Murphy USA Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Murphy USA operated 1,686 stores across 27 states. Comparisons with Q1 2021 are affected by QuickChek, acquired January 29, 2021: the current period includes a full quarter of QuickChek results, versus roughly two months in the prior period.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $5.118 billion | $3.537 billion |
| Operating income | $220.7 million | $94.6 million |
| Net income | $152.4 million | $55.3 million |
| Diluted EPS | $6.08 | $2.01 |
| Operating cash flow | $339.2 million | $229.8 million |
| Capital expenditures | $64.0 million | $53.6 million |
- Revenue increased 44.7%, reflecting higher fuel prices and retail volumes, higher merchandise sales, and the additional QuickChek month. Petroleum product sales were $4.148 billion; merchandise sales were $892.0 million.
- Fuel contribution rose to $369.8 million from $227.3 million. Total fuel contribution was 34.0 cents per gallon versus 22.5 cents; retail fuel margin was 23.3 cents per gallon versus 15.5 cents. Retail fuel volume increased 7.8% to 1.088 billion gallons.
- Merchandise contribution increased 18.4% to $175.7 million; merchandise unit margin rose to 19.7% from 17.8%. Food and beverage represented 14.6% of total merchandise contribution, up from 11.5%.
- Operating expenses increased, including store and other operating expenses, up 25.7% to $222.7 million. Acquisition-related costs fell to $0.2 million from $8.8 million; interest expense declined to $19.6 million from $21.3 million. The effective tax rate was 24.0%, compared with 24.6%.
- Operating cash flow increased by $109.4 million, primarily reflecting higher net income and working-capital changes. Investing activities used $64.4 million, versus $696.3 million in the prior-year quarter, which included the QuickChek purchase. Financing activities used $175.0 million, largely reflecting $151.8 million of share repurchases.
- At March 31, cash was $356.2 million, total current assets were $910.8 million and current liabilities were $840.8 million. Long-term debt, including capitalized lease obligations, was $1.812 billion, with $14.9 million of current maturities. The $350 million revolving facility was undrawn, apart from $4.1 million in letters of credit. Management reported a total leverage ratio of 1.90 to 1.0.
- Adjusted EBITDA, a non-GAAP measure, was $277.0 million, up from $154.8 million. The company repurchased 836,953 shares at an average $181.36 per share and paid a $0.29 quarterly dividend per share.
Material changes and management commentary
Management attributed the earnings improvement mainly to higher fuel and merchandise contribution, increased fuel volumes, lower acquisition and integration costs, and lower interest expense. Higher store operating costs, payment fees, depreciation and amortization, SG&A, and taxes partly offset the improvement. Fuel prices were volatile: crude oil averaged approximately $95 per barrel in Q1 2022 versus $58 in Q1 2021. Management said fuel and merchandise margins can change rapidly with product prices, supply conditions, competition, and other market factors.
Management expects full-year 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. It estimated an ongoing effective tax rate of 23% to 26%. The company said it expects operating cash flow and available credit to support operations, debt service, capital spending, dividends, and planned repurchases, while cautioning that future cash generation and access to financing are not assured. The board declared a subsequent quarterly dividend of $0.31 per share, payable June 1, 2022.
Risks, contingencies, and unusual items
- Key exposures include crude oil and refined-product volatility, geopolitical events including Russia’s invasion of Ukraine, supply-chain disruption, severe weather, pandemics, competition, and changes in fuel demand. The company also cited cybersecurity, interest-rate, regulatory, and execution risks, including realizing QuickChek synergies and expanding food and beverage offerings.
- The business is seasonal: sales volumes and operating income are generally highest in the second and third quarters. Management cautioned that Q1 results may not indicate full-year performance.
- Environmental matters and routine legal proceedings are disclosed. Climate-related lawsuits brought by Charleston, South Carolina, and Delaware seek unspecified damages and abatement; the ultimate outcome and any liability could not be determined. Management did not expect the disclosed matters to have a material adverse effect based on information then available.
- Outstanding letters of credit were $10.1 million; the company had not accrued a liability because it considered the likelihood of a draw remote. Management reported insurance-claim accruals of $40.9 million and believed they were sufficient.
- Debt agreements contain leverage and restricted-payment covenants. Certain dividends and other restricted payments could be limited if the pro forma total leverage ratio exceeds 3.0 to 1.0. The quarter’s large repurchases and unusually strong fuel contribution are important to consider when assessing cash returns and the sustainability of results.
Important facts for investors to verify
- How much of the revenue and earnings growth reflects fuel price increases and contribution versus sustainable volume, margin, and merchandise trends.
- The impact of QuickChek’s full-quarter inclusion on year-over-year comparisons, and progress in integrating the business and expanding food and beverage offerings.
- Whether fuel contribution, including product supply and wholesale results and RIN revenue, normalizes from Q1 levels; RIN markets and product-supply timing can be volatile.
- Execution of the $350 million to $400 million capital plan, store-opening pace, and funding of capital spending and the remaining share-repurchase authorization.
- Debt, lease obligations, liquidity, covenant headroom, and the sensitivity of cash flows to interest rates, commodity prices, and working-capital movements.
- Developments in environmental matters, climate litigation, and other legal or regulatory contingencies; the filing does not provide a clear estimate of potential climate-litigation exposure.