Murphy USA Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Financial statements are unaudited; dollar amounts are in millions unless otherwise noted. Murphy USA operated 1,474 company stations in 26 states and reported one Marketing segment.
Financial performance and position
- Q2 revenue: $3,800.4, down 0.7% from $3,829.0. Petroleum sales fell to $3,129.7 from $3,193.7; merchandise sales rose 6.9% to $658.8.
- Q2 earnings: Operating income was $55.7 versus $82.1; net income was $32.7 versus $51.8; diluted EPS was $1.01 versus $1.58. Management attributed the decline principally to lower all-in fuel contribution and higher station operating expenses, partly offset by improved merchandise contribution.
- First-half revenue and earnings: Revenue was $6,916.8, down 2.2%; operating income was $74.3 versus $142.1; net income was $38.0 versus $91.1; diluted EPS was $1.18 versus $2.72. The prior-year period included $37.8 after-tax Deepwater Horizon settlement proceeds, compared with $0.1 after tax in 2019.
- Fuel and merchandise: Total fuel contribution was $167.7 in Q2 versus $180.1, or 14.7 cents per gallon versus 16.7 cents. Retail fuel margin improved to 13.4 cents per gallon from 13.0 cents, but PS&W contribution and RIN revenue declined. First-half total fuel contribution was $295.9 versus $294.8, while contribution per gallon fell to 13.6 cents from 14.2 cents. Merchandise contribution increased to $105.5 in Q2 from $102.3 and to $203.0 for the first half from $193.8.
- Cash flow: First-half operating cash flow was $124.9 versus $166.3; property additions used $86.6 versus $102.3; financing activities used $45.1 versus $158.4. Cash decreased $5.9 during the first half to $178.6.
- Balance sheet and debt: At June 30, cash was $178.6, current assets $656.3, and current liabilities $578.8. Total debt, net of issuance costs and including current maturities, was $854.9, down from $863.3 at year-end. The $450 ABL facility was undrawn, with $279 of borrowing availability; $62 remained outstanding under the term loan, which matures in March 2020. Secured debt to EBITDA was 0.15:1.0, and the fixed-charge coverage ratio was 1.37.
- Non-GAAP measure: Adjusted EBITDA was $92.7 for Q2 versus $112.7 and $151.5 for the first half versus $157.7.
Changes, outlook, and risks
- Merchandise sales growth and higher retail fuel volumes helped offset lower average fuel prices and weaker wholesale/RIN results. Store count increased from 1,454 to 1,474 year over year; higher store-level costs and depreciation weighed on earnings.
- Management expected 2019 capital expenditures of approximately $225–$275, including about $140 for retail growth and $30 for maintenance. It estimated an ongoing effective tax rate of 21%–25% for the remainder of 2019 and said it expected operating cash flow to fund ongoing requirements, supplemented by credit facilities if needed. No earnings or revenue guidance was provided in the filing.
- On July 24, 2019, after quarter-end, the board authorized up to $400 of share repurchases through July 2021, subject to cash availability, market conditions, and financing covenants. Repurchases may be funded with operating cash or credit-facility borrowings.
- Murphy USA adopted the new lease standard on January 1, 2019, recording approximately $110.4 of additional net lease assets and $110.7 of lease liabilities; adoption did not materially affect earnings or cash flows.
- Key risks include volatile fuel margins and commodity prices, supply interruptions and severe weather, competition, dependence on a good business relationship with Walmart, execution of store growth, cost control, tobacco-related regulation, cybersecurity, and compliance with debt covenants. The company reported routine legal matters and environmental exposures, including PRP status at one Superfund site, but did not expect known matters to materially affect results or liquidity. Outstanding letters of credit were $17.0 and were not accrued because drawdown was considered remote.
Most important facts for investors to verify
- Whether the sharp year-over-year decline in earnings reflects mainly the absence of prior-year settlement proceeds and lower PS&W/RIN contribution, and how fuel contribution develops in subsequent quarters.
- Whether merchandise growth and retail fuel volumes continue to offset fuel-margin volatility and rising station operating costs.
- Actual capital spending versus the $225–$275 full-year estimate, and the pace and funding of the newly authorized repurchase program.
- Term-loan refinancing or repayment plans before its March 2020 maturity, and the company’s continuing headroom under borrowing-base and covenant requirements.
- Changes in environmental, tax, insurance, and other contingencies, as well as the financial effects of lease obligations and future store expansion.