Murphy USA Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited, compared with Q1 2020. QuickChek results are included from its January 29, 2021 acquisition through April 2, 2021; the company says the extra two days had an immaterial effect. Murphy USA operated 1,660 stations at quarter-end, including 156 QuickChek sites.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $3,537.1 million | $3,184.8 million |
| Operating income | $94.6 million | $130.8 million |
| Net income | $55.3 million | $89.3 million |
| Diluted EPS | $2.01 | $2.92 |
| Adjusted EBITDA (non-GAAP) | $154.8 million | $170.7 million |
| Cash from operations | $229.8 million | $113.7 million |
Revenue grew 11.1%, while net income fell about 38%. Merchandise sales rose 21.2% to $833.2 million, and merchandise contribution increased to $148.4 million from $107.5 million. Fuel contribution was $227.3 million versus $237.0 million; retail fuel contribution fell to $156.9 million from $283.0 million, partly offset by stronger product supply and wholesale results and RIN sales. Retail fuel margin declined to 15.5 cents per gallon from 26.9 cents, while total fuel contribution per gallon remained 22.5 cents. RIN revenue was $66.7 million versus $15.5 million.
Operating cash flow benefited from a $108.0 million improvement in noncash working capital, including higher accounts payable and accrued liabilities. Investing used $696.3 million, principally for the $642.1 million net QuickChek acquisition payment. Financing provided $607.0 million, including debt borrowings; cash and cash equivalents ended at $304.1 million, up from $163.6 million at year-end.
At March 31, total debt on the balance sheet was $1,810.0 million, including lease obligations, with $13.2 million current maturities; long-term debt net of current maturities was $1,796.8 million. The company reported $675.0 million in current liabilities and $793.4 million in current assets. Its $350 million revolving facility was undrawn. The reported total leverage ratio was 2.41 to 1.0, below the covenant threshold of 5.0 to 1.0. Interest expense increased to $21.3 million from $13.3 million.
Material changes and significant events
- Murphy USA acquired QuickChek for $642.9 million in cash on January 29, adding 156 stores in New Jersey and New York and expanding its food-and-beverage business. The preliminary allocation included $336.4 million of goodwill and $106.8 million of identified intangible assets; the allocation remained subject to completion.
- QuickChek’s larger-format stores contributed to higher station operating costs, depreciation, lease assets and liabilities, and acquisition-related expenses. Acquisition-related costs were $8.8 million.
- The company issued $500 million of 3.75% senior notes due 2031 and borrowed a $400 million term loan under a new credit agreement. The agreement also replaced the prior credit facilities with a $350 million revolver.
- The company repurchased 397,882 shares for $50.0 million and declared a $0.25-per-share dividend, totaling $6.8 million.
Outlook, commentary and risks
- Management expects 2021 capital expenditures of approximately $325 million to $375 million, including about $298 million for retail growth and $25 million for maintenance. It expects to fund the program primarily from operating cash flow, supplemented by borrowing if needed.
- Management estimates an effective tax rate of 24% to 26% for the remainder of 2021. It anticipates seasonal sales and operating income patterns may return as pandemic travel restrictions ease, but says recovery timing cannot be forecast precisely; Q1 results may not indicate full-year results.
- Management said COVID-19 continued to affect fuel demand. It cautioned that renewed infections or government restrictions could reduce volumes. Fuel margins are volatile and exposed to crude and refined-product prices, competition, supply interruptions, and the timing of passing cost increases to customers.
- RIN prices and regulation can materially affect results, though management says the business model does not depend on RIN revenue. Other cited risks include QuickChek integration and synergy realization, growth execution, supply-chain and cost control, severe weather, Walmart relationships, cybersecurity, tobacco regulation, interest rates, credit availability, and debt-covenant compliance.
- The company disclosed routine legal matters and environmental exposures, including potential remediation obligations and PRP status at one Superfund site. Management does not expect these matters to have a material adverse effect based on information currently available. Outstanding letters of credit were $13.8 million, with drawdown considered remote.
Most important facts for investors to verify
- Whether QuickChek integration delivers expected operating and food-and-beverage synergies, and how its results affect comparable-period analysis; the filing provides no pro forma financial information.
- Whether retail fuel margins and volumes recover, and whether changes in product supply and wholesale results or RIN prices offset retail weakness.
- Whether working-capital-driven operating cash flow is sustainable and sufficient to fund the stated capital program, repurchases, dividends, and debt service.
- Debt levels, interest costs, leverage-covenant headroom, and continued access to the undrawn revolver.
- Final QuickChek purchase-price allocation, goodwill and intangible-asset assumptions, and any subsequent impairment or measurement-period adjustments.