Murphy USA Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; unaudited. Murphy USA operates retail fuel and convenience stores and sells fuel wholesale. It had 1,448 stores in 26 states at quarter-end.
Financial performance and liquidity
- Revenue: $3.244 billion, up 8.2% from $2.999 billion. Petroleum sales were $2.638 billion; merchandise sales were $567.7 million. Comparisons are affected by adoption of ASC 606, which changed the presentation of certain taxes.
- Profit: Operating income was $60.0 million versus a $0.6 million loss; net income was $39.3 million versus a $3.0 million loss. Diluted EPS was $1.16 versus a loss of $0.08 per share.
- Unusual item: Results included $47.0 million of pretax net settlement proceeds related to the 2010 Deepwater Horizon spill ($35.3 million after tax). Adjusted EBITDA, which excludes the settlement proceeds, was $45.0 million versus $30.3 million.
- Margins and operations: Total fuel contribution rose 12.8% to 11.4 cents per gallon, supported by improved product supply and wholesale results and higher RIN sales. Same-store fuel gallons fell 4.0%, and retail fuel margin declined to 8.4 cents per gallon from 10.1 cents. Merchandise margin increased to 16.1% from 15.7%.
- Cash flow: Operating cash flow was $107.4 million, compared with cash used of $45.9 million a year earlier. Investing activities used $52.3 million, and financing activities used $79.9 million, including $71.7 million for share repurchases. Cash, cash equivalents and restricted cash totaled $145.2 million at quarter-end.
- Debt and liquidity: Debt carrying value was $876.3 million, including $19.9 million of current maturities; cash and cash equivalents were $144.1 million. No ABL borrowings were outstanding, and reported remaining ABL capacity was $225 million, subject to the borrowing base. Current assets were $518.2 million and current liabilities $496.1 million.
Changes versus Q1 2017
- Net income improved by $42.3 million, primarily because of the oil-spill settlement; the Marketing segment earned $10.7 million versus $0.6 million.
- Revenue increased with higher retail fuel prices and more stores, partly offset by lower same-store fuel volumes. Management attributed the volume decline partly to winter storms.
- Interest expense rose to $13.0 million from $9.4 million, primarily reflecting the 2027 notes issued in 2017. SG&A decreased $3.7 million, partly because the prior-year period included restructuring costs.
- Share repurchases were $71.7 million, compared with $17.4 million in Q1 2017; the company repurchased 928,934 shares at an average $77.18 per share.
Outlook, risks and contingencies
- Management expected 2018 capital expenditures of approximately $225 million to $275 million, including about $175 million for retail growth and $40 million for maintenance. It expected an effective tax rate of approximately 25% for the remainder of 2018 and anticipated funding the capital program primarily with operating cash flow, supplemented by credit facilities as needed.
- Management stated that seasonal results are typically strongest in the second and third quarters, so Q1 results may not indicate full-year performance. No specific earnings or revenue guidance was provided.
- Key business exposures include volatile fuel prices and margins, supply disruptions and severe weather, RIN price and regulatory uncertainty, competition, and reliance on Walmart relationships. Debt covenants, credit availability and interest rates are also risks.
- The fixed-charge coverage ratio was 0.72, below the 1.0 threshold, but management said the related covenant was not currently triggered because ABL availability exceeded the applicable threshold. The secured debt-to-EBITDA ratio was 0.19 to 1.0.
- Environmental and legal matters were generally not expected by management to have a material adverse effect. A Mississippi underground-storage-tank matter had an anticipated civil penalty of approximately $0.1 million. Outstanding letters of credit totaled $15.4 million and were not accrued because drawdown was considered remote.
- The company adopted ASC 606 and applied the restricted-cash cash-flow standard in 2018. The filing says ASC 606 had no material opening retained-earnings impact; it also changes the presentation of certain excise and sales taxes, so reported revenue comparisons require care.
Important facts for investors to verify
- How much reported earnings and operating cash flow depended on the one-time $47.0 million settlement and working-capital movements.
- The like-for-like revenue comparison after accounting for ASC 606 tax presentation changes.
- Whether fuel contribution, retail fuel margins, same-store volumes and RIN economics remain resilient after Q1.
- Whether planned growth spending can be funded while maintaining liquidity, covenant headroom and the share-repurchase pace.
- Developments in environmental, tax and legal matters, and the potential balance-sheet impact of the upcoming lease-accounting standard.