Murphy USA Inc. (MUSA) is a leading independent retailer of motor fuel and convenience merchandise in the United States. The company owns and operates a chain of retail stores under the brand names of Murphy USA® and Murphy Express, most of which are located in close proximity to Walmart stores, as well as the QuickChek® brand in the Northeast. With a focus on delivering everyday low prices and a high-volume, low-cost business model, Murphy USA has established itself as a dominant player in the retail fuel and convenience store industry.
Business Overview
Murphy USA's operations are primarily divided into two segments: Marketing and Corporate and Other Assets. The Marketing segment encompasses the company's retail gasoline stores, product supply, and wholesale activities, which account for the vast majority of its revenue and earnings. The Corporate and Other Assets segment includes the company's investments and other non-core operations.As of March 31, 2023, Murphy USA operated a total of 1,733 stores, of which 1,579 were branded as Murphy and 154 were under the QuickChek brand. The company's strategic expansion continues, with plans to open 30-35 new stores by the end of 2023, including 22 raze-and-rebuild projects and 9 new-to-industry stores.
Financial Performance
Murphy USA has demonstrated consistent financial performance, even in the face of challenging market conditions. For the full year 2022, the company reported annual net income of $556.8 million and annual revenue of $21.5 billion. Its annual operating cash flow was $784 million, and its annual free cash flow was $448.4 million.In the first quarter of 2023, the company reported net income of $66 million, or $3.12 per diluted share, on revenue of $4.8 billion. This represents a decrease in net income compared to the same period in 2022, which saw net income of $106.3 million, or $4.80 per diluted share, on revenue of $5.1 billion. The decrease in net income was primarily due to lower total fuel contribution, higher store operating expenses, and increased general and administrative expenses, partially offset by higher fuel sales volumes, stronger merchandise contributions, and lower income tax expense.
Segment Performance
The Marketing segment, which accounts for the vast majority of Murphy USA's operations, reported net income of $85.5 million in the first quarter of 2023, compared to $125.9 million in the same period of 2022. The decrease in net income was primarily due to lower total fuel contribution, higher store operating expenses, and increased selling, general, and administrative expenses, partially offset by higher fuel sales volumes and stronger merchandise contributions.Total fuel contribution, which includes both retail fuel margin and product supply and wholesale (PS&W) results, was $286.1 million in the first quarter of 2023, down from $329.9 million in the same period of 2022. Retail fuel margins decreased from 23.2 cents per gallon (cpg) in the first quarter of 2022 to 21.7 cpg in the first quarter of 2023, while PS&W contribution, including Renewable Identification Numbers (RINs) sales, decreased from 5.7 cpg to 3.1 cpg over the same period.
Merchandise sales in the first quarter of 2023 were $1 billion, up from $966.2 million in the same period of 2022. Merchandise contribution margin decreased from 19.4% to 19.2% over the same period, despite stronger sales and pricing initiatives.
The Corporate and Other Assets segment reported a loss of $19.5 million in the first quarter of 2023, compared to a loss of $19.6 million in the same period of 2022.
Guidance and Outlook
For the full year 2024, Murphy USA expects to deliver EBITDA in the range of $1 billion to $1.2 billion. The company remains confident in its ability to execute its growth and productivity initiatives, which are expected to drive improvements in the company's merchandise performance in the second half of the year.Regarding the company's capital allocation strategy, Murphy USA continues to focus on returning capital to shareholders through its share repurchase program, which has $1.3 billion remaining under the 2023 authorization as of March 31, 2023. The company also remains committed to its dividend program, having recently increased its quarterly dividend by 4.7% to $0.44 per share.
Risks and Challenges
While Murphy USA has demonstrated resilience in the face of market volatility, the company is not immune to the challenges facing the industry. Factors such as fluctuations in fuel prices, changes in consumer behavior, and regulatory developments could impact the company's financial performance.The company's heavy reliance on tobacco product sales also poses a risk, as the global decline in tobacco consumption could lead to a substantial reduction in high-margin sales. Additionally, the company's significant capital expenditures for new store growth and digital transformation initiatives could strain its financial resources if the expected returns on these investments are not realized.