Q1 2023 Murphy USA Inc Earnings Call
Speaker 2: Please stand by, we're about to begin.
Operator: Good morning, ladies and gentlemen. Welcome to the Murphy USA first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode, and please be advised that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. And if you would like to withdraw your question, press star one again. And now, at this time, I'll turn things over to Christian Pikul, Vice President of Investor Relations. Christian, please go ahead.
Speaker 2: star one on your telephone keypad. And if you would like to withdraw your question, press star one again. And now at this time, I'll turn things over to Christian Pichl, Vice President of Investor Relations. Christian, please go ahead.
Christian Pikul: Thank you, Bo. Good morning, everyone. Thanks for joining us today. With me, as usual, are Andrew Clyde, President and Chief Executive Officer, Mindy West, Executive Vice President and Chief Financial Officer, and Donnie Smith, Vice President and Controller. After some opening comments from Andrew, Mindy will provide an overview of the financial results, and then we will 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 formats of 1995. As such, no assurances can be given that these events will occur or 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.
Speaker 2: 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.
Christian Pikul: During today's call, we may also provide certain performance measures that do not conform to generally accepted accounting principles or GAAP. We have provided schedules to reconcile these non-GAAP measures with the reported results on a GAAP basis as part of our earnings press release, which can be found on the investor section of our website. I will go ahead and turn it over to Andrew.
Andrew Clyde: Thank you, Christian. Good morning and welcome to everyone joining us today.
Andrew Clyde: Murphy USA performed extremely well during the first quarter of 2023, delivering results in line with our high expectations and results that support the future value creation potential we see in the business. All in fuel margins of around 29 cents per gallon reaffirm our view of the structurally higher industry margins.
Speaker 3: and results that support the future value creation potential we see in the business.
Speaker 3: All in fuel margins of around 29 cents per gallon reaffirm our view of the structurally higher industry margins.
Andrew Clyde: As witnessed in recent quarters, higher margins are even more impactful to the bottom line when coupled with higher volumes. Robust customer traffic continues to translate into strong merchandise performance, which, along with a contribution from an increasing number of new builds and raise and rebuilds, is driving positive year-over-year growth inside the store.
Speaker 3: Robust customer traffic continues to translate into strong merchandise performance, which, along with a contribution from an increasing number of new builds and raise and rebuilds, is driving positive year-over-year growth inside the store.
Andrew Clyde: With ongoing investments in new stores and new capabilities, we believe we will continue to drive sustainable earnings growth and pre-cash flow generation over the next decade and are excited to announce a new share repurchase authorization of up to $1.5 billion through 2028.
Andrew Clyde: This level and commitment of share repurchase is aligned and consistent with the investor expectations we set earlier this year when we once again raised the bar for future shareholder returns. In thinking about the environment which we generated such strong first quarter results, the most notable element was perhaps the market lack of commodity price volatility as compared to the prior year period when the Russia-Ukraine conflict first erupted.
Andrew Clyde: This level and commitment of share repurchase is aligned and consistent with the investor expectations we set earlier this year when we once again raised the bar for future shareholder returns.
Speaker 3: In thinking about the environment which we generated such strong first quarter results, the most notable element was perhaps the marked lack of commodity price volatility as compared to the prior year period when the Russia Ukraine conflict first erupted.
Andrew Clyde: In thinking about the environment which we generated such strong first quarter results, the most notable element was perhaps the market lack of commodity price volatility as compared to the prior year period when the Russia-Ukraine conflict first erupted. As a result, retail fuel margins were relatively stable throughout the quarter, generally ranging from about 15 cents to 30 cents per gallon, and mostly residing in a tighter 20 to 25 cent per gallon range.
Speaker 3: As a result, retail fuel margins were relatively stable throughout the quarter, generally ranging from about 15 cents to 30 cents per gallon, and mostly residing in a tighter 20 to 25 cent per gallon range.
Andrew Clyde: When coupled with the PS&W business, which added nearly 6 cents per gallon to quarterly results, all in fuel margins of nearly 29 cents per gallon, were at the high end of our suggested range for full year 2023.
Andrew Clyde: Investors should be encouraged to see such strong fundamentals during what is historically considered a shoulder quarter, where seasonal demand patterns and lower margins are the norm.
Andrew Clyde: In fact, going back several years ago, Q1 results were typically not materially impactful on full year financial performance.
Andrew Clyde: This year, we delivered the second highest first quarter net income in EBITDA in company history. Second only to last year, where Q1 results alone generated about 95% of full year 2012 EBITDA.
Speaker 3: Second only to last year, where Q1 results alone generated about 95% of full year 2012 EBITDA.
Andrew Clyde: Our everyday low price strategy continues to resonate with customers, helping drive average per store month volumes up 2.4% as we continue to take share.
Speaker 3: helping drive average per store month volumes up 2.4% as we continue to take share.
Andrew Clyde: Importantly, we continue to see robust fuel traffic despite lower street prices, suggesting sticky behavior from customers who may have initially come to us seeking lower prices in a high-price environment but have become loyal shoppers due to the convenience, service, and the attractive value in our in-store offer.
Speaker 3: suggesting sticky behavior from customers who may have initially come to seeking lower prices in a high-price environment.
Speaker 3: but have become loyal shoppers due to the convenience, service, and the attractive value in our in-store offer.
Andrew Clyde: With quarterly same store gallons increasing 1.4% for the current year and 5.2% on a two-year stack basis, we are not only retaining prior market share gains, but continuing to build upon that base. Our ability to attract customers and growth share is not only important and impactful for fuel contribution dollars, but is also translating to strong merchandise performance in the store. For same store sales and margins, we're up 6% and 5% respectively led by 7.2% and 5.6% growth in non-[inaudible] categories. In store performance from the Murphy network was even more impressive with higher unit growth and sales growth in almost every category despite passing through the manufacturer-driven price increases. When coupled with an active and promotional calendar, first store sales and margins accounts for 7.1% and 6.6% respectfully. We're especially powerful given [inaudible] a very strong quarter in 2022, which featured a highly impactful tobacco promotion in particular.
Speaker 3: We are not only retaining prior market share gains, but continuing to build upon that base. Our ability to attract customers and growth share is not only important and impactful for fuel contribution dollars, but is also translating to strong merchandise performance in the store. For same store sales and margins, we're up 6% and 5% respectively. factor driven price increases.
Speaker 3: factor driven price increases.
Andrew Clyde: However, even these aggregated results understate the strength of our customers and how well the business is actually performing. We are seeing center of store and packaged beverage categories delivering roughly 20% sales and margin growth, benefiting from strong new stores and raise and rebuild performance, store resets, and promotional focus on growing categories like energy drinks. On the quick check side, performance is also strong but facing a different set of challenges unique to its geography and expanded offer. Mobility trends in the quick check geographies are affected by lower commuter traffic, which has not recovered as fast as other areas of the country, impacting both the fuel and merch business. Fuel gallons were down 0.4% on an APSN basis and merch sales and contribution margin were up 2.4% and 0.9% respectively. We continue to see pressure on the nicotine category, however we have put in place initiatives, particularly in the [inaudible] category to help shore up performance and have begun to see sequential improvement and expect to see incremental results from those efforts in the second quarter. Center of store and grocery categories also face volume headwinds for [inaudible] product innovation and price increases resulted in mid-single digit growth in sales and margin contribution. And for prepared food, sales were up modestly as we continued to create price separation versus broader tier QSR price point for rising commodity costs, more than offset measured price increases we took early in the first quarter.
Speaker 3: point.
Andrew Clyde: Although food and beverage margins are down 2.2% year over year, we will not compromise our value position in the market at the expense of short-term results. We've intentionally lagged broader QSR price increases by about 10% over the past two years, establishing our low price position with our current customers and ultimately with new customers. In fact, stepping back and looking more holistically at the retail landscape in which we compete, we were seeing retailers willing to accept volume losses because they are making it up with higher pricing. Given this dynamic, we're well positioned to improve sales and gain customers from stepped up advertising, building brand awareness, and communicating value through improvements to the QuickCheck loyalty platform, along with enhanced promotional activity centered around our core prepared suit offer.
Speaker 3: Although food and beverage margins are down 2.2% year over year, we will not compromise our value position in the market at the expense of short-term results. We've intentionally lagged broader QSR price increases by about 10% over the past two years, establishing our low price position with our current customers and ultimately with new customers.
Speaker 3: customers from stepped up advertising, building brand awareness, and communicating value through improvements to the QuickCheck loyalty platform, along with enhanced promotional activity centered around our core prepared suit offer.
Andrew Clyde: In the short term, we expect costs impacting the food and beverage category, which were up 6% in the first quarter, to moderate. When coupled with another round of measured and targeted price increases that maintain our relative value proposition, we expect to see an improvement in the near-term performance. We believe there is significant value to be created in the Quick Check business over the short, medium, and long term. The team has also done an excellent job on the cost side where Q store Opex was up per quarter. Given the strong financial performance of the business, and the resulting free cash flow we generate, we continue to invest for the long term. First and foremost, our capital is dedicated to growing the business, which includes both new stores and raise and rebuilds. New stores are delivering strong returns in the current environment and outperforming the network averages and key metrics.
Speaker 3: First and foremost, our capital is dedicated to growing the business, which includes both new stores and raise and rebuilds. New stores are delivering strong returns in the current environment and outperforming the network averages and key metrics.
Speaker 3: New stores are delivering strong returns in the current environment and outperforming the network averages and key metrics.
Andrew Clyde: In the first quarter, the last four Murphy build classes from 2019 to '22, which included 87 stores, averaged a little over 275,000 gallons per store month, or about 20% higher than the network average of about 230,000 gallons per month. Further, these same stores generated 9% higher merchandise sales driven by 80% higher non-tobacco sales.
Speaker 3: Further, the SANE stores generated 9% higher merchandise sales driven by 80% higher non tobacco sales.
Andrew Clyde: While new store openings remain challenged in the current environment, we are on track to deliver 35 to 40 new stores in 2023, including six new QuickCheck stores along with 30 raids and rebuilds.
Andrew Clyde: Given the strong returns and repeatability of success in our new store formats, we are investing in our real estate pipeline, growing our inventory of future locations for both the Murphy USA and QuickCheck brands, ultimately preparing the business to deliver more than 50 new stores per year when conditions allow in the future.
Andrew Clyde: In addition to unit growth, we are investing in future capabilities to widen the competitive mode versus the rest of the industry, which as referenced in our investor presentation in March, will result in a virtuous cycle of customer acquisition, enhanced performance, higher cash flows, and a growing opportunity to extend our low-price position in the market.
Andrew Clyde: In considering the impact of ratable, high return new store growth, coupled with business improvement initiatives on the long-term performance of the business, the case for a sequentially larger and potentially more impactful share repurchase authorization becomes even more compelling in our opinion.
Andrew Clyde: Importantly, share repurchase is an AND, not an OR for our investors. While Q1 results are strong, our repurchase decisions are based upon our long-term expectations for the business where we can deliver incremental value from the ongoing slate of investments and initiatives, driving even better returns in the future.
Andrew Clyde: For these reasons, we're excited to announce a new up to $1.5 billion authorization through 2028, commencing upon completion of the $200 million remaining under the prior $1 billion authorization.
Andrew Clyde: I'll now hand the call over to Mindy to briefly review the financial results, and then we will wrap up and open up the call to Q&A.
Mindy K. West: Thanks, Andrew. Good morning, everyone. Revenue for the first quarter of 2023 was $5.1 billion in line with the year-ago period. Adjusted EBITDA was $220 million in the first quarter versus $277 million in 2022. Net income for the quarter was $106.3 million or $4.
Speaker 4: in the year ago period.
Speaker 4: Total debt on the balance sheet at the end of the quarter was approximately 1.8 billion dollars of which approximately 15 million is captured in current liabilities representing the 1% per annum amortization of our term loan and the remainder of reduction in long-term lease obligations as they are paid through operating expense.
Speaker 4: Our $350 million revolving credit facility had a zero outstanding balance at quarter in and is currently undrawn. And these figures together result in gross adjusted leverage ratio that we report to our lenders of approximately 1.6 times.
Speaker 4: Cash and cash equivalents total 102 million as of March 31st. That's up about 40 million since year end. And it's net of 73 million of capital spend, the majority of which was allocated to new stores and other growth investments. And with that, I will turn it back over to Andrew. Thanks, Mindy.
Speaker 3: Before we open up for Q&A, I do want to comment on preliminary April performance, which I'm pleased to say continues the momentum we saw in the first quarter and points to sequential improvement in some critical categories, including food and beverage contribution.
Speaker 3: April volumes are running about 4% below prior year levels and are down sequentially from March, broadly in line with pre-COVID seasonal patterns.
Speaker 3: We saw a trough in early April that then strengthened in the second half of the month. Retail-only margins also strengthened in the last half of the month and averaged close to 30 cents per gallon over the last few weeks. This translates to about 26 to 27 cents per gallon in retail-only margins for the month.
Speaker 3: trending above the 23 cents per gallon we saw in the first quarter. Merch performance remained strong, with key center store and package beverage categories continuing to deliver double-digit growth in sales and margin. Additionally, we expect to see some benefits from targeted and measured price increases in prepared foods during the quarter.
Speaker 3: and see year-on-year margin comps turning positive in the second half. When coupled with the aforementioned investments and new capabilities, we are laying the groundwork for both near-term and long-term improvements in enterprise-wide merchandise performance.
Speaker 3: Certain areas of OPEX remain under pressure, specifically in the maintenance categories, where contract renewals reflect recent inflationary impacts on service costs.
Speaker 3: However, wage inflation is exhibiting more muted growth than prior years, up about 5% in the first quarter. While total store-op-ex costs per store were up 5.6% for the quarter, we exited the quarter with March costs up only 2% year-over-year.
Speaker 3: In closing, I would note that we are the first to say at this time of the year that neither a single month nor quarter will ever define how the balance of the year plays out in our industry, given the nature of price volatility, the persistent inflationary environment, and other factors.
Speaker 3: That said, this quarter certainly reinforces the key elements that underpin the virtuous cycle where Murphy USA is uniquely positioned to win over the long term. And importantly, as we head into the 100 days of summer, we are excited about the momentum across the business.
Speaker 3: With that operator, we can open up the lines for questions.
Speaker 2: Certainly. Thank you, Mr. Clyde. Ladies and gentlemen, at this time, if you do have any questions, just press star one. And just a reminder, if you do find your question has already been addressed, you can remove yourself from the queue by pressing star one again. Let's take our first question this morning from Anthony Bonadio at Wells Fargo.
Yeah, hey, good morning, guys. Congrats on the nice quarter. So just to dig in a little bit more on the Q1 fuel margins, it looks like industry volumes are flattish, although share clearly continues to move around. Wage inflation has continued as well, which to me suggests that breakeven should be higher than last year.
Plus, I would argue that Q1 of this year provided a more favorable price dynamic for margin, yet retail margins in Q1 are flat year over year. I realize I'm oversimplifying here, but can you just help us think through the different puts and takes versus last year and triangulate all that?
Sure. We've talked about this before. There's the movement of price, right? Is it going up by how much?
And that certainly impacts your ability to get margin on the way up. You've got to remember our stores are being replenished every day, and smaller operators may be getting replenished once a week or twice a week. And so,
that upward movement environment, you know, that's an influence versus a falling price environment where we're advantaged.
The big difference between this year and last year is the level of volatility. And the size of the price moves that we saw last year were frankly unlike anything I think people had seen in a couple of decades. And so that created an environment where prices moved up more quickly with greater certainty.
And so we were able to kind of maintain a level of separation that served to our advantage from both a volume standpoint and a margin standpoint. So I think that was one of the things when we highlighted our annual guidance range on fuel margins, you know, we kind of set a floor based on historical patterns, but we said the biggest difference between
The outsize 34 cents we earned and the upper end of that range was really due to the volatility, both on the way up and certainly what we saw in Q3 on the way down. So I hope that provides a little color on that.
The other thing, though, Anthony, I would add to that. I think first quarter results are also really impressive on the retail side because I would argue that it was not necessarily as favorable an environment for pricing as last year because we did have price increases, lots of which can happen towards the weekend, which we've talked about before. Let's get started.
So if you look at the first quarter of the 14 weekends, half of those had wholesale price jumps of five cents or higher at the end of the week. January was particularly impacted. They had three weekend price jumps of very high magnitude. Now February , I would agree with you, we had an unseasonable decline in price.
which allowed us to gain some ground on both volume and margin. But then as Andrew said, in March the high volatility that we saw last year resulted in competitors taking preemptive moves to restore the market in advance of the next price increase because the price was rising so dramatically. So I would argue that...
Despite all the challenges, our retail only margin for the quarter matching last year's is really a testament to the strength of the business and also to the structural change which has occurred in the industry's ability to capture margin.
Got it. That's really helpful. And then I know this isn't really a new part of the conversation, but it does seem like the idea of a recession and defensive positioning is increasingly being thrown around by investors. Can you just maybe talk at a high level about the different puts and takes to your P&L and a weaker consumer backdrop? And then maybe anything you've seen historically that might help frame or quantify that for us.
doesn't look at inverted yield curves or, you know, two periods of declining GDP. They look at their take-home pay. They look at how far it gets them through the month. I think one of the challenges we have when we talk about recessions is we do what we do with everything is that we aggregate, you know, all the customer segments and demographics across the country.
and make a statement that's pretty binary. I was just with other retail CEOs and suppliers in our industry, and I think our conclusion was our typical customer feels like they're in a recession and have been in a recession, and so they're not waiting for...
you know, someone to pronounce it as officially begun because they're seeing it every day. And that is where our focus on our number one pillar of affordability kicks in and why we are committed to our everyday low price position across our categories.
and are relentless around their everyday low-cost positioning to support that. So I would say, you know, the results that we've continued to demonstrate quarter after quarter, the share gains, fuel, tobacco, other categories, reflect the fact that for a customer that is feeling all the power that they need to be able to get through the process,
Thank you. We go next now to Bobby Griffin at Raymond James.
Good morning, buddy. Thanks for taking my questions. Andrew, one first just quick clarification question. When you were referencing the 4% decline in gallons, was that a total gallons number or a comp gallon number? Yes. When you were referencing the 4% decline in gallons, was that a comp gallon number or a comp gallon number or a comp gallon number or a comp gallon number or a comp gallon number
That's a first door number. Yeah, first door. Thank you. I guess, you know, my second question here is we're a little over, I guess, two years since acquiring QuickCheck, so I was maybe hoping we could talk a little bit about, you know, where you guys are in that journey of integrating that business and
and also leveraging some of the new acquired capabilities that Quickship brought back into the core of Murphy's operation as well. Yeah, I mean, integrations in the later innings, we've got some initiatives around our common systems that we're looking at and use the opportunity to step back.
and look both at the Murphy systems and the QuickCheck systems as we think about alignment there, but includes in terms of the core functions, what's being done centrally, what's being done centrally but embedded resources up there, you know, what stays unique, you know, to QuickCheck. That integration is largely...
done and the nature of those synergies have been captured. There have been a lot of learnings. You know, we've talked about some of the tools and capabilities that they had that we accelerated on our side, like merchandise exception reporting through the CB4 technology. We also, as we embarked on the food and beverage...
been investing in food and beverage on the Murphy side. Innovation has accelerated on the QuickCheck side. If we think about some of the made-to-order energy drinks, our unique frozen made-to-order energy drink and the opportunity that's created both for the QuickCheck business and the Murphy.
business. We see a lot of continued opportunities there as we're going for category leadership in energy. So very pleased with that. We continue to open new stores. We just opened a new store with commercial fueling lanes in Laredo, Texas.
and also one in New Jersey. And so, you know, the asset development pilots that we're doing were able to do with both brands and compare and contrast those. Certainly the scale of the bigger initiatives that we're doing like digital transformation absolutely benefit from being able to do it across.
the two brands, especially where you get synergies in the back office space where a lot of the fixed costs occur. Bobby, I can keep going on and on, but it's been a great business. Certainly, the market hasn't recovered to the same extent as the Murphy markets from a back-to-work standpoint, but we are seeing it pick up.
Okay, yeah, that's good. That's helpful. And then I guess secondly for me, we've talked a lot about why retail margins are structurally higher and we completely agree with you and your team's view on the drivers behind that and the sustainability of that. Is the PS&W business margin structurally higher now in this post-COVID environment as it was before? And are you asking in the context of the...
historical two to three cents we used to think about for that line item, is that now three to four or we just been in a you know a favorable kind of couple quarter environment.
No, I think we alluded to this a little bit in our last call. You know, if you go back to the period 27, 2018, 2019, I would call, you know, the supply market kind of long and loose. You know, there's plenty of refinery capacity. It was oversupplied. You saw a lot of discounts at the racks and so are...
you know, spot to rack transfer price that we net against the RIN, you know, faced greater pressure. Coming out of COVID with the demand destruction and with some of the pressures refiners have felt either from
regulations, the incentives they have around renewable fuels, you've seen a reduction in refinery capacity. Either it's refineries closing or being converted to, say, renewable diesel facilities. And so what we've seen, especially over the last 12, 18, 24 months is...
a much shorter, tighter refined product environment. And as a result, you don't see the same level of discounting that takes place at the racks where we measure our spot to rack transfer price. And so we certainly expect
to maintain some of that, you know, the tune of a penny a gallon or so, as long as the market remains short and tight the way it currently is.
Okay, very helpful. I appreciate the details and congrats again on a good quarter.
OK, very helpful. I appreciate the details, and congrats again on a good quarter. Thanks, Bobby.
Thank you. We go next now to Bonnie Herzog of Goldman Sachs.
All right, thank you. Good morning everyone.
I had a question on your SS gallon growth in the quarter, which I guess seemed a bit soft and decelerated sequentially on a four-year stack basis. So I was sort of trying to think about that in the context or reconcile it with your strong merch comp growth. Maybe Andrew you could touch a little bit on conversion.
and provide a little bit more color on what drove the strong sales growth inside your store despite maybe some pressures on gallon growth.
So on the gallon side, I mean if you look at the kind of the price environment that we talked about as it related to margins,
On the margin, you didn't see the same acceleration in prices throughout the quarter. And so with lower prices, you certainly benefit from a payment fee standpoint. But on the margin, there's always going to be some customer that may not be as price sensitive.
I think the important point is
We still grew gallons in this environment on top of the gallons we grew last year when we experienced that run-up in prices.
So, you know, I think one of the things we talked about, hey, in a lower price environment,
I think one of the things we talked about, hey, in a lower price environment, are you going to give back some of the...
consumer demand that you picked up only because prices were really high and the customer didn't want to go, you know, was willing to go a little bit further out of their way to save a few extra pennies. And what we found was, yeah, we kept all the customers we gained last year and then on a per store basis we gained some more.
Right, and so I think that's a reflection of the fact that they visit the store. They're more loyal. We've got the loyalty program and the like.
You know on the merchandise side, I mean we are constantly doing
new things, whether it's the raise and rebuilds, whether it's the new stores, whether it's the resets, whether it's the promotional activity, whether it's the new product introduction. So there's a whole set of initiatives that are kind of independent of what we're doing on the fuel side. So we're certainly
you know, please last year when we saw the kind of, you know, attached to fuel categories grow in response to fuel traffic, I think what's impressive this quarter is those categories grew at an even faster clip despite the gallon growth, which I think speaks to all the initiatives that the merchandise team has put in place.
and the new stores and raise and rebuild performance. Yeah, definitely I agree and that sounds encouraging. So thanks for that caller. And then just maybe one more quick question for me. Given your strong Q1 results and the comments you made about the impact in Q1 being greater.
than historical this year. You know, just thinking about that and framing it in the context of your full year guidance. Does that change your outlook for guidance, if at all? Do you see upside or is there something to be mindful of and during the next few quarters, just given the strength again that you saw in this?
in this quarter. Thank you. Yeah, I would just be mindful of the nature of this industry, right? I mean there have been plenty of years, I go back to 2016 when you know third quarter fuel prices went up instead of seasonally down. But then in the fourth quarter they came down significantly.
And, you know, if you'd made the call, you know, even at that point in time, you would have been wrong. So I think we've intentionally taken a point of view that says, look, a lot of guidance update quarter over quarter isn't helpful, especially the discussion around margins because it detracts from
the long-term discussions around the potential of the business. And if we end up getting closer to the 30 cent range versus the 26 range, we'll have the next year with a new set of volatility and price factors and dynamics.
I would just encourage everyone to stay focused on where is this business heading over the next three to five years, five to ten years? What's the free cash flow generation? How is that going to grow from the new stores, the improvement initiatives? And then how are we as a disciplined allocator of capital to be able to move forward?
going to return that value to shareholders and what is that going to be worth. Okay, thank you so much Andrew. Thanks. And just a reminder ladies and gentlemen, any questions please press star one. We'll go next now to John Royal of J.P. Morgan. Hi guys, good morning. Thanks for taking my question.
So it looks like you had a big increase in RIN sales in one queue which I think might have been driving some of the strength we saw in the PS&W plus RIN's margin. I know that a RIN price wasn't up much so appears like it was volume driven. Did you take down some inventories from a RIN's perspective and just looking for a little bit of color there?
we sold them for on average $1.60 versus $1.12 in the year-ago period.
Okay, so just to follow up there, I mean, typically then you would see kind of if it was price driven you would have typically seen an offset from the PSNW side. It doesn't feel like it really happened. That is entirely correct. Correct. Yeah, so maybe just some color on why the strength in the PSNW plus Marin's margin.
Most of it was due to the timing impacts of pricing just due to the market dynamics of price increases versus decreases in periods of rising prices that what we call the uncontrollable part of the business or the inventory pricing part of the business tends to do.
well in a falling price environment, you see the opposite impact, and so the results versus, for instance, versus the fourth quarter are predicated on the difference in the market environment primarily. If you look at fourth quarter rent sales, they were light versus...
first quarter, so that is a difference, but the remaining difference is strictly just the pricing environment that we're in, because again even in a quarter where we don't sell as many RINs, you still have that offset with regard to the spot to rack differential.
Understood. Thank you. And then maybe my follow-up is just on Station OpEx. Came in below the low end of the guidance range and is actually down quarter over quarter, I think, for the second straight quarter. And you mentioned trending very well coming out of March. Anything to point out there in terms of what's going well and then …
You did mention things like wage inflation. Is there some uplift that you think you'll see in 2Q and beyond to get yourself sort of back into that guidance range? Can we consider this that you really are tracking ahead of guidance?
Yeah, we haven't revised our guidance. I would say wage inflation, as we know it, has moderated maintenance expenses, contract renewals, work orders, etc. is expected to be on the higher side. Shrink is another area that's probably a headwind. That sorry first hand, everyone, let's break it down and video on this one and it's another one for turnout, submit it as a BEST BIGGLE! And then I'll tell you I'll get back to
I think that's a challenge across retail right now. So there's always a lot of puts and takes. Sometimes there's just some timing issues as well as when we take on certain initiatives or maintenance programs, et cetera. So that's a good thing.
I think we've got kind of all hands on deck constantly looking at cost over time, retention of staff to avoid downtime at the store and the like as well as improvement initiatives to reduce cost.
won't be changing our guidance at this point or declaring victory on any number. Thank you. And we'll go next now to Ben Bienvenue at Stevens.
Hey, good morning, everybody.
So I want to ask about SG&A spend. Obviously elevated relative to history, you guys have been pointing to some of the incremental investments that you're making around capabilities for the organization. Can you talk a little bit in a little bit more detail about...
the benefits you expect to harvest from the spend that you're deploying in the SG&A line item? Absolutely. And for the quarter, there's a whole range of things where you got $1 to $2 to $3 million variances, some might include incentives and some of the alignment across the two brands.
detailed and more detailed sub-segments of customers, understand those DNA strands, understand how to target them more efficiently and effectively to be able to grow revenue and margin from them, target promotional activities better. There's also a...
revenue margin cost element of it. So as we look at production planning at QuickCheck where it used to be done on paper with you know pen and pad you know being able to do better demand forecasting to make sure you've got in stock but not too much to reduce waste.
and then overlay that with a more sophisticated store labor model that builds in that insight. The learning algorithms that are built in to the technology allow us to get better and better. So you're going to see real tangible benefits then both on the birch.
revenue side, the margin side, the labor cost side, the waste cost side, and the like. So, you know, excited about those types of initiatives. We're well into some of the early pilots across all of those.
the benefits have kind of exceeded our expectation. But similar to some of the campaigns we launched in prior years, you know, we're not getting way out in front and promising, you know, year-over-year benefits at this point in time.
On the in-store experience campaign, similarly, there are opportunities around optimizing the merchandise, assortment, center of the stores, further resets.
as well as envisioning how we think about the grab and go, grab and reheat and go, and dispensed offers at the Murphy stores at our 2,800 square foot stores. And so we'll be stick building a pilot store this year that takes into account that layout.
as well as doing retrofits on some existing stores to assess the benefits there. But again, those opportunities will impact both revenue, margin, and cost areas. And we have more details around the results of those pilots. You know, we'll certainly be transparent like we've done in the past.
share those with you and investors and then speak to the specific benefits as we give our full year guidance.
My second question is related to share repurchase. Forgive me, I joined the call late so you may have covered this. The buyback activity in the first quarter was conspicuously small, particularly juxtaposed relative to your new $1.5 billion share repurchase program.
The answer may be just because but maybe why was it small in the first quarter? Was there anything kind of idiosyncratic going on in the first quarter that either? precluded you from buying back stock Or made you more mindful of this being the right time to buy back stock
Because the results are obviously quite strong. Yeah, I think the only
people I know that say just because sometimes are my kids so I'm not going to use that that response but you know I would say look we do not comment on periods where we buy you know more or less depending on various factors or outlooks out there so
Where did we see EBITDA going over the next five years based on store growth?
initiatives, you know, a small increase in the normalized fuel margin, you know, what do you believe about, you know, share buybacks at a million shares a year generated from the free cash flow generation and frankly, you know, a million shares a year.
at current pricing add up to 1.5 billion. And so we just felt it was important to align that commitment with a formal authorization. And so we'll be completing the 200 million, certainly expect to have that wrapped up by year end, if not before, and we'll be getting into the next authorization right after.
Thanks so much. Congratulations. Thanks. Thank you. Ladies and gentlemen, it appears we have no further questions today. Mr. Clyde, I'd like to turn things back to you for any closing comments. Great. Well, thanks everyone for the questions. We'll look forward to any follow-up calls with the analyst investors.
You know, I would say I think this quarter, as much as it stands on its own, is a great quarter. It's really just more evidence around our view of the future potential of the business. And when you look out five to ten years, you look at the EBITDA growth that we have, you look at the free cash flow generation that delivers, and you think about our...
commitment to discipline to capital allocation, we feel very good about the total shareholder return value proposition that we've presented. So thank you again and we'll look forward to any follow-ups.
Thank you, Mr. Clyde. Ladies and gentlemen, that will conclude the Murphy USA first quarter 2023 earnings results conference call. Thank you all so much for joining us and wish you all a great day. Goodbye.
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