Murphy USA Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Unaudited results. Murphy USA operates retail fuel and convenience stores and supplies unbranded wholesale customers; it reported 1,485 stores across 25 states and one reportable segment, Marketing. The company sold its nine Minnesota stores during the quarter.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $2,379.6 million | $3,800.4 million | $5,564.4 million | $6,916.8 million |
| Operating income | $235.5 million | $55.7 million | $366.3 million | $74.3 million |
| Net income | $168.9 million | $32.7 million | $258.2 million | $38.0 million |
| Diluted EPS | $5.73 | $1.01 | $8.60 | $1.18 |
| Operating cash flow | Not separately presented for the quarter | $381.9 million | $124.9 million |
- Q2 revenue fell 37.4% year over year; first-half revenue fell 19.6%. Lower fuel prices and reduced fuel volumes drove the declines. Revenue includes excise taxes; Q2 excise taxes were $380.3 million versus $498.3 million a year earlier.
- Profit rose sharply despite lower revenue, primarily because fuel contribution and merchandise contribution increased. Q2 total fuel contribution was $324.6 million, or 38.3 cents per gallon, versus $167.7 million and 14.7 cents per gallon in Q2 2019. Retail fuel margin was 31.7 cents per gallon versus 13.4 cents.
- Q2 retail fuel volume declined 25.7% chain-wide; same-store volume fell 27.4%. Merchandise sales increased 16.4% to $767.1 million, while merchandise contribution rose 12.2% to $118.4 million. Merchandise unit margin eased to 15.4% from 16.0%.
- First-half retail fuel volume declined 12.9%; total fuel contribution increased to $561.5 million from $295.9 million. First-half PS&W contribution excluding RINs was a loss of $28.4 million, compared with income of $35.9 million in 2019. RIN revenue was $38.1 million versus $20.0 million.
- Cash and cash equivalents were $403.6 million at June 30, 2020, up from $280.3 million at year-end. Current assets were $840.3 million and current liabilities $553.7 million.
- Long-term debt, including current maturities and capitalized lease obligations, totaled $1,026.5 million, down from $1,038.1 million at year-end. Debt included $800 million of senior notes and a $237.5 million term loan; no ABL borrowings were outstanding. ABL availability was $168.3 million.
- First-half capital expenditures were $105.7 million. Investing activities used $99.2 million. Financing activities used $159.4 million, including $140.6 million of share repurchases completed in Q1; no shares were repurchased in Q2.
Changes, outlook and risks
- Management attributed fuel-margin improvement partly to the sharp fall in crude and wholesale fuel prices early in 2020 and subsequent price recovery, which also benefited Q2 PS&W timing and inventory adjustments. The company noted that customer volumes improved as stay-at-home orders eased.
- COVID-19-related travel restrictions reduced fuel volumes and disrupted normal seasonality. Management cautioned that a stalled or reversed recovery, including renewed restrictions, could reduce volumes; it said higher industry margins might partly mitigate the impact.
- Management expected 2020 capital expenditures of approximately $250 million to $275 million, including about $140 million for retail growth and $30 million for maintenance. It expected to fund spending primarily with operating cash flow, supplemented by credit facilities if needed. The filing provides no specific earnings or revenue guidance.
- Management estimated an effective tax rate of 21% to 25% for the remainder of 2020. The first-half effective rate was 24.1%.
- At June 30, the fixed-charge coverage ratio was 1.21 and secured debt-to-EBITDA was 0.33 to 1.0; management said restricted payments were not limited. Credit agreements impose covenant and payment restrictions under specified conditions.
- Key risks include fuel-price and margin volatility, COVID-19 effects, supply interruptions, competition, reliance on Walmart relationships, execution of store growth, tobacco regulation, interest rates, and environmental and other legal exposures. Management did not expect known environmental or routine legal matters to materially affect results or liquidity; it reported $17.0 million of outstanding letters of credit and a $24.7 million accrued liability for insurance claims.
Important facts for investors to verify
- Whether fuel volumes recover and whether unusually strong retail fuel margins persist as commodity prices and competition change.
- How much of the earnings increase reflects sustainable retail fuel and merchandise performance versus temporary PS&W timing and inventory benefits.
- Progress against the $250 million to $275 million capital-spending plan and the resulting cash, debt and liquidity needs.
- Effects of continued or renewed COVID-19 restrictions on customer traffic, fuel demand and seasonal performance.
- Compliance with debt covenants, borrowing-base availability and any material developments in environmental, tax or legal contingencies.