Q4 2020 Murphy Usa Inc Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Murphy USA fourth quarter, 'twenty and 'twenty earnings Conference call.
At this time all participants are in a listen only mode.
After the Speakers' presentation tell at the question and answer session.
To ask a question during the session you will need to press star one on your telephone.
Please be advised at today's conference is being recorded at <unk>.
You require any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today, Mr. Christian Pikul. Thank you. Please go ahead Sir.
Yeah. Thank you Daphne and good morning, and thank you everyone for joining US with me as usual are Andrew Clyde, President and Chief Executive Officer, Mindy West Executive Vice President and Chief Financial Officer, and Donnie Smith, Vice President and controller. After some opening comments from Andrew Mindy will provide an overview of the financial results. We will review our 2020.
One guidance and then open up the call to Q&A.
Please keep in mind that some of the comments made during this call, including the Q&A portion will be considered forward looking statements as defined in the private Securities Litigation Reform Act of 1995 as such no assurances can be given that these events will occur or that the projections will be attained a variety of factors exist that may cause actual results to differ for further discussion of risk.
Factors. Please see the latest Murphy USA forms 10-K, 10-Q, 8-K, and other recent SEC filings Murphy USA takes no duty to publicly update or revise any forward looking statements. During today's call. We may also provide certain performance measures that do not conform to generally accepted accounting principles or GAAP, we have provided schedules to reconcile.
These non-GAAP measures with the reported results on a GAAP basis as part of our earnings press release, which can be found on the investors section of our website with that I'll turn the call over to Andrew.
Thank you Christian good morning, and welcome to everyone joining us today.
As we close out and the fourth quarter and the full year of 2020 on today's call. We're certainly reminded of the many challenges faced by our customers employees and communities and this unforgettable year, and then turn and what it took for retailers like Murphy USA to serve them and navigate throughout this period.
At this time last year, we foretold and our annual report that Murphy USA efforts to build of resilience and agile organization. Since its 2013 spinoff would propel us through whatever obstacles might be presented such that we could emerge even stronger on the other side and with the.
Our confidence and the strength of our people and business model, we can afford to be bold and the face of great uncertainty.
Certainly our foresight was evidenced on many fronts, but ultimately was our insights around our customers' behaviors, the competitive dynamics and our sector and our own capabilities, including our own limitations that drove the major decisions and investments that led to our 2020 results and success.
And we continue to play our distinctive game and win and and the process through the quick check acquisition secured the winning capabilities to play a different game and the future.
I cannot be prouder of what our team accomplished last year and was excited to welcome the newest members of our team on Friday as we completed the quick check acquisition.
Like most publicly traded companies 2020 will be a statistical blip that will have to be adjusted for when performing any historical analysis.
Given that we have released or pre released results virtually every month and want to focus the bulk of today's call on the future and why we are so excited about our potential in 2021 and beyond.
Starting with quick check we have added 157 stores, which brings the combined network to approximately <unk> hundred 60 stores as stated before quick check operates a best in class food and beverage program with a strong brand and attractive markets, which nicely complement the Murphy USA business model and.
Geographic footprint.
Quick check as a successful standalone enterprise with its own meaningful organic growth opportunities and the pipeline.
Our integration is not about the ramp and extraction of cost synergies, rather we are being thoughtful and both what we can learn from quick check and what we can do to help improve their business. This will be a mutually inclusive process, where the best practices of each firm of shared and implemented and an appropriate timeframe.
And for example, we have much to learn and benefit from their best in class food and beverage offer and how it is delivered and likewise, we intend to leverage our gasoline supply and retail pricing expertise to operate and optimize their operations.
Food and beverage was already and internal priority for Murphy USA as we began to focus management attention on our part of the business, where we felt there was both near term low hanging fruit and long term opportunity as we examined our options. We found that quick check would allow us to obtain the capabilities, we needed immediately and accelerate are turning up.
To learn and curve, while leveraging our unique and distinctive brand and a new geography with a similar culture and aligned aspiration for future growth we.
We are excited to begin that journey after a very quick and efficient closing process that was very well received by the debt markets.
Quick check size also enables us to maintain the capital discipline and shareholder friendly practices Murphy USA has been noted for and the past we paid our first dividend in December and set a record for share repurchases and 2020.
Maintaining our conservative and flexible balance sheet and ensures we will continue to allocate capital efficiently going forward.
Transitioning to a discussion of the business Murphy USA fourth quarter results highlight a continuation of the key trends we witnessed in the most recent quarters as we enter 2021 those same trends remain largely intact subject to the normal seasonal and cyclical variations that we were used to pre COVID-19.
Fourth quarter fuel volume showed sequential improvement from the third quarter and represented only a 6% decrease from the prior year January volumes remained strong showing slight pressure at about 8% below prior year, which we believe is mostly attributable to the rising price environment and this is historically at <unk>.
Difficult time to profitably create price separation and take share.
We continue to see evidence of that industry margins are higher than we might expect otherwise and a rising price environment, helping to maintain breakeven at equilibrium for some less advantaged players as noted and demonstrated throughout 2020 Murphy USA is well positioned to benefit from this dynamic all.
And margins and the fourth quarter were nearly <unk> 20 per gallon, which resulted in total fuel contribution that was nearly 10% above the fourth quarter of 2019 at five 5% lower total volume.
We expect higher than normal retail margins to persist in 2021 and beyond and while we are not agnostic to lower volumes. We believe market forces will support higher retail margins, which will reward our advantaged business model at any volume level.
Lower customer traffic did not impact merchandise fourth quarter sales as market share gains were sustained new promotional activities were successful and categories more linked to traffic improved sequentially.
Same store sales were up nearly 10% and same store merchandise contribution was up nearly 11% with meaningful contributions from both of the tobacco and non tobacco categories. I would also point you to the same store sales and Aps and metrics table and the earnings release.
Average per store month metrics, which include all new stores opened since January of 2019 are outperforming the same store sales metrics and fuel volume non tobacco sales and non tobacco margin, which further supports our confidence and the larger format 2800 square foot stores, we've been adding to the.
The network.
And with up to 50, new to industry 2800 square foot stores planned for 2021, we expect this new store outperformance trend to continue and the absolute EBITDA impact should become more apparent all else being equal in 2022 and beyond as the impact of the larger build classes ramp up.
While these new Murphy express stores continue to improve overall network performance, we expect to existing quick check stores will add over $200 million per year of merchandise contribution dollars over half of which will come from food and beverage categories substantially improving both our margin structure and merchandise.
Mix yet despite this mix shift we will continue to be innovative with promotional capabilities and the tobacco category, where we expect to both maintain and grow the market share gains achieved in 2020.
Operating expenses continued to be impacted by Covid related factors with fourth quarter per store cost up about 7% for the full year, we have identified about $4 million of additional expenses and incremental commission programs emergency sick pay and personal protective equipment and.
And supplies without which we would have incurred per store increases of about one 5% in line with our plan.
While lower customer traffic understates true opex, all else being equal the businesses likely facing about a 2% increase going forward, reflecting both the larger store formats, resulting from our new to industry, and raze and rebuild activity and the inflationary pressures and employee cost.
Despite slightly higher cost and 2020, we saw another year of improvement and our fuel breakeven metric improving to 24 basis points from 67 basis points of the year before this translates into 738 stores below zero breakeven at year end 2020 up from only 506.
And <unk> at year end 2019.
And the fuel breakeven metric has shown remarkable improvements and spin as we have now added more than three pennies of fuel margin equivalent to the business at.
And we move closer to a network wide zero breakeven and quick check stores without fuel and invest and food and beverage platforms appropriately we will be tweaking our nomenclature slightly towards our coverage ratio as we talk about store profitability and growing merchandise margin and economically above.
And beyond incremental cost to serve with that let me turn it over to Mandy to detail our financial results and our recent financing activity and then I will return with some additional comments around our 2021 guidance Mindy.
Thank you Andrew Good morning, everyone. Thank you for listening in today.
The first start off with some standard items and then briefly review the terms of our financing needs to find quick check while strengthening the balance sheet for future growth.
And the results first revenue for the fourth quarter and full year of 2020 was $2 9 billion and $11 3 billion, respectively. This compares to $3 5 billion and 14 billion and the year ago period.
Throughout the year and including the fourth quarter. This increase this decrease was attributable to lower retail gasoline prices and lower gallon sold due to the COVID-19, pandemic, partially offset by higher merchandise sales.
Average retail gasoline prices per gallon during the quarter were $1 87 versus $2 31, and 2019 and for the full year retail gasoline prices averaged $1 91 per gallon versus $2 33 and 2019.
Adjusted earnings before interest taxes, depreciation and amortization or EBITDA was $136 3 million and the fourth quarter versus $112 4.002 million 19 for the full year adjusted EBITDA was $722 7 million versus 422.
<unk> 6.002 million 19.
Adjusted EBITDA for the fourth quarter and of full year.
It's higher than the prior year period due to average higher average retail margins and higher merchandise contribution partially offset by lower gallon volume and higher total operating expense as a function of both new stores and COVID-19 related costs.
Accordingly, net income for the full year 2020 was also higher than the previous year at $396 1 million versus $134 $8 million and 2019.
Effective tax rate for the fourth quarter was 24, 4% and 24, 2% for the full year going forward. We are using a federal income tax rate between 24, and 26 per cent for planning purposes, albeit slightly higher and the range due to the higher state tax rates, and New York and New Jersey coming from the quick check acquisition.
And then.
Total debt on the balance sheet as of December 31 of 2020 was just over $1 billion broken out with long term debt of 999 million consisting of our $297 million carrying value of notes due 2027 400 of $93 million of carrying value of our net do too.
29, and $213 million of term debt.
And last $50 million of expected amortization under the term loan and current liabilities, which is listed on the balance sheet.
These figures results and an adjusted leverage ratio that we report to our lenders of approximately one four times and cash and cash equivalents totaled $163 6 million as of December 31.
As noted in our press release announcing the closing of quick check acquisition, we have issued $500 million and new 10 year notes at a very attractive coupon rate of 375%.
We also secured a seven year $400 million term loan b at.
LIBOR plus.
Per cent and three quarters, which is due in 2028 amortization under that term loan at 1% per annum.
And lastly, we have replaced our asset backed lending facility with a five year revolving credit facility with $350 million of committed liquidity that does not fluctuate with commodity prices as our previous ABL facility did.
Taken together these transaction and strengthen our balance sheet and provide us the proper flexibility to prudently manage our debt levels and ensure we have enough capital to support organic growth initiatives for our combined company.
Total debt outstanding is currently $1 7 billion on a gross basis and 154 billion on a net basis. There were $27 2 million common shares outstanding at the end of the fourth quarter 2020.
As I mentioned and the earnings release, we declared and paid our first quarterly dividend of 25 per share and December for a total cash payment of around $7 million.
Capital expenditures for the fourth quarter were approximately $55 million and $227 million for the full year of the 227 million spent in 2020 $178 million was growth capital, including 24, new stores, and 33, raze and rebuild projects and some upgrades to our term.
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$22 million was spent on maintenance with the remaining $27 million on corporate capital, including at projects and strategic initiatives, including the completion of our <unk> rollout.
Total spending was below the guided range of 2020, primarily stemming from savings we were able to extract from the ANV project and the timing of certain other projects.
I will go ahead and provide the spending breakdown for our 2021 capital guidance with a higher rate of organic growth expected in 2021, including up to 55, new to industry stores between Murphy and quick check and the normal pace of R. 25, raze and rebuilds, we are forecasting a higher total capital spend of between 312.
Five and $375 million broken out as follows.
The majority is earmarked for growth capital and that's going to be between 275 and $300 million. We also expect a range of $20 million to $30 million for maintenance capital and between $30 million to $45 million for ongoing technology initiatives and potential investments and the food and beverage offer.
Everyone I will now turn it back over to Andrew.
Thanks, Mindy and congratulations to you and your team for such a successful debt raised to finance the quick check acquisition and let me close with a review of our guidance for 2021, we have previously communicated our view of the potential of the Murphy USA Standalone business and 2021 signaling to investors.
We believe we are capable of generating approximately $500 million of adjusted EBITDA for the Standalone business two years earlier than we previously planned. This is primarily due to three factors first our belief that fuel margins will remain elevated as disadvantage retailers will require a higher fuel margin.
Offset lower customer traffic, resulting in higher margins for the industry, which will disproportionately benefit Murphy USA is one of the low cost high volume retailers and second we have taken a meaningful share of the tobacco market from our competitors and we're focused on not only keeping at the growing at.
And third while early results from R 2800 square foot stores, they are meeting our heightened expectations and.
And as we ramp up our pace of organic growth, we are increasingly confident and the impact we believe our new stores will have on our financial results in 2021 and beyond.
With the quick check acquisition, we see the potential for both direct synergies and reverse synergies that we expect will help us improve our food and beverage offer as we began our work to integrate the two companies and 2021, we expect limited synergy capture and year. One. However, we are highly confident and our ability to drive.
Up to $28 million of synergies on an exit rate basis by year, three meaning we expect to see the full $28 million incremental impact and your four or calendar year 2024.
With that being said, we are providing and calendar year 2021 guidance metrics that include and expected 11 months of quick check contribution there should be few surprises and these metrics, but less discussed and briefly before opening up the call to Q&A.
Starting with organic growth, we remain committed to building up to 50 Murphy Express stores, nearly all of which would be the high performing 2800 square foot stores. We expect to continue to grow the quick check footprint and continuing to build new stores and prime locations already identified and their existing markets.
We assess review and high grade, our new site opportunities across our combined network, we will be able to flex our capital budget as needed to ensure we are allocating capital towards our highest return opportunities some of which May result from internal efforts to accelerate synergy capture Nevertheless is a free cash flow positive business. This.
Provides us with ample flexibility to maintain a consistent and meaningful organic unit growth through any economic cycle.
And such we're providing guidance of up to 55, new to industry stores across our combined network. We also remain committed to upgrade and the Murphy network with up to 25, raze and rebuilds planned in 2021, which continues our format evolution from kiosk to <unk> hundred per square foot small format stores, where we had the opportunity.
And the economics to do so.
Moving onto guidance on fuel contribution, we're providing per store fuel volume guidance of 245000 to 255000 gallons on and a PSM basis for reference.
Midpoint of this range is close to R. 2019 average of 248000 gallons per store month, which we are inching back towards enhanced quick check stores that sell fuel as noted in an earlier investor presentation.
Quick check complements Murphy USA industry, leading fuel position quick check has 89 stores that sell fuel at an average rate of over 315000 gallons per store month and total this will comprise less than 10% of our total expected fuel volumes for the year, adding about 4000 Apis.
And to the total.
And to be clear R. A PSM and same store sales metrics on fuel going forward will only reflect the stores that sell fuel.
And keeping with 2019 and 2020 guidance conversations we are not including a range of cents per gallon fuel margin guidance. As we believe this promote short term thinking and is not indicative of why we believe investors should be viewing our business.
Our range is for in store profitability metrics, consisting of merchandise margin and in store cost changed materially with the addition of the quick check model to our network as such we believe it is more helpful to provide a per store range versus a percent growth figure as we have done in prior years, we are guiding.
Two a merchandise contribution margin range of $680 million to $700 million for.
For reference the midpoint of our combined merchandise range is equivalent to our total contribution margin from the fuel business and 2018.
And the upper end of this range equates to the 2019 total fuel contribution.
Thus, while our business remains highly sensitive to changes and fuel margin nearly half of our total margin is now coming from non fuel sources, which we think is a more balanced business model and will contribute to lower earnings volatility over time.
Also of note with the addition of a quick check assets less and half of our total merchandise contribution will come from the tobacco category, which also was a more balanced and sustained mix as we look to the future and.
And we have also incorporated the benefits of our renewed core mark contract into our guidance.
On the Opex side, as we build our own larger 2800 per square foot stores and continue our raze and rebuild program. The opex per store metric will naturally move higher when combined with the much larger format quick check stores. The result of the guidance range of 27000 to 28000 per store month in <unk>.
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And while higher on an absolute basis versus 2020, our focus on cost control remains a cornerstone of our strategy on.
On the corporate cost side with the addition of the quick check home office and personnel, we expect our SG&A expense to increase to a range of 190 million to $200 million per year, as we continue to invest and critical IP projects and personnel to help support corporate priorities and drive long term efficiencies and new capabilities.
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Effective tax rates as Mindy mentioned should stay and the 24% to 26% range, our combined capital budget, which prioritizes organic growth and new stores as forecasted and a range of $325 million to $375 million, which includes a range of $275 million to $325 million for Murphy.
And up to $50 million for quick check.
This range represents each company's independent planned capital expenditures before high grading and Ti opportunities our goals remain to grow the network profitably by adding high quality new stores, while maintaining a strong balance sheet and running the business with the appropriate amount of leverage going forward.
The combined cash flow of the aggregated business gives us more flexibility to ensure capital is allocated to the right places at the right time.
I want to close by once again, saying how proud we are of our team's performance throughout the challenges presented in 2020 and how truly we excited we are about the quick check acquisition and the combined potential of bringing our two great businesses together, our standalone five year plan was robust and generated a substantial.
<unk> amount of incremental adjusted EBITDA of two new stores and ongoing improvement initiatives with quick check we are well positioned to accelerate our strategic agenda, creating an even higher quality income stream that is inclusive of a best in class food and beverage offer together, we can grow better faster.
And stronger as our highly engaged teams share a passion for delivering excellence to our customers our employees and our communities and our investors with that operator, we will open up the lines for Q&A.
Thank you.
As a reminder, and order to ask a question. Please press star one on your telephone keypad.
Please hold while we.
Q the Q&A roster.
Your first question comes from the line of Ben B, B and <unk>.
And the B and value.
Thanks, Good morning, everybody.
Good morning, Dan.
I wanted to ask first about the guidance of $550 million and.
From the perspective of comparing it with our expectations, because I think probably like a lot of people, it's comparing apples and oranges, given we did not have quick check and our numbers for 2021.
But more from the perspective of.
From our view of it seems more like a starting point, then and ending point.
And it sounds like you're similarly optimistic about the multiyear growth trajectory of the business. So I'm curious as at baseline.
One how conservative do you think the expectations are that are embedded in that $550 million or alternatively, how aggressive are they.
And then over the next several years.
And how rigorous of.
And effort does it require too.
Deliver against the growth against the growth goals that you'd like to and what's a reasonable expectation.
That we should be thinking about over the next several years.
Great Good question.
At this time of year Christian and the team are updating chart for the first investor conferences and.
As we're thinking about one of our favorite charts, where we kind of set the bar around our 15% compounded annual growth rate and our share of <unk> share price.
And how do you raise the bar to continue that and the future.
2020, as a statistical blip as we noted and as you think about you know.
And then the starting point, we were going in with a $500 million.
It is exactly that it was a starting point and as we think about that trajectory going forward on its own.
We had the benefit of all the things we've been talking about the.
And the MTI growth, we are looking to add at least $20 million of years, those larger stores, we're ramping up and.
And the 50 store year plan those stores, we're going to benefit as well from the higher overall fuel margin.
We're seeing due to the industry structure and dynamics and then frankly, just the ongoing continuous improvements that we had and the business and so.
So I would.
Articulate the $5 50 is what that new starting point will look like when we first published that New chart.
And what do you get to add two at above and beyond the trajectory, we would be showing and we will soon be sharing.
For the future.
In addition to the $20 million of.
Incremental contribution for our MTI stores.
They have <unk>.
Larger stores that are doing about twice the EBITDA of our stores that are ramping up.
We'll continue to grow and invest in.
Those stores and those markets and of habit and attractive pipeline there they too will benefit from the.
A higher fuel margin.
<unk> and the northeast markets and.
And there they have their own continuous improvement plans as well.
On top of that we've got synergies and.
And we've got a conservative estimate of $28 million, which we've talked about before.
And really doesn't speak to the potential of reverse synergies that could take place. So $5 50 is the new 500 at as a starting point.
And the future trajectory of something we're not prepared to release now, but you can you have a picture of what that chart looks like and that new 2020 for 2025 number will absolutely be seeking to maintain that same type of CAGR on our share price appreciation.
Flea that address most of your questions. If I missed one and if you could restate at please.
No it does thanks.
And I guess along those lines.
Youre optimistic about the future you bought back a lot of stock and the fourth quarter.
And at a price just a little bit below where we are now but you did have a heavier debt load as a result of the quick check acquisition, So Andrew Mindy and I am curious to hear as you think about capital allocation.
Through 2021, and beyond should we be thinking about debt pay down at the priority.
Or still a continuation of opportunistic buyback, maybe just help us calibrate how we should be thinking about.
Of that opportunity and then also and then B what are the covenants just to remind us.
Within what you have to operate and be mindful of around the debt load.
Many of you why don't you start with of covenants and then let me.
And through the first part of the question.
Sure Ben and as you know, we issued high yield bonds with covenants at the same as what we had had prior so nothing really new there and again the unrestricted share repurchase trigger.
At three and five times leverage so the same as the other two issues of notes outstanding.
With regard to the term loan B, we have lots of flexibility with that facility as we have.
No real financial covenants at all we do have and excess cash flow feature where will have us at up to 50% excess cash flow.
When we have net leverage of over three to five times.
And then and our cash flow and facility, which again is of committed facility and <unk>.
Like the revolver that we had before which fluctuate with commodity prices. We have some maximum secured net leverage of 375 times and again, that's secured net leverage and maximum total leverage of five times, which steps up to five and a half if we make it and acquisition.
Four of duration of six months. So we really liked the financial structure that we put into place with quick check.
Inclusion of pre payable debt was quite intentional.
As you know our high yield bonds have traded and continue to trade extremely well, so we kind of termed out the entire purchase price and the high yield market.
But we do remain committed to maintaining a conservative balance sheet and we like to have that pre payable debt. So that allows us to manage easily within our preferred leverage range and so we're very comfortable with where we are and our ability to balance of our growth our share repurchase dividends and debt pay down, but I'll, let Andrew add some more color to that piece I think.
Thats, great and she is.
She likes our structure all of the structure and I think the team did a fantastic job.
Look we're in a still much we're in a mature sector and we're of mature company, but we're still very much and growth mode.
From an earnings standpoint, and from a unit standpoint.
So number one that continues to be our focus of quick check acquisition enhances Murphy zone Standalone growth opportunity and then adds another layer of growth on top of that and so with the high return new to industry stores.
And the raze and rebuild opportunities at the end of the life that is our absolute priority is growth.
You think about the three times.
Leverage ratio for restrictive.
Items like share repurchases you really got of choice you can grow your way to under three times or you can shrink your debt to under three times.
We believe we're on a trajectory to quickly grow our way to below.
Three times and while we don't have the means to pay.
Pay down debt and they're certainly might be some market conditions, where we might choose to do that.
Our plan a is to grow our way.
To get our earnings such that our leverage ratio goes below three times, and we say that because we expect to continue to see volatility and the equity markets, we expect to see volatility and <unk>.
Our sector relative to other sectors, and we expect to have opportunities to be of savvy buyer of our own stock at the appropriate times and if you play out the raise the bar expectations that will soon be publishing.
You project forward of share price that even versus today's <unk>.
Level looks attractive so.
That's our plan and we're obviously going to be agile and responsive to market conditions.
Cross the board.
Okay. Thank you both and best of luck.
Thanks, Dan.
Okay. Your next question comes from the line of Bobby Griffin with Raymond James.
Good morning body. Thank you for taking my questions and I guess, Andrew and Mindy and the team congrats on navigating a very challenging year.
Thanks, Bob.
So my first question, Andrew as more and more high level just looking at when you look at the quick check acquisition and think maybe about the integration you have in front of you and what are maybe some of the.
Milestones would you like to accomplish and the next 12 to 18 months to help us think about progressing there and then maybe as a follow up to that when.
When you think about the reverse synergies, which is really of the another exciting part of this thing back of the core Murphy's business, how do you see those potentially developing as the new <unk> new store prototypes is at.
At Teck zones with more of the quick chat merchandise and it just any color there.
And to think about as we are we monitor kind of at this over the next 12 to 18 months.
Sure.
Question and as I've mentioned before unlike.
A number of acquisitions were it's about rapid extraction of cost synergies et cetera. This is of strategic acquisition.
And it's really about capabilities and so I think the first set of.
Milestones involves the sharing of practices, where we both do things and that could be involving contracts relationships with different providers.
Integration of capabilities, where we are we already know we're gonna do at one way like fuel supply and leveraging systems that we already share like fuels pricing and then obviously.
Controls and standards as a public company, whether it's on the <unk> side or the reporting side.
Et cetera, and so I mean, those are just some of the basics and we do expect to have synergies that come from those.
Activities.
I think the main strategic.
<unk> initiative that comes out of it is going to be how do we think about leveraging the expertise of quick check across the various food and beverage platforms on our fit for purpose basis for our formats.
And obviously for now less than 50%.
Of our kiosk and our.
Of our chain, which will reduce and 5% of year with the raze and rebuilds and there's less opportunities there, but at the other 50% of of Murphy USA change of 1400 square foot stores.
Have a coffee program have dispense beverage.
Have a.
Made to stock food and beverage offer there are definitely opportunities there were significant opportunities exist at R 2800 square foot stores and the real trick here is maintaining the capital program. We have in place, where we have permits and we're going to build of stores, while thinking about what is the redesign.
Look like on a fit for purpose basis, we're not going to have.
Full quick Tech World Class coffee program and that store.
And I have a kitchen and that store, that's making made to order items, but we can absolutely benefit from the coffee program the practices.
As the former CEO Dean Darling said, there was 100 ways hundreds of steps to making a great Cup of coffee.
And we need to at about 90, and so there'll be opportunities to do that as well as improving our grab and go.
Food program as well, we're also going to have to think about how we communicate to customers.
And that those Murphy stores that have that enhanced food.
Food and beverage offer a habit and so there may be some branding or sub branding of that offer of that takes place.
Also we've been working on our own.
Core Mark.
And other.
Equipment providers all of what a distinctive.
Unique to Murphy USA offer would be and we believe not only that it is still appropriate for our business, but has legs within the quick check our.
Model as well and so I think that's probably going to be the main initiatives that we will see.
That will not pay immediate benefits.
In 2021, but we'll set the foundation for accelerated growth and 2022 and above that and I guess third at just maintaining the.
Pipeline development of new to industry locations on both sides.
And the ramp up of <unk>.
Existing stores and stores built in 2021 as we continue to.
Monitor those seek to improve those ramp ups as that becomes a more important part of our earnings growth versus say the continuous improvement efforts that we've had in the past.
Okay. I appreciate that very helpful. And then I guess secondly from me and my last question. When you look at and 2021, and obviously a ton of moving parts of your and variables, but with hopefully a mix of of the business returning to a little bit more normal and and society going back to normal how do you think about the tobacco category some of the great progress.
You guys have done and driving higher gross profit per location, there and tobacco and maintaining that and the stickiness of that debt GP on kind of of per location basis.
Sure one of the things we know about that customer is.
Some of their buying practices are hard to change.
We saw that when we would do of raze and rebuild and a state that had state minimum prices and we couldn't be more aggressive when that raze and rebuild.
Store return at opening those customers went somewhere else. They found that there was.
Good or good enough service and we couldnt differentiate on price.
At those stores and so it was a little bit harder.
To get them back and so we had to innovate around that.
To avoid that issue.
I think the same holds true on the other side of.
This pandemic the customer behaviors have shifted during COVID-19 on the tobacco side people wanted to minimize trips and they wanted to combine trips and so with a lot of our stores being and the proximity of Walmart Supercenters, we were uniquely positioned to take advantage of that if you want a minimum.
And this trips you want to buy in bulk.
We went from.
Below 50% cartons to above 60% cartons and provided that value where many of the smaller chains, the mom and Pops don't even offer.
One of the things I quickly learned was that couldnt get a better price than at Murphy USA.
And most of the markets and.
We doubled down and made investments in inventory and continue to invest and promotions.
Many of the competitors pull those funds back they needed to apply them to the bottom line to make their profits and it's going to be a difficult decision for them to let go of those funds and put them back on price.
Because there is going to be there's going to be hard to get that volume back.
And so it's kind of of a long way of saying that we took advantage of customer behaviors that we head insights around from raze and rebuilds and others and invested in that category and of <unk>.
Difficult period, it's continuing to pay rewards and we can continue to innovate and do more.
And that space and so while we're excited about.
And the change and mix.
That is coming to us as a result of the quick check acquisition by no means are we going to take our eye off the ball of this important category of that.
Where we can still grow share and still grow margin dollars and the future.
Thank you I appreciate the details and best of luck, you and first quarter.
Thank you.
Your next question comes from the line of John Royall with Jpmorgan.
Hi, good morning, Thanks for taking my question.
Can you can you talk about the fuel volumes and <unk> I think you beat the national average gasoline demand by a pretty healthy margin. So what do you think was driving that outperformance.
So I think one we've talked about our retail pricing excellence.
And initiative and so any peers.
Period.
I think and 2020, we were comping over a period in 2019, where we didn't have all of those capabilities and play so a shout out to that team that's continue to.
Develop refine and build upon that capability.
And where there may have been opportunities I think as we've accepted responsibility leaking value, losing some volume from execution.
And the team continues to make that up so we're just a sharper.
Pricer, and how we think about that.
I think too.
We've got to give customers a reason to come to us and so on the margin, we're going to lean a little bit more end of volume.
When we have those opportunities.
And so I think we benefited on that side and I think last.
Consumers are continuing to limit trips volume bulk visit.
Visit Walmart Supercenters, and I think our location just benefits ourselves. So when you combine of location advantage of focus on price and a continued focus and sharpness on execution.
And those things just come together and lead to stronger volumes at higher margins and the industry continues to.
I think leaned towards margin and I think there are some competitors out there that have been at.
Also a little bit distracted with other big.
Bigger things and that creates an opportunity typically to take share as well.
Great. Thank you and then the third.
Second question.
Essentially the same question really for the 2021 guidance and perhaps at the same answer but I.
And I think if I'm doing the math right at the midpoint of your guidance for 'twenty one.
Fuel volumes at the 4000 from quick check is about only 1% below 2019 levels.
And Ats and basis. So this thing is pretty strong and it will still be and the COVID-19 environment and some degree of at least through the first half so are.
Are you assuming kind of a continuation of that type of share of counter you were speaking of theirs and more of just a strong rebound and gasoline demand you're expecting.
Perhaps and the second half.
Yeah and look were.
We don't have a perfect crystal ball, John and so we've got a plan that assumes.
That the recovery continues that we continue.
The gain strength.
And the face of that and Havent have assumed certain set of competitive dynamics.
I think the key point here is if we're wrong on the volume.
It means that.
And.
It was subdued for everyone and at probably translates into higher margin and so we don't expect to be materially wrong on the fuel contribution or the EBITDA.
Line item, where it really matters and so.
And as we've said and the.
The main point, we're not agnostic to lower volume and in fact and <unk>.
Answering of.
A question about why we.
Did better than National average, we're actually highly focused on it.
But if national demand doesn't pick up for whatever reason and we expect the margin.
And response driven by other competitors.
To make up for that.
Great. Thank you.
Okay.
Your next question comes from the line of Bonnie Herzog with Goldman Sachs.
Thanks, So much guys. This is actually Sam Reid pinch hitting for Bonnie here.
To quickly touch on your end merchandise same store sales I know you've talked to your confidence on the tobacco side, but wanted to talk through things on the non tobacco side spin.
Specifically, how should we think about that metric in the context of some of the tough comps you'll be lapping in 2021.
Especially given some of the strength and a lot of sales that you saw in 2020.
Great well good question.
Think of as we look at the fourth quarter.
We saw.
Continued strong results from general merchandise categories and products that we werent even in at the beginning of.
2020, we expect to see that continue in the foreseeable future.
The packaged beverage category.
Uh huh.
And as improved with innovation around.
Energy and other drink products there it continues to improve sequentially.
As traffic rebounds, and so feel good about that and similar with the snack.
Category certainly.
In terms of candy and some of the more promotional items will get back to a regular.
Cadence.
On that and some improvements there I think the biggest challenge that.
We saw in 2020 for us.
It's just all upside in 2021.
As around dispense beverage and around R.
Grab and go.
Food items many of those were turned off.
And so as we see improvement and early signs of that especially around dispense beverage and in Q4.
We're pretty optimistic about the improvements within that one of the other things that will add in 2021.
And we will be the benefits of our core Mark contract, which we signed a five year renewal and announced that so I think this is 2021 is going to be a year of a lot of singles and Theres couple of categories of where he struck out in 2020, but those batteries of.
<unk> been practicing and with quick check.
And they're going to play and of differently going forward. So we feel pretty good about.
The non tobacco comps going forward.
No. Thank you so much that's super helpful and I guess from my second question and I wanted to pivot to something a bit more philosophical here, where we're at.
Obviously seeing a lot of stepped up interest and the potential effects from electric vehicles on C stores, and we're obviously hearing quite a bit from some of the major automakers on this front, whether it's GM and Ford.
Some of you guys, taking here to kind of prepare your portfolio of for these changes and are you acquiring anything from quick check that you think might help jumpstart you here. Thanks.
Sure.
So I don't have all the details of the GM announcement, but if you think about a year of 2035, one at a long way out number two if it's if it's similar to.
If all of those announcement.
And all electric vehicle fleet.
And would include not only battery electric vehicles, but plug in hybrid.
Electric vehicles, as well and so many of the macro demand trends.
And that are out there already have baked in hybrid electric vehicles and plug and hybrid.
Electric vehicles and so.
First thing we have to understand is.
What is that vehicle and what is at.
Consuming from a fuel standpoint are they true battery electric vehicles for which there is a host of challenges.
Around raw materials around mined.
Mining to wheels versus the well the wheels.
Arguments.
And the like.
Second thing is.
Who's going to be buying them and where and so as we think today about the zero.
Emission vehicle.
<unk> and where electric vehicles are being.
<unk> sold and bought they are largely in markets outside.
Of ours, and if you look at the price of those vehicles they are largely today.
Outside of the affordability range of our typical customer I've mentioned this before but we did a survey last year and we got close to a half a million of responses from our customers and a week about the current vehicle they are driving.
And it's you know.
10 to 12 year old vehicle with over 125000 miles that day.
Bought for less than.
Of $15000 and so.
In 2035.
Probably buying a 2020.
Vehicle use given how long and cars are lasting and if the affordability of the new models Hasnt come down.
It is going to continue to be a challenge for our typical customer.
To buy these vehicles news. So we think of US market is going to continue.
And it's going to be strong and it's going to play favorably for a company like Murphy USA, Inc.
If you combine all of these trends that type of look this is happening it's happening in different places at different rates and different speeds and different metro markets and different customer segments. It will have a slow effect, but its going to start with competitors, who are already serving that customer who is today by.
This is of luxury vehicle or a luxury truck and then you start adding pressures around minimum wages et cetera, and if they have small formats and high fuel breakeven.
One of two things is going to happen.
Either the price of all of these commodities are selling is going to go up and youre going to have general inflationary trends and.
So that's going to benefit greatly the low cost high volume at scale retailers and that environment.
Not going to be that we're completely immune from those changes is that it's going to affect someone helps so much greater than it will affect us and the inflationary pressure. It will likely have on the consumer is going to create more price sensitivity and because of our low cost economics at scale.
We'll probably end of profiting from at at the end of the day and so.
One of the clear.
Theres a lot of subsidies and incentives and investments that are going to go into it. It's just further away from impacting our markets and our customers.
And then some others.
We are going to be able to learn from quick check they have five locations that have charging stations.
And get a per charge.
No fee for that and so we will be able to continue to.
Of all of that it's not material, we're not going to start breaking out same store charge.
Units, but we will have the insights around that.
And be able to monitor that clearly quick check is and more dense markets.
Closer to where youre seeing adoption, but its still a very very small.
A component of that business. So we're eyes wide open and we monitor. This we studied is evaluate this but rather than just getting.
Following the herd mentality, we're going to continue to apply our insights about our customers our markets their purchase behaviors not only for fuel, but for vehicles and other items and cash that and the context of the broader competitive dynamics and what that means for us and kind of going back to Ben's earlier.
<unk> and about.
The allocation of capital there will be some times worth of perception and the range around this is such where on a relative basis Murphy USA a shares underperform and we want of certainly be in a position at that point to buyback of shares under any discontinuity because at the end of the day.
This is a super high quality cash flow generating machine that just got better.
Awesome. Thank you so much I really appreciate the color.
Thank you.
Your last question comes from the line of Matt Fishbein with Jefferies.
Hey, Good morning can you hear me all right.
Can.
Perfect.
Thanks for squeezing me in here.
And wanted to ask about your most recent thinking on the unit growth strategy.
I'm, assuming there was a point and Youre planning for 2021, when it was time to combine the new store opening plans into one and all.
Although youre confident in the organic growth opportunity and the base business and quick check has its own standalone organic growth opportunity zone.
It feels like it probably would have been understood.
And you made a more substantial adjustment to the headline total new store number.
Variety of reasons, whether it's the timing of the deal and inserting freshly acquired capabilities into new stores or whether you wanted to try of smaller sample size than the 50 or 55 with this.
New particular offering et cetera.
So the up to 55 of the target I guess gives you the ample flexibility that you've talked about.
And you know isn't up to 60 or 60, plus but I guess my question is.
Why not give yourself more flexibility there can you can you walk us through how you settled on the up to 55 number.
Sure and so.
At two number so we've got all of the flexibility.
Need within that.
I would say is look we have of high quality real estate team on our side, that's taken three years to buildup of pipeline at <unk>.
Able to do 50 stores, a year and some of those are advanced and the permitting process and so you will build them.
As they were originally designed given the modular build.
Format and not pull the plug on those to the extent there are some where.
The redesign initiative and the ability to do the redesign aligns with.
Dialing something back if we think there is benefit and doing so we will but these were already high return.
Locations and investments so the acquisition just makes those higher.
And the quick check acquisition and we also picked up a super high quality.
Real estate acquisition and construction.
Team, there and thats continuing to pursue opportunities and those markets.
As you can imagine not knowing.
Who the ultimate winner of that process would be they slowed a few things down.
And 2020, but we've turned.
The gears back into high gear in terms of building stores and construction.
And getting leases signed or locations.
Wired as well and so there may be opportunities to accelerate.
<unk> accelerates from locations into 2021.
And that market and so I think it just gives us ample flexibility, we certainly from a capital expenditures guidance standpoint tend to give you the up to maximum range and look if we end up coming in lower than that.
And we'll be providing some transparency.
After the halfway point and.
And the year and the rationale for that but at this point and time, we expect to hit number is pretty close.
To that knowing we've got flexibility.
Pivot and some areas, but less flexibility, where we already have permits and efforts underway.
And other areas.
Yes, that's fair totally understand.
And I guess.
You've de risked the.
Proposition now that you don't have to create this.
<unk> out of thin air.
By acquiring quick check.
Curious to understand how copy paste of bowl.
The food and beverage capability could be here is at.
More along the lines of sharing best practices situations. So maybe like you were you were saying.
It doesn't necessarily require a whole.
Kitchen to be installed and and.
And existing stores.
Or is it more along the lines of what's been a lot of certain percent of the existing stores can probably get a more quick.
Quick check like food and beverage capability.
Just interested to kind of understand how you view.
And how much attention is going to be needed on the on the existing store footprint.
So first of all I'd say, we wouldn't be pulling it out of thin air.
We have of team we have of capability, we've outlined initiatives, we've set potential per stores based on the existing platforms.
And at cetera, and so we already had baked into our 500 million.
Planned improvements in that area.
From the team and the capabilities and their efforts in 2020. So that's built into our 2021 plan I think what we really derisked, though is the learning curve and you think about the steps of the capabilities.
To build at those 100 steps that we talk about on a great.
Cup of coffee.
We don't need 12 coffee dispensers.
And that.
Have the exact same footprint and our 2800 square foot stores to take advantage of that capability. In fact, we won't have that.
Exact offer to do that but it's the learning curve behind that if you think about training and food and handling and this.
At our store level, we have that versus building that and so.
That at those are going to be key areas around sourcing around execution around customer and sites and the like this is an important part of our growth plan on existing stores too.
And prove them and the incremental capital that's going into that but you're not going to have a made to order sandwich and of Murphy USA 2800 square foot store could you need of kitchen to do that and you don't have the means to really do that within the space.
But you do have the capabilities to now think about grab and go food and a different way.
Menus that you could then have of third party commentary make and deliver to those stores.
Through the same or different.
Supply chain partner.
Et cetera, and so you've got a lot of tools to play with as we said also we've been thinking about some unique to Murphy USA grab and go concepts.
As well and so.
We think theres a lot of opportunity here, but by no means is it just copying and pasting the platforms as they are and quick check it's really the insights practices.
Behind the capabilities of those platforms.
And you have no further questions.
Alright, well, we ran a few minutes over our normal hour, but I appreciate the great questions great interest.
And the story and as I've said before we believe that with this acquisition and the great efforts.
Our two teams of both made in 2020 navigating.
Through.
What was absolutely and unforgettable year, we're posed to cash.
Come out even stronger in 2021. So thank you for your continued interest and Murphy USA.
Okay.
This concludes today's conference call and you may now disconnect.
And.
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