Business context and reporting period
Murphy USA Inc. filed this unaudited Form 10-Q for the quarter ended June 30, 2022. The company operates retail fuel and convenience stores, plus wholesale fuel and product-supply operations. It had 1,695 stores across 27 states at quarter-end, including Murphy USA, Murphy Express and QuickChek locations. QuickChek’s fiscal calendar differs slightly from the company’s calendar; management says the period-end timing difference is immaterial.
Financial performance and condition
- Second quarter: Revenue was $6.77 billion, up 51.9% year over year; net income was $183.3 million versus $128.8 million; diluted EPS was $7.53 versus $4.79. Operating income was $262.3 million versus $190.2 million.
- First half: Revenue was $11.89 billion, up 48.7%; net income was $335.7 million versus $184.1 million; diluted EPS was $13.59 versus $6.73. Adjusted EBITDA, a non-GAAP measure, was $593.6 million versus $399.3 million.
- Fuel and merchandise: Q2 retail fuel volume increased 7.8%, while retail fuel margin was 26.5 cents per gallon versus 21.8 cents. Total fuel contribution, including retail, product supply and wholesale, and RINs, was $422.9 million versus $316.6 million; contribution was 34.9 cents per gallon versus 28.2 cents. Merchandise contribution was $196.7 million versus $184.5 million.
- Cash flow: First-half operating cash flow was $516.5 million versus $330.8 million. Investing activities used $137.4 million, including $144.9 million of property additions. Financing activities used $395.1 million, including $355.4 million for share repurchases and $14.6 million in dividends. Cash declined from $256.4 million at year-end to $240.4 million.
- Debt and liquidity: Total debt, including capitalized lease obligations and net of issuance costs, was $1.81 billion, with $14.9 million in current maturities. Cash was $240.4 million, and the $350 million revolving facility was undrawn, subject to $4.7 million of letters of credit. The reported total leverage ratio was 1.76 to 1.0.
- Balance sheet: Total assets were $4.22 billion and stockholders’ equity was $762.7 million at June 30, 2022. Current assets were $882.3 million and current liabilities were $852.7 million.
Material changes versus the prior comparable period
Higher fuel prices, higher fuel volumes and improved fuel margins drove much of the revenue and earnings growth. Revenue also reflects higher merchandise sales and product-supply results. Petroleum product sales revenue includes applicable excise taxes, so revenue growth should not be read as equivalent growth in underlying profitability. First-half 2022 includes six months of QuickChek results, compared with five months in the 2021 comparison. Higher payment fees, employee costs, maintenance, depreciation and SG&A partly offset contribution gains. Q2 store operating expense included an approximately $3 million nonrecurring employee bonus.
First-half operating cash flow improved with higher net income and working-capital benefits, including higher accounts payable and accrued liabilities. Share repurchases increased to $355.4 million from $198.3 million in the prior-year half. The 2020 repurchase authorization was completed in January 2022; the December 2021 program authorizes up to $1 billion through December 2026, with approximately $664.6 million remaining at June 30.
Outlook, commentary, risks and contingencies
- Management expects 2022 capital expenditures of approximately $350 million to $400 million, including $300 million to $325 million for retail growth and $30 million to $40 million for maintenance. The company expects to fund spending primarily with operating cash flow, supplemented if needed by borrowings.
- Management estimated an effective tax rate of 23% to 26% for the remainder of 2022 and expressed an intention to deliver targeted double-digit growth in the per-share dividend over time. No specific earnings or revenue guidance is provided in the supplied filing text.
- Management cited volatile crude and refined-product prices, inflation and reduced consumer purchasing power, fuel demand and seasonal patterns, supply-chain disruption, severe weather, pandemics, competition, RIN price variability, cybersecurity, and changes in fuel-economy or electric-vehicle adoption as risks. Results are seasonal, and Q2/first-half performance may not indicate full-year results.
- The filing describes environmental matters and routine legal proceedings, including climate-related lawsuits brought by the City of Charleston and the state of Delaware seeking unspecified damages and abatement. Outcomes are uncertain; management does not expect currently known matters to have a material adverse effect, but additional environmental spending or liabilities remain possible. Outstanding letters of credit were $9.8 million and were not accrued because management considered a draw remote.
- Management stated that short- and long-term liquidity was adequate. The company was in compliance with its leverage position described in the filing, but debt agreements contain financial and payment covenants; restricted payments could be limited if pro forma leverage exceeds specified thresholds.
Important facts for investors to verify
- Whether elevated fuel margins, product-supply contribution and fuel volumes are sustainable as commodity prices and demand change.
- How much reported revenue growth reflects fuel-price inflation and excise taxes versus volume, and how margins evolve.
- Progress and returns on planned store growth, QuickChek integration and the $350 million to $400 million capital program.
- Cash generation after capital spending, dividends and repurchases, and remaining repurchase authorization and debt covenant headroom.
- Developments in environmental and climate litigation, fuel regulation, RIN markets, supply-chain risks and consumer demand.