- Nine-month operating cash flow was $467.8 million, compared with $251.6 million in 2019. Property additions used $169.4 million; investing cash outflow was $163.3 million. Financing cash outflow was $267.3 million, including $230.5 million of share repurchases.
- Cash and cash equivalents were $317.5 million at September 30, 2020, up from $280.3 million at year-end 2019. Total debt carrying value, including current maturities and capitalized lease obligations, was $1,014.4 million, down from $1,038.1 million. The $225 million term loan matures in 2023; $800 million of senior notes mature in 2027 and 2029.
- The $325 million ABL facility was undrawn, with $197.3 million available; a further $150 million incremental facility is uncommitted. The company reported a 1.14 fixed-charge coverage ratio and 0.32 secured debt-to-EBITDA ratio, and said restricted payments were not limited at quarter-end.
- Current assets were $743.2 million and current liabilities $513.4 million. Stockholders’ equity was $895.7 million.
Changes, outlook and risks
- COVID-related travel reductions continued to suppress fuel volumes, although management reported sequential improvement in volumes as stay-at-home orders eased. Management warned that a resurgence in infections or renewed government restrictions could reverse the recovery. Higher fuel margins may partly offset volume weakness.
- Q3 SG&A increased $17.7 million year over year, including a $10 million contribution to the Murphy USA Charitable Foundation. Q3 2019 included a $14.8 million loss on early debt extinguishment, absent in 2020.
- Management expected 2020 capital expenditures of approximately $250–$275 million, including about $140 million for retail growth and $30 million for maintenance. It estimated an effective tax rate of 21%–25% for the remainder of 2020. No earnings or revenue guidance was provided in the supplied filing text.
- On October 28, 2020, after quarter-end, the company announced a new $500 million share repurchase authorization to follow the existing program and a quarterly dividend of $0.25 per share, or $1.00 annualized. The first payment was scheduled for December 1, 2020.
- Key risks include fuel-price and margin volatility, pandemic-related demand changes, supply disruptions, regulatory and RIN-market uncertainty, dependence on Walmart relationships, interest rates and debt covenant compliance, and environmental, legal and tax matters. Management stated that known environmental and routine legal matters were not expected to have a material adverse effect; $13.0 million of letters of credit were outstanding and unaccrued because draws were considered remote.
Important facts for investors to verify
- Whether fuel volumes recover or further COVID-related restrictions depress demand, and how fuel margins evolve alongside volume.
- Whether merchandise growth and RIN economics continue to offset weaker fuel results, particularly given the nine-month PS&W loss.
- Capital spending execution, remaining availability under the existing repurchase authorization, and funding of the newly announced buyback and dividend.
- Liquidity and covenant headroom if operating cash flow weakens; quarter-end ABL availability was $197.3 million and the fixed-charge coverage ratio was 1.14.
- Potential changes in environmental, legal, insurance or tax exposures, and the timing and financial impact of the announced capital-allocation changes.