Murphy USA Inc. annual report, FY2021

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Murphy USA Inc. — 2021 Form 10-K

Reporting period: Fiscal year ended December 31, 2021. This is an annual filing, not a standalone fourth-quarter report; the provided results compare full-year 2021 with 2020.

Business context

Murphy USA markets motor fuel and convenience merchandise through 1,679 company-owned stores in 27 states, alongside wholesale fuel operations. Its brands include Murphy USA, Murphy Express and QuickChek. The company acquired QuickChek on January 29, 2021, adding 156 stores at acquisition and expanding its Northeast presence and food-and-beverage offering. QuickChek results are included from the acquisition date.

Financial and operating performance

  • Revenue: $17.36 billion, up 54.1% from $11.26 billion. Growth reflected higher fuel prices and volumes, stronger merchandise sales, improved product-supply/wholesale and RIN revenue, and QuickChek consolidation. Revenue includes petroleum excise taxes; $2.04 billion was collected in 2021.
  • Profit: Net income was $396.9 million, versus $386.1 million; diluted EPS was $14.92, versus $13.08. Operating income was $604.0 million, versus $559.0 million. Interest expense rose to $82.4 million from $51.2 million; acquisition and integration costs were $10.4 million.
  • Fuel: Retail fuel volume increased 11.6% to 4.35 billion gallons. Retail fuel margin declined to 21.9 cents per gallon from 22.9 cents, while total fuel contribution, including product supply/wholesale and RINs, rose to $1.14 billion from $982.1 million. RIN revenue was $265.3 million, up from $95.5 million.
  • Merchandise: Sales increased 24.5% to $3.68 billion and contribution rose 52.7% to $701.6 million. Merchandise margin improved to 19.1% from 15.6%. Same-store merchandise sales rose 1.0%; non-tobacco sales increased 4.5% while tobacco sales declined 0.4%.
  • Cash flow and investment: Operating cash flow was $737.4 million, up from $563.7 million. Capital expenditures were $274.7 million; acquisition payments were $641.1 million. Investing activities used $914.2 million. Cash and cash equivalents ended the year at $256.4 million.
  • Debt and liquidity: Long-term debt, including capitalized lease obligations, was $1.815 billion, compared with $1.002 billion; the company reported a 2.2x total leverage ratio. The $350 million revolving facility was undrawn, with $3.7 million in letters of credit outstanding. Current assets were $767.8 million and current liabilities $675.3 million.
  • Shareholder returns: The company repurchased $355.0 million of shares in 2021 and paid $27.3 million in dividends ($1.04 per share). The quarterly dividend was raised to $0.29 per share in December 2021. A new authorization permits up to $1 billion of repurchases through December 31, 2026, after the prior program is completed.

Material changes versus 2020

  • QuickChek acquisition expanded the store network from 1,503 to 1,679 and added substantial leased assets and operating costs.
  • Higher fuel prices, recovering volumes and stronger merchandise contribution supported higher revenue and net income. Revenue growth substantially exceeded earnings growth as operating expenses, depreciation, SG&A and interest expense also increased.
  • Debt increased to fund the acquisition: Murphy USA issued $500 million of 3.75% senior notes due 2031 and borrowed a $400 million term loan; the prior term loan was repaid.
  • Operating cash flow increased, but the acquisition and higher capital spending drove a substantial increase in investing cash outflow.

Outlook, risks and contingencies

  • Management forecast 2022 capital expenditures of approximately $350–$400 million, including $300–$325 million for retail growth, and plans for up to 45 new-to-industry stores and 35 raze-and-rebuilds in 2022. Longer-term annual targets are up to 55 new stores and 25 raze-and-rebuilds.
  • Management expects to fund the capital program primarily from operating cash flow, with credit facilities available as needed. It also stated an intention to target double-digit annual growth in the per-share dividend over time; this is not a guarantee.
  • Key risks include volatile fuel prices and retail margins, dependence on reliable third-party fuel transportation and supply, COVID-19 and supply-chain disruption, competitive pressure, and exposure to Walmart-related agreements. More than 70% of merchandise purchases came from Core-Mark, a single supplier.
  • RIN revenue increased materially, but RIN prices and rules are uncertain. A change in the Renewable Fuel Standard’s point of obligation could affect the company’s ability to sell RINs.
  • Environmental remediation obligations, fuel-demand effects from efficiency standards and electric vehicles, and food, tobacco, labor, cybersecurity and interest-rate risks could affect results. The company reported climate-related lawsuits brought by South Carolina’s City of Charleston and the State of Delaware seeking unspecified damages and abatement; outcomes and potential liability were undetermined.
  • Management said routine legal matters and known remediation costs were not expected to have a material adverse effect. The company identified itself as a potentially responsible party at one Superfund site but recorded no liability, describing its expected share as immaterial. Outstanding letters of credit were $10.1 million.
  • Management and the auditor concluded internal control over financial reporting was effective, but QuickChek—representing 8.5% of revenue and 8.9% of specified assets—was excluded from the 2021 assessment.

Important facts for investors to verify

  • How much of 2021’s fuel contribution and earnings depended on RIN revenue, and how results would change under lower RIN prices or altered RFS rules.
  • QuickChek’s post-acquisition contribution, integration costs, expected synergies and progress in extending its food-and-beverage model across the network.
  • The drivers and sustainability of higher merchandise margins, and the effects of rising store, labor, payment-processing and rent costs.
  • Funding plans for the 2022 growth program, debt service and shareholder returns; also monitor leverage and covenant headroom.
  • Environmental and climate litigation developments, remediation exposures, and any future assessment of QuickChek’s internal controls.