Murphy USA Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Business Model: Murphy USA demonstrated benefits of its advantaged business model with strong third quarter results from core categories, leveraging everyday low-price positioning.
• Organic Growth: Acceleration in organic growth with current construction projects for Q4 openings and foundation for 2025 growth. Front-loaded real estate pipeline led to updating CapEx projections.
• CapEx and Stores: Increased CapEx guidance to $500 million to $525 million in 2024. Opened 4 new stores in Q3, with up to 40 new stores and 47 raze-and-rebuilds scheduled for 2024. SG&A guidance reduced to $240 million to $250 million.
• Segment Details: Fuel volumes and margins, strong nicotine ecosystem performance, Murphy banner merchandise growth, QuickChek's fuel and coffee performance, operating expenses with average per store month OpEx up 4% but same-store costs expected to increase at ~3% clip.
• Initiatives: Relaunch of QuickChek Rewards program with mobile ordering, delivery, etc. Store efficiency improvements at QuickChek, with plans to roll out to Murphy stores next year.

Segment Performance

• Fuel: Total and APSM volumes up 2% and 1.1% respectively. Retail margins up ~$0.03 vs prior year, but all-in fuel margins ~$0.02 lower than prior year quarter due to price movement. For full year, PS&W contribution expected to be near low end of $0.02 to $0.03 per gallon range.
• Nicotine: Market share in combustible products eclipsed 20% in Murphy markets. Strong growth in traditional smokeless and oral nicotine categories with double-digit sales and margin growth.
• Packaged Beverage: Murphy banner stores had total packaged beverage sales growth of 2.9% and margin growth of 6.2%.
• General Merchandise, Candy, Salty Snacks: Mid-high single-digit strength, grew share in markets vs broader declines in Nielsen data.
• QuickChek: Fuel volumes up 2.9% in Northeast, coffee sales up 4.3% (made to order specialty drinks up 14%). Food and beverage sales per store flat, center store sales down 1.2%.

Guidance

• CapEx: Increased to $500 million to $525 million in 2024, expecting similar level in 2025.
• SG&A: Reduced to $240 million to $250 million from prior range of $255 million to $265 million.
• Stores: New store and raze-and-rebuild guidance unchanged at 30 to 35 new stores and more than 40 raze-and-rebuilds in 2024, with up to 40 new stores and 47 raze-and-rebuilds scheduled for completion in 2024 (some potentially slipping to early 2025).
• October Performance: Per store fuel volumes flat, merchandise up 2%-3%.

Risks

• Market Volatility: Impact of wholesale price movements on fuel margins, with PS&W contribution expected to be near low end of long-term range due to long supply market with lower volatility.
• Regulatory Changes: Potential impact on nicotine and other product categories.
• Competitive Pressures: Continued pressure on QuickChek's food and beverage traffic and margins from QSR value pricing.

Question and Answer

• Q: About NTI stores and 2025 guidance A: Andrew Clyde mentioned confidence in the pipeline, improved permitting process, and moving toward 50 new stores per year. Galagher Jeff added that cadence is important for delivering numbers and moving toward 50 NTIs a year.
• Q: Inside contribution acceleration A: Andrew Clyde separated Murphy banner and QuickChek. Murphy banner benefits from traffic driving categories, while QuickChek's food and beverage and relaunched Rewards program contribute to acceleration.
• Q: Fuel volumes and hurricanes A: Andrew Clyde stated no material impact from hurricanes Helene and Milton on fuel gallons, with teams efficiently managing stores and terminals.
• Q: Nicotine margins and rebranding A: Andrew Clyde discussed growth in nicotine categories, ongoing optimization of back bars, and potential upside from other retailers deemphasizing traditional products and oral nicotine growth.
• Q: Consumer behavior and store performance A: Andrew Clyde noted consumer behavior is value-focused, with sequential stabilization. Mindy West discussed progress on store performance initiatives, including testing to improve underperforming stores