Q2 2021 Murphy Usa Inc Earnings Call
It's 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 1095.
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.
<unk> 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 only GAAP.
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.
Thank you Christian good morning, and welcome to everyone joining us today.
We're very pleased with Q2 performance, which led to the second the strongest quarter in our history from a financial perspective.
Comping against outsized OPEC and Covid impacted results from last year.
At the end results were impressive this was by far the single most challenging quarter from an operations and execution perspective, we have ever faced as the company I'm very proud of our entire team as we overcame many signet.
<unk> obstacles to deliver the strong financial results make no mistake. These results from the outcome of the deliberate set of choices and intentional actions taken during the quarter that built on decisions and capabilities. We have developed since spin, which in turn helped us overcome these challenges and deliver bottom line results.
<unk> in the manner, you have come to expect as Murphy USA shareholders.
So rather than walk through operational highlights as I would normally do I want to take this opportunity to do something different as we reflect on the COVID-19 environment recognize and thank key contributors, including our field at home office heroes and communicate to you just.
How nimble and responsive our business can be when it comes to serving customers working with strategic partners supporting our employees.
And delivering for all our stakeholders.
The frame this conversation we created a top 10 list of some of the achievements. We think are most representative of the Murphy USA spirit.
The commitment and passion for our business.
Number 1 leading through merchandise supply chain disruptions.
We were certainly not the only retailer to face potentially disrupt the supply chain issues that our team was proactive went the extra mile to ensure we could continue serving our customers.
Let me give.
Examples 1 of the reasons, we were drawn the quick check was of shared culture on the work ethic and during the quarter of the team proved themselves as committed to their customers as we are to ours when faced with supply shortages that potentially impacted their prepared food offer the operations team filled the void to make sure product got from supplier.
<unk> of the stores, including renting trucks themselves to deliver fresh produce so they could keep serving customers that is what I call the amazing spirit and a commitment to customer service.
On the merchandise front some of our largest suppliers were disrupted due to raw material availability and workforce shortages, which resulted in reduced.
<unk> availability of certain items, our team had to go the extra mile to ensure our stores remain stocked keeping in constant contact with vendor partners, taking deliveries of product outside of normal operating hours adjusting the promotional calendar when appropriate and communicating updated plan of grant tactics to the stores.
Number 2 adapting to the ransomware attack on the colonial pipeline.
Low probability and almost unforeseeable outlier events continued to make headlines with the most recent being the ransomware attack on the colonial pipeline, where we are 1 of the largest shippers the event mirrored in many ways the major hurricane for which we are very.
Well prepared as we witnessed significant pre buying activity before outages began.
The event impacted nearly a third of our stores and resulted in widespread gasoline shortages across the southeastern United States.
Our supply chain with their capabilities experiences and assets was able to optimize routing.
Routing of fuel supply from other markets, while leveraging our fuel carrier partnerships and storage positions to help minimize operational impact as such total volume impact was minimal across the time horizon of the event.
Number 3 navigating continued driver shortages for fuel and merchandise logistics.
Very driver availability, which has been of material and contributing factor to broader fuel and merchandise supply chain challenges also impacted store operations. In this case, our scale and strategic relationships with fuel carriers helped to minimize the outages and rate increases on the field transport side.
From a broad.
<unk> perspective store operations were challenged as fewer deliveries translated the extra labor in effort to stock and display some direct distributed products further taxing store level employees.
Our renewed partnership with core Mark continued to pay dividends as they maintained excellent fill rates on core products and their new track My order.
Real time logistics technology allowed efficient use of store labor.
Despite the 3 externalities highlighted above we continue to press forward with major initiatives to drive improvements to position the business for the future.
Number 4 engaging customers and store associates through innovative tobacco.
Tobacco promotions.
By Comping against last year's record pantry loading results, we were pleased but not surprised to see tobacco sales and margins continue to grow favorably against the prior year quarter with showed material outperformance that some investors may have thought was transitory.
On a same.
Core basis, we grew tobacco sales slightly but margin dollars grew at a 2.2% rate in the second quarter versus 2020.
Meanwhile, the 2 year stack shows growth north of 20%, meaning we have maintained and grown tobacco contribution from existing customers and new customers that we were able to better serve.
Same store during the pandemic.
Through targeted category of investments in shelf space and fixtures, coupled with our scale and up selling ability and of course, the unique advantages of our Murphy drive rewards capabilities, we have become the retailer of choice for new product promotional activity in the broader tobacco category.
The distinction that enhances.
Our long term participation in the evolving category as manufacturers continue to support and promote alternative nicotine products as they did in Q2.
Our store employees know how to upsell products and having effective promotions is 1 way in which we keep them motivated and engaged.
They are incentivized to contest and bonus.
<unk>, which helped drive results on both the tobacco and non tobacco space.
In the normal environment, the ability to properly staff, our stores might not be of noteworthy event, but in our case. It was critical to executing effective promotions with our vendor partners, most notably in the tobacco space.
Number 5.
On the Sop resetting large format stores to achieve the return potential.
Our success from the tobacco space does not mean that we have taken our eye off the ball in the center of the store categories either.
To further our goal of optimizing return on capital employed after analyzing opportunities on our large format 2800 square foot store design.
<unk>, we implemented a reset across the group of pilot stores, resulting in increased merchandising space better product assortment more appealing lining packages and displays along with many other changes to help improve the customer experience and grow sales.
This follows the successful resets completed last year at our kiosk and small format stores as part of our overall.
The <unk> zero breakeven initiative as a result, we are seeing improvements across key categories, including salty snacks candy and alternative snack categories as well as our fresh food products and the grab and go open air coolers resets are being implemented across the large format stores further boosting their return potential as.
<unk> organic growth strategy.
Number 6 integrating the quick check acquisition.
We continue to execute and realize near term synergies from the quick check acquisition and we are well on pace to meet our year, 1 target of $5 million of run rate savings.
Quick wins to date include leveraging our existing.
As part of other reduce certain G&A insurance cost and vendor contracts developing and implementing fuel pricing playbooks across the entire quick check network to optimize fuel volume and margins and increasing the line of sight, the larger target synergies such as renegotiating fuel and merchandise supply agreements, we cannot be more pleased with quick checks performed.
Skips as many stores recorded all time record food sales the team is going above and beyond during these challenging times and alignment of the 2 cultures has created a highly collaborative environment to deliver additional opportunities. Our integration team has identified over 100 unique opportunities for consideration that could.
<unk> incremental value over time.
Despite the externalities faced during the quarter, we clearly didn't take our foot off the gas in terms of driving the business forward and the only way we can achieve both the result was due to the dedication and engagement of our team members, where we manage through the additional challenges.
Number.
Korea, managing critical labor and staffing shortages.
We were on.
Clearly not alone in facing labor and challenge.
Labor and staffing challenges as businesses of all shapes and sizes are feeling the impact of the reopening the economy combined with the myriad of competitive incentives and government disincentives.
We are proactive at our approach to address the problem and deliberate at our actions to ensure our customer facing services and sales oriented activities were not compromised.
We launched the hiring campaign, which attracted more than 50000 applicants in the second quarter and where appropriate the adjusted hours of operations in some stores from staffing.
Having challenges were most severe.
Further, we prioritize and communicate the critical functions and workflows to the field to ensure customer facing activities. We're not compromise, we happily and intentionally made tradeoffs to pay over time to engage workers at 1 of the hours to help provide a seamless the customer experience as possible.
In addition, we implemented a mix of seasonal rate increases on retention payments, which combined with higher commission from promotional selling activities helped to stabilize turnover and boost new hires while these actions did not completely offset the challenges we face they did help mitigate the pressure on our stores.
And the allowed us to continue winning with our customers as evidenced by the impressive merchandise results achieved despite store operating hours that were 2% below normal due to staffing shortages.
Number 8 leveraging our home office heroes.
In addition to the dedication of our store associates.
Our home office teams have worked diligently behind the scenes to help seamlessly incorporate the quick check family and assets in the Murphy USA I want to especially think of our accounting team for all of the late nights and weekends to close the books on 2 accounting systems and reconcile different reporting periods, our technology team for helping to quickly integrate.
C at collaboration tools and back office functionality.
Our Cayman resources team and the other hands full transitioning and Onboarding and the entire organization to become part of the Murphy USA and our contracts management team for accelerating the alignment of key contracts.
As of July 12 of our entire home office teams are 100%.
Sent back on the office, while we continue to explore ways to increase flexibility the staff I'm extremely proud of our entire company as we overcame a very difficult environment to deliver an outstanding quarter of financial results.
Number 9 taking employee engagement to the next level.
In the midst of an on top of everything going on we launched our biannual employment engagement survey at Murphy USA. Following quick check the annual survey of few months before.
While the pandemic has resulted in fewer companies conducting surveys and general declines in employee participation we achieved.
Participation levels than in 2019 and exceeded the benchmarks across our priority engagement focus areas, including 4 new items measuring inclusion and diversity.
High marks on questions around fairness trust and ability to effectively manage the diverse workforce. All suggests we are demonstrating our commitment.
Higher employee growth and well being the.
<unk> for everything we accomplished at the company in any environment as a function of the engagement and spirit of the team and my leadership team and I are extremely proud that we find our organization stronger and more engaged on the other side of these difficult times as always we will not be.
<unk> in this regard and we will actively listen to and incorporate feedback.
Can take our team's engagement to the next level.
And last number 10, believing in and investing in ourselves.
During the first half of 2021, we actively engaged investors and took every opportunity to.
The engage investor sentiment and perceptions.
Not only about Murphy USA, but also of the broader convenience sector.
A few key things emerged about relative investor preferences that we're best summed up with 1 of investors comment to us.
There is little appetite for high quality defense of stocks with.
The complete lower quality cyclical companies leveraged to the recovery that are more attractive to short term investors.
While I believe we are much more than a defensive stock as the quarter demonstrated I certainly believe Murphy USA is on high quality score.
Knowing 1 can't fight the tape the repurchase.
Purchased the $148 million worth of stock in the second quarter, which represents our conviction of the future potential of the business. This investment is not merely an outlet for free cash flow as we balance our repurchase decisions against the capital needs of the company invest where we think it will benefit our shareholders. The most over the long.
Long term.
This decision was made easier for us during the quarter of Investor uncertainty. Despite strong operating and financial performance has led to what we believe is a continued disconnect in our stock price.
Of this uncertainty persist against the favorable backdrop of structurally higher fuel margins of continued robust outlook.
Outlook for new store growth and long term synergy capture and value embedded in the quick Tech acquisition.
We cannot be more confident about our future and our ability to execute for all our stakeholders.
From the resiliency of our business model and agility of our leaders to respond to disruption to the relentless pursuit to achieve the full.
Full potential of our growing business through the actions of an engaged and never complacent team I could not be more proud of the overall results this quarter.
Hope this narrative provides you with additional and helpful color on how we believe the quarter should be defined.
Going to turn the call over to amend the now and then provide some color on our revised guidance metrics.
Before opening up the call the Q&A Mindy, Thanks, Andrea and good morning, everyone I'm just going to review some standard items quickly total revenue for the second quarter 2021 was $4.5 billion, which includes the whole quarter of quick check contribution versus the first quarter of this year when our financial results only reflect.
Selected business post close which meant January the 29th through the March the 31.
Second quarter revenue was higher than $2.4 billion a year ago, which did not include quick check and also reflects lower gasoline prices. The average retail gasoline prices per gallon during the quarter or $2.70.
<unk> versus $1.71.
In 2020.
Adjusted earnings before interest taxes, depreciation and amortization or EBITA was $244.5 million on the first quarter versus $274.2 million in the same period in 2020 net income.
On the second quarter was $128.8 million versus $168.9 million in 2020.
Total debt on the balance sheet as of June the 32021 was approximately $1.8 billion.
Okay now as follows.
We have long term debt of around $1.794.
And Additionally, approximately $12 million is captured in current liabilities, representing 1% per annum amortization of the term loan and the remainder of reduction in long term lease obligations as they are paid through operating expense.
Our $350 million revolving credit facility had a zero.
<unk> 4 billion in balance as of June 30, and is still currently undrawn.
These figures result, and a growth adjusted leverage ratio, we report to our lenders of approximately 2.6 times and cash on cash equivalents totaled $165 million as of June the 30th.
Capital expenditures for the second.
Out sort of where approximately 89 million $22 million of which was attributable to quick check the majority of the second quarter of Capex was growth capital allocated to new store construction.
Thank you everyone I will now turn the call back over to Andrew Thanks, Mindy before I open up the call. The Q&A, we wanted to provide an update on our app.
Annual guidance for 2021, reflecting first half results and expected performance from the second half of 2021, given the increased line of sight at some key metrics.
Starting with organic growth of our plan was the construct of the <unk> the industry stores in 2021, including about 5 quick check stores, however supply chain limitations primarily.
Quarterly around the protective coating resin for underground fuel storage tanks has created delays on our build schedule. We are pushing more of 2021 stores into 2022 with the Cascade continuing into 2023.
So for 2021, we are now anticipating about 30, New Murphy Express stores.
Primarily at new quick check stores, along with 31, raze and rebuild of projects.
In 2022 early indications for build class of $50 to 55, the Murphy Express stores and 6 to 8 new quick check stores.
In addition to 25 raze and rebuild projects.
Beyond 2022, we were staffed.
<unk> and maintain of real estate pipeline capable of adding approximately 55 to 60, new stores per year, including quick check.
From a capital spending perspective, we are maintaining activity levels throughout the forecast period and the total capital spend will not be reduced commensurately with the MPI activity.
We.
For 2021, Ntis with more raze and rebuilds and initiate 2022 build class activity sooner than normal the.
The result will be more ratable store openings across the 4 calendar quarters next year as we work to catch up on new store activity into 2023.
As such our combined capital budget.
Which prioritizes organic growth the new stores was originally forecasted in the range of $325 million to $375 million, which includes the range of $275 million to $325 million for Murphy and up to $50 million for quick check while we expect to remain in this range, we were more likely to fall at or below the.
Back to the point versus the upper end.
Moving on the fuel contribution we originally provided per store volume guidance of 245 million to 255000 gallons on an EPS basis as volumes nationally and regionally has not come back as fast as we anticipated we are now projecting volumes.
<unk> between 232 and 238000.
<unk>.
We fully expect to see higher structural fuel margins offsetting lower industry volumes to which Murphy USA maintains <unk> leverage.
Our merchandise business continues to perform and we are tightening our range towards the high end.
The end of original guidance to between $690 million of $700 million.
And this increase comes despite some of the headwinds we mentioned earlier on the call.
On the Opex side as our average format size continues to grow we expected our per store cost metrics to increase both from new 2800 square foot stores.
The rebuilds, which turn of higher performing kiosk into 1500 square foot store.
When combined with the larger format quick check stores. Our original guidance was the range of 27% to 28000 per store month in 2021.
While cost control remains the central focus of our strategy of the labor market supply government sponsored.
And raised over the relief programs and inflationary pressures from a recovering economy have created widespread employment issues not just for Murphy USA and R. C store competitors.
The impacts have been felt more broadly across retail sectors.
As mentioned our priority has been to reward our employees, who are committed to us through over time content.
Answering the incentives and commission based adjustments in addition to select market wage adjustments to invest in our people and maintain our sales growth trajectory.
As a result of these actions we are experiencing higher than normal pressure on our store level operating expenses, which in turn impact benefit and other employee expense items.
While.
<unk> the impact is not yet made their way into our financial results in the first half of the year. We expect the second half to reflect more labor pressures, resulting in an updated guidance of 28 to 29000 per store month.
When we compare these pressures to the typical competitor in our sector.
Has larger average rosters and lower.
While some of those in volume throughput, we believe that not only will our relative cost impact the less than theirs, but we actually staying stand to gain to the extent, they're higher relative cost continued to be pass through in the form of higher fuel prices and margins.
Our SG&A expense remains.
And the range of $190 million to $200 million as we continue to invest in critical it projects and personnel to help support corporate priorities, including the quick check integration and drive long term efficiencies of new capabilities.
Effective tax rates are unchanged and expected to remain in the 24% to 26%.
Range.
Annually, we have provided an approximate EBITDA outcome as a function of a representative all in fuel margin to serve as the marker for modeling purposes and to help illustrate the earnings potential of the business. While we are not updating the prior modeling estimate for 2021, we continued.
1 of the positions at all in fuel margins are likely to attain of new hire equilibrium in 2021 and beyond and we've certainly seen that point of view supported by first half all end fuel margins, which averaged $25.05 per gallon and what would generally be characterized as a more.
The Holt rising price environment.
On July volumes are running at 93% of 2019 levels at retail margins North of 21 per gallon. Thus combined with the first half results already booked we certainly expect full year results to eclipse our prior modeling estimates.
Net.
With that we will now open up the lines for our Q&A operator.
Thank you as a reminder to ask the question you will need the press tier 1 on the telephone Covid you of your question first the bounty please standby will be compile the Q&A roster.
The first question.
Different from the line of Bonnie Herzog from Goldman Sachs. Your line is now open you may ask the question.
Yes. Thanks, so much of it is actually our Sam right pitch hitting in for Bonnie.
The 2 just quickly touch on the merchandize margins in Q2 on recognize they were very strong, but maybe could you give us a little bit of a sense and perhaps quantify how much of the lift.
Specifically at came from quick check of higher margin business versus maybe just strength of cross share core boost Fitbit, Inc.
Yes, so I mean, the total contribution.
Margin dollars.
Yeah.
A strong mix of all of the above I mean, if you think about our tobacco.
Category, we continued to grow that.
Non tobacco on the Murphy side continued to grow as.
On a general merchandise from pandemic related.
Items, PPE et cetera was offset by new innovation and items of the fresh food and beverages that was.
<unk> turned off for.
Much of the prior period at the Murphy stores.
In the prior year.
Came back.
I mean, a lot of the absolute incremental growth year over year in the quarter was quick check because it wasn't reported in the prior period and we havent broken out those.
Separately, but what I would say for their businesses. They have well established stores that are achieving record.
Food sales.
Highest ever at <unk>.
Average categories continue to rebound what's been interesting is looking at the day parts, where some of the.
Early morning Coffee day part.
Still recovering.
The late evening day part for smoothies and other beverages through some of the delivery apps continues to grow and so we're seeing offset the different day parts different products on likely different customer segments.
Number so I would say CIS of strong healthy mix across both.
Both brands and all of the categories.
Thanks, So much Andrew that's really helpful. On let me just pick up just with 1.1 follow up here specifically on some of the pressures you guys are seeing on the employee side, especially as it relates to your store hours.
And that was something you touched on in the prepared remarks, there specific day part that's being impacted here of the most and is there risk at some of the.
The reductions in hours might need to be permanent at some of these labor pressures per se.
Yes, so I mean, we're generally looking throughout the year multiple.
Multiple times at.
The first 2 hours in the last 2 hours of the day, both to determine do we need to increase store opening hours, which we do seasonally.
Or reduce them based on different traffic patterns profitability.
And we also look at security.
Concerns as.
Well around the stores.
In our view the.
The labor.
The shortage should not persist at just a matter of when.
Non.
We will resume normal.
Operating hours as soon as there were in a position to do that.
I think thats actually what makes the quarter. So impressive I mean, despite these challenges despite 2% reduction in operating hours, we still achieved these results.
When we turn those hours back on we further.
The C incremental benefits come from that.
During the <unk>.
Pandemic last year, we didnt.
Increase the opening hours seasonally like we would normally have done and so I think thats 1 of the things customers have probably gotten used to is that some stores just arent going to be open as late as they were we fully expect.
To be able to optimize those hours when the.
Shortages in labor challenges I get some relief.
Awesome. Thanks, so much Andrew I really appreciate it I'll pass it on.
Thank you.
Thank you next question comes from the line of Bobby Burleson. Your line is now open you may ask your question.
Good morning, everybody. Thanks for taking my questions, Andrew I guess I wanted to first talk on maybe at a little bit high level subject, but we've talked from the path of abacus.
<unk> Abraham of fuel and you guys are really counting the results first 6 months as well as the July comments.
We were in a rising oil environment and that Hasnt changed at either so.
The industry very well, but have you to think kind of on your crystal ball.
What do you think would have to happen for that new equilibrium to go away.
And go back to maybe I think it was I think you'd have to have highly irrational.
Competitors end.
To be able to do that I mean I.
I think in the current environment, where volumes are still.
Pressured.
C of more rational behavior.
On the point on noted about labor is a really important 1 right. We're experiencing the same challenges as everyone else, but we have of smaller average roster.
But at the same time, we have higher throughput and merchandise and volume throughput.
So on a cents per gallon basis.
Even if you saw.
The trends continue.
Of our impact is about.
Half of sent to a penny.
<unk>.
In some of the worst case scenarios, we've modeled where the impact for the third or fourth quartile Max retailer is 4 to 5 cents per gallon.
So the economic pressure that the typical retailer is under is going to have to be made up somewhat.
Yeah.
Right and Theres only a few categories that have the.
The pricing power and the ability the pushed through.
And fuel price is 1 of those.
What I would also say is that.
On.
<unk>.
Of the retail.
<unk> continue to develop the food and beverage offer, especially some of the loans life quick check et cetera, food and beverage is the path to purchase for the overall store right and so they are able to bring in and we're able to bring in the <unk> stores customers..2 of those offers and so you don't have to be as aggressive.
On.
On the fuel side to drive traffic and so I think there is just a combination of just.
Market conditions structural conditions that just position Murphy USA.
In an incredibly strong outsize leveraged way to this environment and.
If.
If you had asked me would you ever see 25, and a half cent all in margins and 1 of the largest rising price environments, we've ever seen I would've had to save the world turned upside down well guess, what the world has turned upside down.
But the.
Pockets of the marginal.
The retailers aren't being emptied out there just continuing to push the prices higher.
The which were a benefit and if you are talking $1 <unk> per gallon.
The immaterial from a consumer perspective, when you've seen prices rise 70, 80, 90 because of higher oil prices.
And other factors.
That's not a crystal ball that shifts the analysis that we've done but I think there is a lot of market dynamics competitive dynamics that support this view.
And I think others are starting to echo at as well and certainly showing up in <unk>.
Results.
Barry what the.
The normally be a very challenging environment.
Okay. That's very helpful. It seems like you guys are on a great cash sweet spot in this type of operating environment, maybe just 2 quick ones from me and then I'll turn it back over but.
For the store operating hours do you expect to get those back to maybe normal levels for the second half.
Or is that of headwind that you think will persist for the rest of 2021.
So I would hope by the.
The fall and winter, we're back to the normal fall and winter hours, we would typically raise our hours during the summer.
A lot of the stores.
And at those.
Higher summer hours now in the stores, we've had to do this at are the ones that had the most severe.
Labor shortages and so that's just going to be a function of.
Of those markets the competitive dynamics, there the employee incentives or disincentives.
That may be in place there so.
It's going to be market by market, but I would certainly hope by the by the fall on an average basis, we're back to that back to that point.
But if not we'll continue to maximize the merchandise sales.
With the.
The hours and.
On the staff that we have as we did this quarter.
Okay, sorry about interrupt the net.
Lastly from me just on the raze and rebuilds, we've talked about this 1 of the inform the path, but they continue to perform extremely well can you just remind us how.
How many more years do you see in your rate and rebuild opportunity at the current paid at that Youre.
Okay.
I mean at 25 stores a year I mean, we're doing this for many many many years in to the future.
There are certainly opportunities to accelerate that if we wanted to.
There's also the nice cadence that.
When you've got 30.25, you can accelerate.
Doing on 1 like we did the maintaining the capital spending it's really helpful for R.
Modular manufacturer of building.
The partner and contractors as well to have a steady cadence and so if we were to step up to a higher level, we would need to adjust the entire supply.
Supply chain to do that so we feel good with that cadence, but it's certainly a near term lever we can flex.
Certainly there are some locations, where we would need additional land.
From Walmart to be able to do that and that could be.
And the opportunity to accelerate.
The rate those and certainly we see of benefit when they make improvements of their big Super centers and I know they see of benefit when they get a shiny new Murphy USA in front of their supercenter.
As part of the overall attractive everyday low price offer the customer so a number of factors there that could impact that over the long run.
I appreciate the details on all of the best of luck here in the second half of the here.
Great. Thanks, Bobby.
Thank you. The next question comes from the line of John Baugh of Jpmorgan. Your line is now open you may ask your question.
Okay.
Hi, Good morning, guys. Thanks for taking my question.
You kind of the second quarter of the ROE now.
Really strong period from W. West Marine's margin another quarter, where we saw rising commodity pricing is there anything to call out.
Other than the price effects of the net margin in <unk> and then on absolutely Adrian.
On the pricing.
Going forward should we expect the margin.
Well I think back half of the year.
Yes. So you are right we saw once again.
A rising price environment, which impacts the uncontrollable as we call at part of that <unk> margin, which is very favorable.
We also had deeply negative supply.
Margin.
That were offset by the Rins.
Of covering the refiners, which I know you do they had.
Pretty strong.
Finery crack spreads at over $21 in so theyre, capturing the benefit of the refinery gate.
Of that RIN price so I.
I don't think the.
The normal this tilt at office access in terms of how the normal market expects to work.
In this dynamic.
Normally you would expect this second half of the year of C. Following price.
The environment in which case the retail margins higher.
The uncontrollable or the.
Accounting timing trading variance.
Go negative.
So you would see the net <unk> plus rins.
To be kind of below the 2.5% of <unk> that we would normally.
Expect.
And so I think when we get to the end of the year.
The World, we've had a big falling price environment.
You'd likely see us get back on a.
The normal amount on an annualized basis, and certainly as we think about 2022 and beyond.
Not projecting <unk>, where products supply plus rins were projecting 2.5% of <unk>.
As has been the historical norm, but.
But we do think the retail part of that margin.
Has and will remain elevated for all of the reasons we've discussed.
And of course, it will fluctuate.
Rising and falling environment offset by the.
<unk> component.
That's very helpful. Thank you and then.
I know you are in very early innings on the quick check reverse synergies, we shouldnt really affect any tangible progress of it's early but can you just go through any type of work that's going on at this stage in terms of the longer term goal of implementing quick check food offerings VP.
The stores.
And how do you expect growth opportunities progressing over the next couple of years.
Sure. So I think the stage, we're in right now at sort of the broader.
The strategy diagnostic around what is the opportunity.
To do that and at the same time the.
<unk> team continues to optimize the food and Bev beverage offer.
Within the Murphy stores, which you see through the roller grill promotions.
That we're doing the.
The enhanced open there.
<unk>.
Cooler offering that we had in place et cetera.
And so if you think about the.
The platforms that quick check has I mean, they have a made to order model and a kitchen in the stores, which we will never have in R 2800 square foot.
The stores. So the question is for our coffee program.
How do we want the best deliver that at a best practice level to our customers today, we do being the cost.
Because of the freshness on the efficiency associated with that but we are nowhere near the condom and assortment of our president.
Patients that quick check has to make that offer.
Attractive if you look at the open air coolers in the fresh offer they have their delivered through PFG, it's a significantly more enhanced offer.
Then what we have we could have quick check sandwiches recipe salads to go at set.
Cetera may.
Made by PMT to go into our open air coolers relative to the.
Higher quality core Mark products that we've just implemented as part of the optimization program.
We have lower grills today, but a quick check doesn't have roller grill, so theres a whole.
The <unk> type questions.
Forms the to deliver the offer of the Murphy customers within our stores given those.
On the space considerations.
The acute to be great versus just average at the platform.
Set of our desire to be.
At.
I think thats, where theres a lot of learning just around food and beverage handling process side the metrics.
BRIC side, the daily reporting side around weight spoilage the production planning those are things.
We've already learned.
<unk> and begun to implement.
On that within our store so as we've talked about.
Of the quick check.
Yeah.
Our platforms offer et cetera end of the Murphy stores.
It's really how do you think about food and beverage in the context of our store as I've said.
Before quick check is the <unk> right with over 50% of their merchandise sales being food and beverage. They are of high performing <unk> brand right at that happens to have convenience items I'll end by the way has fuel at half of their stores and so we're not going to turn on Murphy express into acute ISR, but we.
We can learn a lot about food and beverage from that capability.
It's very helpful. Thank you very much.
Thank you next question comes from the line of Ben Yang.
Your line is now open.
Lots of question.
Hey, Thank you good morning.
Morning, Vince.
I wanted to piggyback on Jon's question. There you talked about the year to date all in fuel margins. You also talked about how this rising price environment has benefited.
The <unk>.
You may even contribution.
Okay.
Cyclical factor to the detriment of the retail margins.
How indicative of the do you think the all in on fuel margin at year to date of the go forward and.
Of note there are variables that feed into that can change.
Thanks, a ton of single variable equation.
But.
When you think relative to the start of the year about where the equilibrium would be on fuel margins.
Versus now.
I'm curious to hear kind of.
How youre thinking.
Thinking about things.
And then I think its I think its something Thats, just kind of continue to evolve and so if you think about just the retail component of it and I'll break that apart because of it.
We measure of that from say the opus low.
Yes history, and you think about the typical average retailer of third quarter retail.
Getting their branded price to the.
To the street.
If that setting kind of the ceiling in the marketplace, what's driving that.
The year ago at was fuel volumes cut in half and then they went from 50% of 60% of 70% to 80% to 90% of <unk>.
Well look I don't know exactly what the.
International number is but most reports would say its still below 10% and so if you think about their fuel breakeven cash margin requirement of maintained their profitability.
On that component is still depressed, even though it's not as depressed as it was a year ago.
But a lot of.
A lot of happened in last year right now, we're not only experiencing.
Labour challenges, but the inflationary pricing associated with that labor higher prices on credit card fees.
Higher fuel transport costs.
The nurse breakeven another.
345 cents.
And so.
So with the Delta variant and potential restrictions coming back end employees taking different.
Rates on that coming out of the.
The Cape Summer driving.
In season don't know, what's going to happen around back to school on Theres, a whole lot of variables out there but.
I would encourage everyone to think about it in terms of the breakeven formula.
How are the relative sales going to do what.
The assume relative cost structure of how is it going to be impacted what is the relative volume performance look like.
So I think that that sort of market margin setting retailer is going to continue to feel ongoing pressure on all 3 of those fronts.
And if there is anything this environment.
Is there should help inform investors about Murphy USA is worth.
We are continuing to sustain and grow share gains in key categories line is rebounding our cost structure is lower and is not being as nations and contest in the like the keep employees engage.
<unk>.
And our field volumes recovering faster.
And youre not talked at stores get at but if we're on the far left hand side.
And the price setting mechanisms of the far right hand side and it gets steeper and steeper and steeper we're going to benefit all of a crystal ball to tell you what.
Just kind of happened the macro demand.
<unk> or labor or whatever but I do.
Believe and understand that the components that make up the margin setting price setting mechanism. In this market are going to continue to favor us with outsized leverage.
And if we can achieve that.
Fairmount <unk>.
I imagine.
Men can do in a falling price environment.
And the <unk> piece of it just going to offset some of that the retail marginally higher in the falling price environment will give us 2 or 3 of 4 cents on the <unk> side at the end of year, we'll be back talking about <unk>, maybe we saw loss of more rooms in Q1 and Q2 at a higher price.
What net balance fluctuates, a little but thats really not going to be of material <unk>.
Number at the end of the day.
And so I think it's going to be that fundamental and as long as investors continue to say hate structurally we're not sure about this than I would argue structurally they either don't understand at or 2 they believe.
Nice and competitive dynamic is going to change and if it does in the margin crash and burn youre going to see a large proportion of retailers in this business go out of business in which case there is an opportunity for those remaining.
Okay fair enough.
I wanted to ask about your.
<unk> expenses, you quantified at on a kind of cents per gallon relative impact versus the industry.
Given the noise at from the contribution of quick check from the model.
Positive on the merchandise side negative on operating expense side.
How should we think about.
The steady same store sales operating expense growth in your business in this environment.
So I think we're going to address that as we think about our coverage ratio.
Going forward fuel breakeven was kind of the key metric that we had.
We get the zero.
1 we've achieved the goal to the metric as weird as volumes grow the metric gets worse and so the.
The way, we're thinking about at across all of our categories is.
What is the relative.
Growth of sales and margin.
And the contribution for the categories and what is the incremental labor and other costs associated with achieving that and that's really what we're going to monitor closely and so for the quick check business. We can look at that very easily around the food and beverage side because.
<unk> got the food and beverage leader.
<unk> current their team the C store leader on their team and the attendant fuel associates.
To be able to monitor that and so we haven't put forward at the same store.
The target around that or an operating cost target, but at what I would expect to see is that coverage ratio of merchandise margin.
<unk> the operating cost.
The continued to expand over time.
And 1 of the things that we will be sharing of how does that metric compared our fuel breakeven metric.
And it was.
It was stubbornly well below 90% for years up to the spin and is consistently.
<unk> grown well over 110, 120%.
Over the last few years. So I think that's often been the challenge for those implementing food and beverage in the C store sector as they raised cost at a rate greater than they are adding contribution margin.
Jen objective will be the continued to expand contribution margin by category.
And the coverage ratio of by category Okay.
Okay very good thanks very much.
Thank you and next question comes from the line of Matt Fishbein from Jefferies. Your line is now open you may ask the question.
Our on boarding thanks for the question.
On the the labor side of things Yeah. Appreciate it at those examples on how the team executed through the quarter, it's very easy for US here on the call. It has seen the release and say Wow this quarter looks great Nick sell but it's amazing to hear the specific stories about the work that led into Q2 results at the whole team from.
From the start of corporate should be very proud.
And as we think about the the Murphy USA at check operating.
Environments in different parts of the country against different competitor sets.
And <unk> team members from different cost of living and perhaps even different personal priorities given that geographic difference.
Are there any key teaching the legacy Murphy team has learned from the checker or vice versa on how to combat.
Industry, but really sector wide phenomenon.
Yes, I would say we've learned a lot about each other and what we found is what we.
Earned early in the day.
Is that the culture and work ethic and commitment of the home office team to the store associates in the store associate and team members to the customers.
It's just truly exceptional.
Of the.
They go about at the quick check that was about it.
On a different way in terms of.
The the fresh food.
The offer as.
It's.
Distinctive portion of its brand relative to how the Murphy team goes about it.
But the.
The stories of district leaders renting trucks going to produce the.
<unk> and making sure stores had what they needed to make sandwiches.
It's frankly, no different than our district managers at.
At Murphy.
Instead of doing their work for excellent scorecard is helping the.
Store associates on low deliveries taken out.
Of the trash clean the pumps do whatever it takes and so.
I think this is where M&A.
The.
It can be difficult for firms or it can just be really fulfilling and rewarding. If you find a partner in that process that has the same culture at.
And work ethic and fundamental beliefs about what it takes to be successful in excellent in this business.
Then you can be opened and collaborate and move the business forward. So what I would say is what we learned most is that were more similar.
Then different and our commitment and that is.
Open the pathway to the 100 ideas that are reference that the integration team has identified and <unk>.
Quarter of those are already in the bag as quick wins are near term things that we could just get on with some of them are going to be more difficult like how do we think about integrating accounting systems.
Just at.
And the like but it's a highly collaborative appreciative of the environment.
Okay I appreciate that at that perspective at <unk>.
Just a follow up follow up on Doubleclick on on merchandise trends first can you provide any general directional quarter data update on.
On what Youre seeing.
And second on the $10 million increase from the bottom of the total merchandise contribution guidance by my math.
To be fair as an over simplification, just taking where the 2 months of quick check were tracking last quarter.
Versus the prior full year quick check.
Contribution expectation.
Quick check food and beverage sales, perhaps rebounded faster.
The anticipated should we be thinking about that potential rebound as a function of the reopening the economy and quick checks higher exposure of away from home food and beverage or was this mostly a market share gain given that extraordinary.
We of execution by 2 months of this quarter.
Yes, it's hard to say is at market share gain versus.
Kind of the rebound.
The recovery versus just ongoing.
<unk> because unlike some of the fuel and tobacco.
We don't have is.
The.
Rent readily available data.
On that side, so it's probably some mix of.
All of the above on that side.
Have quarter to date.
Numbers the share like we did on the fuel volume, but I would say the trends are.
Continuing theres a strong environment around the certainty.
Promotional category on the other hand with some of the material raw material shortages, we're having to adjust the promotional Cal.
Calendar on some.
Other items, but.
Yeah.
If we think about kind of the Murphy USA stores, 93% fuel volume relative to 2019 that path to purchase coupled with the tobacco share gains as the good indicator of the foot traffic and similarly on the quick check stores.
Food and beverage is the traffic driver at those stores.
At coming back.
It was also a good indication of foot traffic. So I, just think with the economy reopening in those stores.
All running at a really high level. Despite a few operating hour adjustments I think at just bodes well from the second half half of the year.
Stores.
And I think it goes back to that employee engagement I am not sure every retailer out there.
As of having that same benefit and so I think it's the real distinctive advantage on this marketplace and it's something customers can see and feel as well.
Perfect. Thank.
<unk> I'm not sure I'll pass it on.
Thank you there are no. Other question at this time discontinued the Sanjay.
Great well, thank you all for joining today.
We don't normally do of top 10 lists but I just felt that with such exceptional results in this quarter. It was.
Just more helpful to just let you know just how challenging it was but what these incredible team members did to overcome those challenges to deliver the results. So I hope you appreciate at the narrative and we'll look forward to the next call. Thank you very much.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you also participating you may now disconnect.
Okay.
Sure.
Sure.
Okay.
Okay.
True.
Okay.
Thank you.
Okay.