Q4 2022 Murphy Usa Inc Earnings Call
And gentlemen, thank you for standing by my name is Brent and I will be your conference operator today.
I would like to welcome everyone to the Murphy USA fourth quarter 2022 earnings Conference call.
Lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
He would like to ask a question at that time simply press star followed by the number one on your telephone keypad. If he would like to withdraw your question again press Star one.
It is now my pleasure to turn today's call over to Mr. Christian Pikul. Sir. Please go ahead.
Hey, Thank you Brian Good morning, everyone with me today 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 including a discussion of our 2023 annual guidance Mindy will provide an overview of the financial results. After a few closing comments from Andrew We will 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 nine.
95, 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 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.
Andrew.
Thank you Christian good morning, and welcome to everyone joining us today.
In reviewing the Companys outstanding 2022 results and preparing for this call I was really struck by how last year's performance reflected so many of the improvements we have made to the business since our spin in 2013.
These results reflect a lot of hard work over the past decade.
<unk> against the key elements of the strategies, we established a spin to create a sustainable and advantaged business.
We prioritized organic growth, adding over 500 stores to the network since 2012, we improved store productivity optimizing cost while improving per store merchandise contribution.
In addition to substantially reducing our fuel breakeven metric, we enhanced employee engagement and customer satisfaction, a trifecta any retailer would be especially proud of.
These actions improved our already low cost position on the industry supply curve, while our relative advantaged increased further as cost for the broader industry Roes.
We also leveraged our fuel infrastructure assets and capabilities to lower our supply cost and maximize our fuel contribution dollars through our retail pricing excellence campaign.
Other significant capability investments like Murphy drive rewards further heightened our advantage and differentiated positioning with customers and consumers on our core merchandise offer while the quick check acquisition significantly enhanced our food and beverage capabilities, while introducing a new advantage format for <unk>.
Growth.
Perhaps the most telling statistic reflects our commitment to disciplined capital allocation.
As a result of our balanced 50, 50 capital allocation strategy showcasing steady unit growth with a consistent and opportunistic share repurchase we have grown our store count by nearly 50% and repurchased more than 50% of our original shares outstanding.
We are proud of these milestone achievements that created significant shareholder value for our long term investors.
These investments coupled with our relentless focus on operational excellence helped lay the groundwork for the company's outstanding 2022 results.
Accordingly, 2022 performance wasn't just about fuel margins, we leveraged our scale and overall cost advantage, including the benefits from <unk> and a tight supply market to grow per store volumes and gain market share.
We also leveraged Murphy drive rewards to generate continued tobacco outperformance that also led to share gains, which along with stronger fuel traffic helped to grow non tobacco categories.
We grew student beverage contribution by $9 million growing legacy Murphy contribution by nearly 50% to $8 million with.
We extracted further synergy from quick check, making excellent progress on our integration as our internal focus transitions in 2023, the enterprise wide initiatives that will benefit the combined network.
We've been very pleased with <unk> performance and are equally excited about the future opportunities we see across both brands.
Looking at Opex.
We took substantial cost out of the business, leading up to Covid and while we are certainly not immune to the wider inflationary pressures on the industry are advantaged format and low cost position afforded us the opportunity in 2020 to allocate incentives and employee appreciation programs without.
Permanently impacting our cost structure.
This program helped to financially reward our employees and drive store level engagement, which resulted in strong merchandise sales and higher customer satisfaction.
In closing out for 2022 performance discussion, it's clear to us that our financial and operational results for the product of intentional actions, we have taken as a management team.
Our relentless efforts to improve the business have positioned us at the right place at the right time with the right capabilities and with the right team in place to extract the most value from the opportunity the market provided in 2022.
At a time when affordable affordability matters more to more people Murphy USA is also very well positioned for the future.
Looking out over the next decade, we are poised to continue delivering results and making investments that we believe better prepare the company to compete and win in 2023 and beyond.
First we are preparing for more new store growth building better stores and strong markets looking at the network plan in 10 years, we would anticipate at least another 500 high performing stores, providing material contributions to the future earnings potential of the company.
That is in addition to ongoing efforts to improve the current network through our raze and rebuild program and other investments.
Second we will remain focused on improving same store productivity, increasing efficiency across all aspects of the business and maintaining an ultra low cost structure, which supports our everyday low price strategy.
Third we are embarking on a comprehensive set of new investments that will help extend and ultimately widen our competitive advantage in the industry.
First of these digital transformation will help evolve the reach and effectiveness of our Murphy drive rewards loyalty platform.
<unk> customer shopping habits to customize more impactful offers at scale and trigger point of sell up selling opportunities.
In addition to customer facing opportunities transaction data will help inform pricing and assortment optimization at the local and store level.
These learnings and capabilities will inform a redesign of the quick check loyalty program to increase brand awareness and attract new customers.
These are just a few early examples of what we look to deliver from our digital transformation campaign.
Another new campaign in store experience involves a comprehensive redesign of the inside of new and existing Murphy stores leveraging critical insights from consumer research quick check student beverage expertise and analysis of sub category performance.
This effort goes beyond routine category resets for resets represents a fundamentally different experience for our customer that will better showcase the breadth and accessibility of our product offerings and drive higher in store sales.
In turn we will take full advantage of these combined learnings and synergies in the imagination and design of our store of the future, which we expect will enhance new store performance and returns over the next decade.
Importantly, these initiatives go beyond technology and capital investments, but involve investments investments in people with new skills and experience sets in the home office as we build new muscles in data science and data analysis.
Like prior capability building investments such as MTR retail pricing in our zero breakeven campaigns success wasn't realized overnight.
But as we have seen from our 2022 results. The tangible benefits, we realize were achieved from seeds planted in prior years.
Similarly, we expect these new investments to deliver significant tangible benefits in the coming years.
With that context in mind, let me take you through the elements of our 2023 guidance.
Starting with organic growth, which remains the centerpiece of our growth strategy. We completed a total of 36 new stores in 2022, including two quick check stores and completed 32, raze and rebuilds a notable improvement compared to the 23 new stores opened in 2021.
While new store additions fell short of our internal target of 45, new stores, we were able to backfill with a few more raze and rebuilds and enter 2023 with nine stores scheduled to open in the first quarter.
Putting new stores into service remains challenging from sourcing electric panels and concrete to local delays and hooking up to permanent power.
Nonetheless, we maintained a robust inventory of high quality, new store locations and expect 2023 activity to eclipse that of 2022.
As such our guidance remains up to 45, new store additions and up to 30 raze and rebuilds.
Moving on to fuel contribution we are pleased to report 2022 average per store month fuel volumes were in line with the high end of guidance just under 245000 Aps Sam.
Representing 7% growth versus 2021, as our everyday low price value proposition attracted more customers to our stores.
Looking ahead, we don't expect the same level of market share gains in 2023, given we are not expecting a once in every six to eight years Mega price drop in our forecast, but we do expect to hold on to many of the new customers that came to our stores looking for value.
As a result, we are forecasting a slightly tighter range of volume guidance between 240, and 245000 gallons per store month in 2023.
Looking at store profitability, we delivered $767 million of merchandise margin in 2022 above the guided range of $740 million to $760 million due to strong performance from categories attached to fuel that benefited from higher customer traffic and a highly <unk>.
Impactful promotional events in the tobacco category.
In 2023, we expect to continue to take share and deliver growth for merchandising initiatives driving contribution dollars to a range between 795% and $815 million or an increase of about 5% at the midpoint.
This growth is primarily attributable to increases in the non tobacco merchandise and continued growth in food and beverage categories.
Operating expenses, excluding payment fees and rent came in at 31, 7000, a PSM and 2022 within our adjusted guided range of 31, 5% to $32 five PSM, which included the impact of our way pay supplemental incentive program.
<unk>, we've provided our employees over the summer of 2022.
While many of the factors impacting opex growth in 2022 will persist into 2023, including labor and service cost inflation, which are stickier in nature not all of last year's cost increases are built into our structural base.
As a result, we expect a range of two 6% to seven 4% increase in operating expenses, excluding credit card fees and rent or 32, 5% to 34000 on a per store month basis.
This forecast does not assume a repeat of the special incentive program, we implemented in 2022.
For corporate costs general and administrative expense adjusted for the $25 million contribution to the Murphy USA charitable Foundation was 208 million within the guided range of $200 million to $210 million.
2023 guidance of $235 million to $245 million reflects the aforementioned investments in people and technology around digital transformation and in store experience. In addition to higher planned cost to extend the richer package a bit retirement benefits deeper into the organizations as we sunset.
Quick check retirement programs and fold them into Murphy USA.
Similar to the early stages of developing and launching Murphy drive rewards, which laid the groundwork for significantly improved long term performance from our merchandising business. These new investments come with significant upfront costs, but they are critical to maintaining our competitive advantage in the marketplace and further monetizing the benefits of our advantaged.
Model over the next decade.
At this time I will hand, it over to many to cover the capital allocation portion of the guidance along with her normal review of our financial component of our results.
Thank you Andrew and good morning, everyone I'll begin with Capex, which for the fourth quarter and full year was $82 million and $306 million respectively. At the low end of the adjusted guided range of $300 million to $350 million, primarily due to the new store delays and also timing around certain.
Projects and ongoing improvement in net debt.
Looking into 2023.
Given our higher level of expected new store and raze and rebuild activities coupled with investments in some of our transformational campaigns. We expect total spending to be in a range of $375 million to $425 million.
Turning to financial results revenue for the fourth quarter and full year 2022 was $5 4 billion and $23 4 billion, respectively compared to $4 8 billion and $17 4 billion in the year ago period.
EBITDA for the fourth quarter and full year 2002.
$230 million, and $1 2 billion, respectively, compared to $216 million and $828 million in the year ago period.
Net income for the quarter $117 7 million versus $108 8 million in 2021, resulting in reported earnings per share of $5 21 versus $4 23 in the year ago period.
Net income and earnings per share for the full year was $673 million and $28.10, respectively versus $397 million in 14.
<unk> 92 per share in the year ago period.
Average retail gasoline prices in the fourth quarter were $3 19 per gallon versus 305 cents per gallon in the fourth quarter of 2021 and for the full year averaged $3 63 in 2002 and $2 77 in 2021.
The effective tax rate for the fourth quarter was 22, 3% and 23, 9% for the full year and for forecasting purposes. Our 2023 guidance remains within a range of 24 to 26.
As mentioned in the earnings release, we repurchased $240 million worth of shares in the fourth quarter, which left us with $61 million of cash and cash equivalents at year end.
May have noticed that the balance sheet reflects two new categories marketable securities of $17 9 million under current assets.
And non current marketable securities of $4 4 million in long term assets.
Collectively are comprised of T bills and high quality corporate bonds, which can be converted to cash in one to two days if needed. These investments of course help us to earn a higher rate of return with any excess cash balances given the upward move in interest rates over the past year.
Total debt on the balance sheet as of December 31, 2022 remained at approximately $1 8 billion of which approximately $15 million is captured in current liabilities, representing our 1% per annum amortization of the term loan.
And the remainder is a reduction in long term lease obligations as they are paid to operating expense.
Our $350 million revolving credit facility had a zero balance at year end and remain Undrawn and remains Undrawn. Currently. These figures are result in gross adjusted leverage ratios that we report to our lenders of approximately one five times and with that I will turn it back over to Andrew.
Thanks Mindy.
Closing I do want to remind investors of the rationale behind our decision to discontinue fuel margin and consequently, EBITDA guidance since 2019. This.
This choice was the outcome of our intent to refocus investor conversations away from short term fuel margins and to emphasize the long term potential of the business.
We believe shifting this conversation has helped investors become better informed about the true performance drivers that impact our valuation over time.
Nevertheless, we have typically supplemented our guidance with an EBITA marker for investors primarily to assist with buy side and sell side modeling, which suggest a single EBITDA outcome at a specific fuel margin assumption.
This year, we have opted to provide a range of margins with the book ends of that range, representing 26, and <unk> 30 per gallon or about a <unk> <unk> swing around the midpoint, which is representative of the historical annual margin volatility of the business prior to 2020.
To avoid zeroing in on a single reference point that elicits disproportional consideration an undue emphasis from investors for modeling purposes, only using the mid point of the official guidance metrics, we discussed and attaching 'twenty six.
And 30, all in fuel margins to these forecasts.
<unk> should approximate $800 million and $1 billion, respectively of adjusted EBITDA.
I appreciate you do not have a crystal ball, we don't either the biggest determinant of how much margin and volume we generate in any given calendar year is a function of a number of factors the shape of the price curve, the magnitude and amplitude of the curve, which measure volatility.
How different competitors behave in those environments, along with geopolitical events and other externalities that impact demand.
Restrict supply and.
And shift the actual and forecasted supply demand balances of the relevant commodities as.
As we have noted the magnitude and volatility volatility of last year's price curve created significant opportunities as input costs changed dramatically on a daily basis likely influencing how competitors responded.
Where we do have a high level of confidence and do not need a crystal ball is how we are going to perform in the different environment that we are presented with and looking at January .
January 2023 results they reflect what we would expect in a rising price environment. We have seen prices increase about 60 per gallon since mid December which typically results in depressed retail margins in a more difficult environment to grow volumes and capture share.
While this kind of environment may be interpreted as disappointing to investors I can tell you January volumes were up about 4% versus prior year January and retail only margins were in the neighborhood of <unk> 19 per gallon before adding the typical benefits, we see in <unk> and W. When prices rise as a.
Salt total integrated contribution looks to be running ahead of January 2022.
And we all know what kind of your 2022 turned out to be.
In short we are carrying over the momentum realized in 2022 across our business generated from the essential advantages we built over the past decade.
We feel great about how the year is starting off and they are still 11 months to go.
With that operator, let's open up the call to questions.
At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad. Your first question comes from the line of Bonnie Herzog with Goldman Sachs. Your line is open.
Thank you hi, Andrew and everyone.
Yes.
I had a my first question I guess is on your station Opex guidance.
I think you highlighted a lower increase that you expect this year than maybe what you reported last year. So first I just want to make sure I heard that correctly.
Then maybe you could walk through some of the key puts and takes regarding this.
And then could you give us a sense of how this dynamic is possibly impacting breakeven margins, especially for the smaller.
Operator, right now is it I guess is it possible that as inflation.
Peaks and pressure start to ease cost pressures that is.
Is it such that these marginal players.
And not be forced to price so high at the pump, which could start to squeeze fuel margins a bit for the industry.
Sure.
Yes, let's start with Opex.
One of the most transformational things.
That we're doing is building bigger stores, both a quick check and at Murphy, USA, and then razing and rebuilding.
25% to 35 plus stores.
A year and so one of the big drivers.
Of course is the fact that we're building bigger stores that have a higher labor component, but have higher fuel volumes merchandise contribution.
Attractive returns even more attractive in the current.
And environment, So that is one of the.
Big drivers there.
No.
The labor.
Component is as we noted.
We didn't build permanently.
Permanently into our cost structure with higher.
Salary or hourly increases that had.
The way pay appreciation bonus over the summer many other competitive.
Competitions et cetera that allowed our staff to earn more.
Sell more.
One of the changes with the quick check acquisition is from a benefit standpoint that we are extending.
Deeper into the organization as our IRS transition period.
Has us consolidate those plans and some of that in G&A.
With respect to other costs, we certainly had some favorable contracts some of those will be.
Renewing in 23 versus <unk> 22, and so there may be some upward pressure there.
One area of deflation it might be in areas, where hydrocarbons are consumed like garbage bags et cetera, but those typically make up a smaller portion of the expenses.
How does this really impact ultimately breakeven margins.
For the industry for the marginal player.
And for Us.
What yes.
Yes, I think your point is inflation the year over year rate of change is peaking.
But I don't think anyone is out there forecasting that we're going to see deflation, we are not going to see year over year changes go negative.
I think we'd be happy to see those changes get down to the 3% to 4% we have a long way to go just to get it down to the feds target rate of 2%. So.
I see some of the cost pressure increases easing.
We're starting from a base I mean, if you want to do.
One two year three or four year stack you are just going to have smaller increases on significant increases from prior year. So I really don't see anything from a cost pressure easing.
That is going to help this marginal operator.
Let me tell you what we're seeing.
In January merchandise transactions are accelerating food and beverage transactions after a challenging fourth quarter accelerating we just talked about the opex rate increases year over year is going to be lower.
In our fuel volume is sustaining at up 4%.
The result of that is our business is getting better, but when I look across the industry. Some of the other reported numbers by firm or across the industry.
We're not seeing those trends at the same level.
And so that would suggest to me that the industry breakeven is probably continuing to go up I'm not seeing anything that's suggesting for the entire industry merchandise and food and beverage is accelerating.
Points to the opposite.
And the same with fuel volume and so one of the proof points, we would look at as well what are we seeing in January year over year margins, and they're actually increasing versus a year ago. So I hope that answers your question I understand.
Cost pressures might ease, but they are still going to be smaller increases on a significantly higher cost base. That's built up over the last two to three years right No Thats Super helpful. Andrew. This is incredibly complex and there is this dynamic of the structural changes that you are kind of.
Talking through.
Within the industry and I guess, that's maybe a little bit on my second question and final question that is is.
Just in terms of.
The fuel margin range you provided for modeling purposes, I guess first I'm a little curious why you chose to provide a range this year.
And then second I guess it does beg the question about what gives you maybe the confidence that your margins will be in that range just even given the dynamic we're seeing play out so far this year with I think industry margins down 57% in January versus December and you just kind of touched on.
Where your margins are trending and again I know, it's one month, so far but just trying to think through how the rest of the year may play out and again, how much confidence do you have in that sort of that modeling purpose range. Thank you. Yes first of all I would encourage you and everyone else not to make judgments based on.
Sequential margin changes I mean, if.
If you had done that back in September to October and you see the huge margin when prices fall off significantly you would come to just an erroneous.
Perspective, so I would say look at the broader trends look.
Prior to Covid in 2019, we were having a discussion at Murphy about sustaining 16 margins.
And there was probably as much disbelief around that.
As there is around current levels, but what if we've seen over the last three years.
Structurally when we do our analysis looking at sort of the next fourth quartile and adding cost inflation volume reduction merchandise changes.
There is at least a 10 cent per gallon increase.
That sustains itself in the next survey doesn't represent the entire industry, especially the smaller players.
<unk> actually 26 four.
With our 2021 result.
It's a solid 10 above in 2019 and that kind of that three year average I think the state we're putting in the ground. Today is we believe that represents kind of a new floor for us from a margin standpoint that has persisted and shows up in every way in which.
We can kind of triangulate the industry supply curve, the marginal players cost structure et cetera.
You book in that with the 34 again actually 34.3 or four for 2022.
But I think you have to walk that back <unk> <unk> for the unique once in every six to eight year price fall off that we had that we frankly hadn't seen.
Except in 2014 and 2008.
And so that gets you into that 30% range.
Alright, now there are plenty of people that are saying crude prices stay between 70% to $85. There are others, we talked to that say, they're going to be north of $100 I believe that 26% to 30 range.
Provides a nice set of bookends.
Based on what we've seen what we can back into as a base case and we're frankly, when we look at sort of the trends, we're seeing and the trends it means for others, given we're gaining share once again there may be more.
Upside then.
Downside within that range, but anyway, that's how we got to the range is kind of a 'twenty. One base case 22, actual minus kind of a once in every six to eight year effects.
And it provides a nice.
Range versus a single point so.
So thank you and we'll move on to the next quarter. Thank you appreciate it.
Your next question comes from the line of Anthony <unk> deal with Wells Fargo. Your line is open.
Hey, good morning, guys. Thanks for taking my question.
So I wanted to start with the gallon guidance number.
Suggests flat to slightly down and for store gallons.
I realize youre lapping some potential benefit from elevated prices last summer.
And we've obviously seen quite a bit of share move around but we think trade down in general consumer softness sort of helps you help you offset that to some extent. So can you just elaborate a little bit more on your assumptions there.
Sure. So you go to the price structure, we don't expect the big falling price environment that allows us to really differentiate our positioning.
I think there is a question around total demand.
How much sensitivity we might see.
We don't predict recessions.
Downtrend et cetera, but.
Recognizing there is some pressure there the flip side of that is when there's pressure there we gain customers.
Because more people need affordability.
And that's what we.
We deliver.
So those are probably a couple of the biggest factors, but the biggest single one is just not expecting that repeat.
<unk>.
Price fall off.
Okay and then.
On merchandize margins at 19, 1% you put up in Q4.
It looks quite a bit below what we had been running I would say the last five quarters are effectively since you acquired quick check.
It seems like cost inflation on the food side is pulling apart, but can you just digging a little bit more on.
What drove that and talk about how you're expecting that to trend as we move into 'twenty three.
Sure I mean, we absolutely saw cost pressure.
<unk> outages on eggs led us some other commodities.
Quick check and.
That certainly impacted that and the good news is that's improving the search.
<unk> thing is we are really establishing quick check is as the high quality value.
Brand.
For the product that serves and so from a price pressure standpoint.
We held price longer than the broader market and it showed up in transaction results I'll give you. An example breakfast represents about 37% of our transactions and in Q4, we were down one 7% the broader <unk> our industry was down seven three.
Percent.
That has paid off not only in that differential but January food services transactions, a quick check or up 6% and that is after making strategic price decisions.
As well so we felt the cost pressure.
We maintained our price longer than the broader market. It paid off in establishing that brand position that showed up in transactions and that momentum is continuing over into 2023.
Thanks, guys.
Thank you.
Your next question comes from the line of Bobby Griffin with Raymond James Your line is open.
Good morning, everybody. Thanks for taking my questions and Andrew and the team congrats on another solid year.
Thanks, Bobby.
I guess first of all you gave some details about the step up in the SG&A I think it applies probably 15% 16% growth year over year versus seven this year or in 2022 X. The donation is that the right way to think about just a one time step up or is this kind of a multi year investment it's going to take place on the on the weight on the wage and.
<unk> side as you talked about.
Yes, so two components there one these capability building investments.
Remember back to the Murphy drive rewards.
Days, there were some peak cost right in terms of.
The build.
Required to.
Stand up the capability.
<unk> goes away as you move into operate mode. So there are some peak kosten here, but as we build up a deeper bench around data science data analytics and the like on top of some of the great capabilities, we've already built some of that.
We'll sustain certainly on some of the in store experience. There are some one time costs there as we lever. Some third party support benefits is an interesting one it does go into G&A, where we had to align some of the retirement plans.
And in the early years over a five to 10 year period.
The costs are higher but as you think about just normal attrition and where are we set the benefit for new new employees.
By the time, you get to the outer years, our actual G&A cost on those line items.
Go down.
As a result of the new plan design so.
Hopefully those two examples.
Give us some sense they are both kind of investments for the future. One is just a peak that goes into operating mode.
The ones that alignment, but it shifts over time, just with normal attrition retirement et cetera.
Okay. Thank you that's very helpful. And then secondly, maybe just to touch on I think in your prepared remarks, you mentioned the new store design.
And maybe just touch or expand a little bit on that is there a remodel program is going to take place on the existing stores or is this kind of a new store of the future that youre going to start rolling out for the 2800 square foot stores.
Is there anything how to think about that and timing wise and as retail analysts. We typically like to hear about get pretty excited about the type of new store designs that could be rolling out.
Yes, so think about the 2800, plus or minus some square footage right, but not jumping that chasm too quick check.
Which is in prepared food and beverage right. So we're not adding a kitchen at the Murphy stores, but if you think about how consumers want.
Want to engage with brands like ours, where do we have the right to win on package prepared food and beverage.
What kind of innovation or we already.
Lamenting a quick check on dispense beverage and frozen dispense beverage.
What are the things when we.
Survey 10000, Murphy USA customers, if they say about our store in terms of how it's laid out the lighting.
All of the different things that we're looking for we've taken a huge body of work and now were translating into that within that box plus or minus some square footage.
How would you optimally lay that out for the customer experience for the employer experience.
To drive higher sales and the growing categories, where maybe we're not participating as much but doing it all in the context of where we have the right to win versus where we don't I think as I've mentioned before we're at a roller grilles right. The customer did not give us sort of.
The right to win in that space or even the right to play, but we are known as the retail brand with the best value on regional and National packaged brands and so as we think about our open air cooler grab it go grab and reheating go how to re imagine how the customer wants to interact with them.
That.
And some of the results that we're already.
<unk> from some of the resets.
The team has gotten incredibly good at resets within the same fixture lay out how might you lay things out differently in terms of traffic flow, while making it easier.
Easier for the store operator.
And the like so that kind of gives you a broader sense.
Big opportunities around the new 28, hundreds, but they'll also be lessons.
We translate into our <unk> thousand 500 square foot raze and rebuild stores as well.
Thank you best of luck here in 2023 thank.
Thank you.
Your next question comes from the line of Ben <unk> with Stephens. Your line is open.
Hey, good morning.
Good morning, I was hoping to revisit fourth quarter results a little bit on the in store and to the extent you could I'd love to hear your commentary on cadence during the quarter and then you talked about the initial start to <unk>.
As we contended with weather in the fourth quarter and now weather across the southeast in the first quarter.
Is that creating variability in the results month to month.
Or is that a non factor.
Yes look whether ultimately becomes a non factor because you got pre buying you got post buying.
And the like and so unless you have a much more extended event.
It's usually not a big.
Factor.
Look certainly from a.
The gallon standpoint October started off stronger because of where it was in the price fall off.
Versus.
December .
That in turn impacts the traffic inside the.
The store.
Over that same period.
As well so there's probably.
Some deceleration within the.
For the three months I think what has really.
Got us excited about the start to the year.
If I look at January Ben.
On the Murphy side merchandise transactions in total are up 10%, leading to sales and merchandise margin up $9 five and 10, 3%.
Double digit trip growth on top of the 4% volume growth.
Is really impactful.
Look a quick check we're seeing transactions up 5% and some of that is still being weighed down by nicotine products in our Murphy centralized team has been.
Working within some of the state minimum constraints that we deal with.
In New Jersey so.
Certainly.
A little deceleration within the quarter.
But as we start the new year, we're seeing nice acceleration.
Across the board.
Okay great.
Can you give us a little bit to the cash flow statement Capex is up.
You talked about new investments in SG&A.
You also talked about kind of long lived investments and the Capex side of things is this kind of 400 million dollar Capex mid point.
The new normal would you expect this to continue to grow is that the peak kind of give us some sense as we look out several years from now.
For what your Capex spend might look like.
Yes, I think it's probably more in line with the new normal.
I would expect if I look across the buckets mending win over between growth sustaining corporate initiatives.
Some peak around some of the cash.
Capitalized around some of the initiatives like digital.
Transformation, those things tend to be a little bit more episodic.
Like Murphy drive rewards, we also have our we call it our common systems environment.
Project, where were looking across both quick check and Murphy USA.
And making.
The choices for the future about the systems environment, So some of that corporate and initiatives could.
Could come down as we get some of that onetime work done from a sustaining standpoint.
More new stores and raze and rebuilds we have.
Those.
Programs.
That are in.
Growth reduce some of the programmatic things.
From a sustaining standpoint, but.
Continue to build the network there are some puts and takes there from an overall growth standpoint, we're still not at.
I think what our true potential is.
In terms of new store opportunities. Fortunately, we've had the opportunity to backfill that gap and maintain the productivity of our launch of our building partner are general contractors through raze and rebuilds.
But for us.
Even with the cost inflation that we're having this is an attractive time to build stores.
One thing as we talked about on the last call was we may be seeing inflation of.
Four to 600000 for our raze and rebuilds and our new builds but for every 100000 of capital.
You need about.
<unk> per gallon margin to cover that.
Maybe you deemed another 225 cents.
Consistently seeing well over 10%.
Margin so our capital return projects look even more attractive raze and rebuilds that were below an economic threshold, even though they had the land and the economics are now above that threshold and so that is the one area that I think we could continue to see that cadence.
Play out.
As we grow more stores, we get some of the bottlenecks that we talked about behind us.
And we continue to evaluate the opportunities on our raze and rebuilds.
Going forward.
Okay. Thank you.
Your next question is from the line of John Royall with Jpmorgan. Your line is open.
Hi, guys. Good morning, Thanks for taking my question.
That's what my first one is on capital allocation, so you've drawn down cash in the past three quarters.
You've been buying back stock in excess of your free cash flow and your balance sheet is something you could shape, but should we think about 2023 is another year, where you might buyback more stock than your free cash and particularly in light of the higher Capex budget.
And as you pointed out there is actually a good return on hold in cash right now.
Just looking for thoughts on the current pace of buybacks can be maintained.
Sure well look we certainly frontloaded the $1 billion authorization, we got from the board and frankly, no different than the $500 million authorization.
We got in before that.
We're certainly we're confident buying at $280 for the long term and part of that's evidenced by the fact that our weighted average cost of treasury stocks about $103.
So we are focused on the long term.
As we think about free cash flow, we talked about the margin where is there more upside than downside on that.
<unk> typically seen.
Yeah.
Events that are adding more pressure to the marginal retailer not less more volatility.
<unk> last so theres a number of Wildcards there.
That can.
Continue to generate excess free cash flow above and beyond what our base case plan might be so as we said in the past.
Our number one priority for allocating excess free cash flow when we get it.
Is share repurchase and that is what we did in 2022. When we are when we received it when we put it in the bank.
We allocated that so you should look for that same cadence going forward look I would also say leverage as part of our long term algorithm Mindy highlighted are.
Our ratios that are very conservative the business is still a free cash flow machine, we have a conservative balance sheet with a lot of free board.
And so we always think about.
Our entire balance sheet and how we wanted to.
Manage our growth algorithm for both new stores and the balance part around share repurchase so.
Hope that provide some.
Inside into how we're thinking about it.
Yeah. That's helpful. Thank you Andrew.
Just wanted to go back to the fuel volume side.
You have maintained a very healthy same store comps on the fuel side I think you noted.
When youre looking sort of midyear last year, you picked up some market share from people trading down.
It's a lower price players.
<unk> comps would suggest and I think Andrew mentioned it in the comments.
You haven't given that share back with steel prices have come back down.
So maybe you can talk about those dynamics.
Holding on to that share on the strength in the fuel comp.
Yes look I mean, one of the things that we pay very close attention to is our consumer and we're just blessed through Murphy drive reward to have great insights into them and we've talked about this panel of close to 100000 consumers who have bought something.
Yes.
From Us every month since 2019.
Their basket of goods that they buy at Murphy USA doesn't cost as much as it did during.
The peak.
Which is good.
And we're not seeing any significant.
Changes in.
And their behavior.
In terms of buying from us.
And as we noted that the fact that we're holding them steady and growing volume means we're bringing on new consumers.
I think we have a.
<unk>.
Target consumer that continues to be under pressure they feel inflation.
More so than higher income consumers they fill the gap between the wages, they earn and inflation more than the higher in consumer and these are the.
Consumers that really don't have a lot of alternatives for how they get to work etcetera. So I think as we think about the economic outlook, we feel very confident that.
We're going to be there from an affordability standpoint for both of these.
Current consumers, but continue to grow them.
We did in January even with the lower prices because John while prices are lower versus the peak they are still significantly elevated.
From the low price environments, we saw in 2015 2016.
17 so.
You raise all those factors in higher interest rates.
That are impacting rents and the like.
This consumer is going to need us more than ever and I think theyre going to be more consumers like that out there.
That we're going to be having the opportunity to serve with our affordable model.
Thank you.
Your next question is from the line of Rob Dickerson with Jefferies. Your line is open.
Great. Thanks, so much.
Right.
Hi, I just have I guess, a follow up question just in terms of the competitive activity.
Component.
How that might flow through to the CPG.
Right this year.
I remember you had said this was maybe a year or so ago, but we had costs were.
Materially inflating.
Just kind of feel like coming out of Covid.
Maybe if some of these other independent players, but on a national basis.
But are increasing prices, maybe kind of an accelerated rate maybe relative to history.
Now, we've seen prices come down a little bit.
I guess some of the data that we see it also looks like rack.
Maybe going up a little bit more quickly than some of the retail prices have gone up.
Over the past month or so so I'm just curious.
If you think about the competitive dynamic right now.
Kind of BS V. A year ago would you say maybe the.
The market is.
<unk>.
Isn't as quick to move those prices back up.
Wholesale goes back up because.
Everybody.
Wanted to try to hold some share.
And the consumer obviously is not maybe in the best spot.
Thanks.
Yes look there's always a lot of moving pieces with alto.
A lot of different markets and different.
Factors out there so it's so it's kind of hard.
To generalize.
I would say one and we talk about it from the very first question.
The rate of cost inflation the rate of the industry breakeven requirement for the marginal player.
It's gone up significantly the rate of increase probably isn't going to go up at the same rate you would expect it to.
But all the pressures on that retailer.
<unk> are still there.
And so it continues to go up but at a.
More normal pace.
And we have lower prices, but the consumer health isn't really that much better at least the consumer that we serve one of the things that you do see is versus say the peak prices as credit card fees are down and thats largely a pass through.
I would say that we've got some advantage there because of the debit routing investments the team have made over the last three years, where we save several million dollars.
As a result of that and there's more work that we're doing.
On that front that our scale affords us versus the other player.
But that's largely a pass through so you say well margins are down a little bit compared to the year over year pricing in the credit card fee.
Impact of that.
Theres always some competitor promotional activity out there where someone may wake up and say Hey, you have lost some share let me try to go grab it.
What I would say is if I look at January .
We're up 4% year over year.
<unk> all in from a contribution basis.
Is higher and so while you might see that Episodically I think you continue to see rational behavior.
Across the board.
Hey, Rob.
Add to Andrew's comments, particularly with January from a retail pricing perspective.
Not only is the pricing environment, then relentlessly upward with essentially the market's been in restoration for five weeks.
Also similar to what we saw in May of 'twenty. Two so it's also a function of when prices are rising during the week. So if you start with the last week of December and January and those five week three of the five had price jumps up double digits heading into the weekend.
And that essentially strolls your intended margining position and freeze is a lower margin in place sometimes multiple days until the following week when the market begins to restore and you can get back on the right track. So we saw that same dynamic occur last may leading many to worry that margins have peaked and structural pressures we're alleviating.
What it really was which was just end of weight price chart. So our main margin for example on the retail side was below 20 cents, a gallon that month, but it rebounded to above 30 in gene.
So as Andrew said, Ironically, it's groundhog day, and we have seen this pattern before so we're not really concerned with the January results or even the rest of the year as it's really a logical function of the pricing and timing dynamic that's just occurring right now.
Okay. That's extremely helpful. That's kind of where I was headed.
And then I guess just for clarification and maybe my own ignorance.
I think you had said.
Kind of so far in January you are seeing.
The all in fuel margin and do a little bit better than last year, despite the retail coming down because in PS W. In rents.
Sure.
A different relationship than maybe they go up some.
Maybe just simplistically just kind of explain quickly kind of.
So how <unk> and kind of rents might be a little bit higher which is obviously a separate piece can you just explain but still helpful. Thank you that's it.
Yes, the timing impact Rps and W. In a rising price environment is typically positive. So we would expect any pressure that we're seeing on the margin side to be made up for with them product supply also RIN prices are elevated.
Over what they were at least at the end of the fourth quarter. So we would expect on balance that our first quarter results again were just looking at January but we would expect those first quarter results can be comparable.
What it was last year and certainly January results should be comparable to what they were last year or a little higher.
Perfect. Thank you so much.
And the retail only margin is slightly higher than a year ago as well.
Yes, yes got it perfect. Thank you.
There are no further questions at this time, it's now my pleasure to turn the call back over to Mr. Andrew Clyde.
Great.
Bob.
Great call and great questions.
Like we spent a lot of time talking about kind of short term near term.
Margins and.
I think as we talk about.
January environment, and the acceleration we've seen across.
The business that.
It's further reinforcement.
Why do we think about the long term of this business.
As Mindy highlighted wonderfully.
One month doesn't make a quarter one month doesn't make.
Our year end kind of the comparison of January in May I think is a great example, because of what follows.
That.
I do think this longer term view of where the fuel breakeven.
The requirement is going for the marginal player for the industry as a whole for advantage players like Murphy USA and other advantaged retailers.
Is really the area that.
To be focused on.
And we feel really good about 2020 twos, a year and the outlook that we have not just for 2023, but the investments that we're making on top of the last decade as investments gets us really excited about the next decade ahead.
With that we will look forward to any follow up calls from people and have a great rest of your day take care.
Ladies and gentlemen, thank you for participating. This concludes today's conference call you may now disconnect.
Please wait the conference will begin shortly.
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