Q3 2024 Murphy USA Inc Earnings Call
We have a lot of irons in the fire to further optimize and grow the business in the fourth quarter and the team is engaged and excited all of which suggests 2025 will be another rewarding year for our team members and our shareholders.
Yeah.
Hello, everyone and thank you Andrew.
As Andrew mentioned, our asset development team is firing on all cylinders and on track to deliver our strategy of strong organic growth in 2024 and 2025.
We opened four new stores in the third quarter, bringing our year to date openings to 10, including one quick check store.
We also reopened 16, raze and rebuild stores our ongoing program to transform small kiosks into 1400 square foot stores in Q3, which brings us to 27, raze and rebuild projects opened year to date.
Since quarter end, there are an additional two new stores and for raze and rebuild stores that have opened.
We have also accelerated our construction activity to its highest level in the past 10 years.
29, new stores and 15, raze and rebuilds currently under construction and we have already started construction on some of our 2025 new builds.
So when you add all that up we are looking at up to 40, new stores and 47, raze and rebuild schedule for completion in 2024.
However.
Some of these projects could potentially slip into early 2025, so our new store and raze and rebuild guidance remains unchanged at this time at 30% to 35, new stores and more than 40, raze and rebuilds.
I want to again recognize our asset development team for finding efficiencies in the store development program and better managing risk, which has allowed us to not only achieve our 2024, new store guidance, whilst to deliver more raze and rebuild than we had planned.
Additionally, the team has move forward more projects into the fourth quarter to provide a meaningful head start to the 2025, new store class, but we will get more stores opened earlier in the year, helping to grow our EBITDA in 2025 and going forward.
As such we are increasing our capital expenditure guidance to a range of 500 to 522024.
Importantly, all of this increase is attributable to the stronger than expected organic growth, including the high level of raze and rebuild activities more new stores under construction for 2024 and a head start on our 2025 new store program.
We are moving toward our objective of sustainable run rate for the organization of about 50, new stores per year.
And with that we expect a similar level of capital spend in 2025.
To wrap up our Newbuild program discussion, we're very pleased with both the quality of the pipeline and the performance of our new stores to provide predictable and consistent incremental EBITDA for the next several years as the stores begin their three year ramp to maturity.
New Murphy USA stores are generating attractive returns with key performance metrics well above the network average.
For the 2022 and 2023 build classes. Those 56 stores are adding 292000 gallons per store month, and 43000 merchandising contribution dollars per store month, which is 18% and 27% higher than the network averages respectively.
So we are building more new stores and these stores are delivering more and outperforming our existing stores, which demonstrates why we are excited to accelerate this growth and that will be highly impactful to our company performance going forward.
Turning to share repurchase we bought back 244000 shares in the second quarter and remain committed to ongoing share repurchases.
We continued to execute against the existing board authorization to repurchase up to $1 5 billion of our stock which extends through 2028.
Through the third quarter, we bought back nearly 700000 shares for $320 million, leaving about $1 $1 billion remaining under our board authorization.
You may have noticed we ended the quarter with a $41 million balance on our revolver.
As we continue to allocate cash toward growth share repurchases and operations from time to time, we will access our bolivar to manage our daily liquidity needs. As a reminder, we typically see $400 million moving in and out of the business in any given week and depending on the timing of receipts vendor payments tax payments and the day of the week the period ends managing liquidity with the revolver.
Becomes a more commonplace as we efficiently allocate funds for both growth and share repurchase.
One last guidance measures to address before I turn the call back over to Andrew In addition to increasing our capital expenditure guidance. We're also tightly tightly managing our expenses and investments with our ongoing cost control efforts and more targeted investments, we are reducing our SG&A guidance to a range of $240 million to $250 million versus the prior range of 255.
To $265 million.
Thank you and with that I will turn the call back over to Andrew Thanks Gallagher.
As usual I'll close with a preliminary view of October performance per store fuel volumes were flat to prior year at retail only margins of about 27.
October merchandise trends are showing performance broadly in line with the third quarter with total sales and margin of 2% to 3% as mentioned between our promotional activities and a quick check and the relaunch of QC rewards. We are looking to build momentum in Q4, as we head into 2025.
At year to date performance average per store month volumes were flat with retail margins about eight and a half.
Higher than or about 28, <unk> versus 26 five.
While all in fuel margins or about a penny lower or just a little under 30 per gallon year to date in 2024 versus 31 cents per gallon in 2023.
Couple of thoughts to share as we put this in the context of the broader 30% to 34 cents per gallon fuel margin range, we use for modeling purposes.
As we noted previously the upper end of the range requires one or both of two market dynamics to occur first steeply falling price environment like the one we witnessed in Q3 of 2022, where retail margins were elevated more than offsetting the timing variance in <unk>.
This has occurred about once every six to eight years and you can certainly see this coming as prices run up.
Unit volume.
Apartment, where wholesale prices are well above our opus low transfer price. This contrast, with along oversupplied market, where refiners discounted for rack and again there are indicators like an increase in colonial line space values more significant prolonged refinery outages and the like.
In 2024, we have seen neither of these conditions. Despite the geopolitical headlines as such we would expect margins to remain in a tighter 30 to $32 per gallon range in a more normal somewhat benign environment and within this framework. We do continue to believe challenged in store performance declining fuel volume.
And higher cost for marginal retailers will continue to result in higher equilibrium margins and as such we would expect to see structural upward pressure on March.
It gives me on margins over time as.
As we put this in the context of a walk forward to our 2028 goal of $1 3 billion in EBITDA. We don't require this upward pressure that creates higher industry margins to achieve our goal is new and rebuilt stores and capability investments of scale fully paved the way.
Rather it's an upside case and we continue to believe there are significantly more upside on fuel margins than downside.
And with that I'll turn the call back to the operator for Q&A.
Speaker Change: Thank you.
Speaker Change: As a reminder.
Speaker Change: I'd like to ask a question. Please press star and the number one on your telephone keypad.
Speaker Change: Just pause for a moment to compile the roster.
Okay.
And we will begin the question and answer session.
Speaker Change: Your first question comes from the line of Anthony <unk> from Wells Fargo.
Speaker Change: Your line is open.
Hey, good morning, guys nice quarter.
So I wanted to start off with NCI stores, I think Gallagher you mentioned as many as 40.
<unk> stores this year now versus that initial 30% to 35 number.
It is not something that we've been used to hearing from you guys. So can you maybe just talk about what went right. This year that allows you to contemplate beating your target.
And then any early thoughts on how you are planning.
Ntis for 25% as we think about both the magnitude and guidance and cadence.
Andrew: Yes. This is Andrew.
First thing is we have been working on building up the pipeline. We've made the point on several calls that we've been a little disappointed in not hitting the number part of was a function of the pipeline part of it was a process of stores moving through the pipeline, especially tied up in the permitting part of the process.
So we've built up a pipeline that gives us confidence of a 50 store per year build class in the future.
And we're seeing some breaks.
In the permitting process and we just had more to come as we use the term shovel ready.
In the fourth quarter that we move forward and that really front loads Q1, and the benefit of running Frontloading Q1, as you guys that earnings for the entire 12 months.
Period versus having your entire portfolio backend loaded so confidence around the pipeline a little more certainty around the permitting process.
And importantly, a more ratable build.
Andrew: Throughout the year.
Things that we should look forward too.
Andrew: And on top of that the increased performance of those per store metrics that Gallagher went over all of which continue to get amplified with the improvement initiatives that we have underway.
Thanks, Anthony the only thing I would add to that is.
Andrew mentioned, we are the cadence is very important getting more opened earlier in the year gives us confidence that we can deliver the number we're not ready to give guidance for 2025, yet, but we are moving closer to our objective of 50 Ntis a year. So we will move towards that in 2025.
You should see that sustain.
Speaker Change: Got it that's helpful. And then just on inside contribution if I take the low end of your contribution guidance for the year.
Speaker Change: Now implies something like 3% to 4% growth in Q4.
Which does represent an acceleration from what you just mentioned.
So can you just talk about the drivers of that acceleration a little bit more.
Speaker Change: And then how to think about underlying contributions from same store sales and margins.
Speaker Change: Yes.
Again, let's separate the Murphy banner from the quick check banner. The Murphy banner continues to benefit from our traffic driving categories fuel nicotine beer.
Andrew: And even lottery, even with the online gaming et cetera.
Going on that's helping center of the store on the Murphy side, which is really important.
We read the headlines around packaged beverage and salty snacks and what's happening there we're not seeing that on the Murphy side, we're seeing the opposite because we're getting the flow through.
Andrew: Into the stores.
With more raze and rebuild stores with a bigger center of store with the New 2800 center of the store.
Andrew: We feel really good about that.
Quick check business is food and beverage led and as we've talked and again, we read about in the news constantly lot of value wars going on in that space Breakfast day part coffee day part.
Lunch sandwiches et cetera, and so having food and beverage.
Sales flat essentially on a per store basis.
I guess feels good in this environment, but certainly didn't meet our expectation in our plan going into the year, where we just didn't anticipate the persistent inflation and the level of kind of price wars, some of which were reading about or alleviating and I think as you see our coffee pre.
Graham and some of the numbers, we talked about there by being a value brand to.
To start with we didn't have to take some of the same steps to maintain traction that environment.
Center of store has been an area at QC that.
Andrew: The lighter traffic on the food and beverage side.
It's been down and you see some of the more industry type numbers on packaged beverage.
<unk> snacks, it et cetera, I think our promotional activity and the results we're seeing there.
With the launch of quick check rewards, which we think can be as impactful in its categories as Murphy drive rewards was within its core categories.
Andrew: Is going to really allow us to build that momentum.
As we go into 2025, we're going to have a real clear.
Sure and so we will have a higher level of confidence and certainty around the guidance we gave in February.
Speaker Change: That we missed our guidance.
That we gave in February this year.
Got it I appreciate it guys.
Speaker Change: Thank you.
Speaker Change: Thank you.
Our next question comes from the line of Bonnie Herzog from Goldman Sachs.
Speaker Change: And as open alright.
Alright, Thank you good morning.
I wanted to ask about your fuel volumes, which were up I guess, a modest 50 beds on a same store basis in the quarter.
This is despite an easy year over year compare so could you talk through the drivers.
That slowdown that youre seeing and really Andrew.
Speaker Change: Andrew your outlook for industry volumes over the next few years also could you maybe talk about any benefit you might've seen in the quarter and possibly in October from the Hurricanes, I guess Helene and mountain.
Speaker Change: Yes, So look I think if you go back on a three year stack I mean, you can look at one year numbers to your numbers three years numbers in the period, where we gained the most significant market share we're still holding on to close to 5%.
On a three year stack.
Stacked basis, so we know.
High prices in a falling price environment. That's ultimately when we take the most share and as we've said before in low prices.
We're seeing now we give a little bit of that back in Murphy drive rewards has been.
A significant contributor into not giving as much back as we would have given back in say 2015 after the price fall off.
In 2014, so we're actually.
View this as positive, especially given kind of the macro trends around relatively.
Flat fuel gallons.
Speaker Change: With respect to the.
Speaker Change: Two hurricanes first of all our team did an incredible job.
Keeping stores opened two the last possible safe moment.
For our teams and getting them opened very quickly.
And we saw the typical.
Pre storm by <unk>.
Followed by a dip in the days, where maybe some stores couldnt reopened due to power being out but with generators getting to the stores quickly.
Getting those volumes back up so no real appreciable.
Speaker Change: Impact.
Speaker Change: From the stores.
Speaker Change: Minimum damage. Thanks.
Thankfully to the stores and no impact.
Materially to our team members our Tampa terminal also the team did an incredible job of preparing it.
It was the last to close in the first to reopen.
And our fuel transport providers, which we use third parties for did a great job reallocating trucks. So despite all the headline news there was really no material impact to us from a fuel.
Fuel gallons stands.
Standpoint from the two storms.
Speaker Change: Okay, that's helpful and good to hear.
Speaker Change: Then.
I'll, maybe make a comment.
Speaker Change: Where that absolutely loved that you are rebranding your tobacco business to nicotine so hoping to hear a little more color on some of the strength.
You are seeing there and if you have.
Lance I guess can change your backbar no either this year or early next year to add essentially more space for Smokefree nicotine products and in the context of that ultimately do you see further upside here. Thank you.
Speaker Change: Over the next few years. Thank you.
Sure I mean, when we talk to investors.
Many of you have taken the position that nicotine broadly or the tobacco categories, we called it previously.
Is a growing category and certainly oral nicotine.
Noncombustible products are significant.
Portion of that growth. So it's just changing the times essentially when we.
Speaker Change: Clarke Quik checked anr redeemed the category nicotine on their side so.
Speaker Change: In terms of color, we will continue to provide the same color.
That we have in the past right, we're growing share across the categories.
We're constantly making updates to our backbar optimizing space. They are working closely with the.
The manufacturers on that so in terms of a complete revamp of our back bar I don't see that coming it will just be the continued evolution as we've been a leader on a lot of the products.
Speaker Change: With respect to upside I think theres going to be upside in at least.
Speaker Change: Three areas.
One as other retailers kind of deemphasize the traditional products.
Speaker Change: And with the price increases that you see from the manufacturers are everyday low price becomes more and more and more relevant and so we will continue to pick up share.
Speaker Change: Sure.
Speaker Change: Grow contribution margin dollars.
Speaker Change: In the traditional products.
Speaker Change: Two, especially with the oral nicotine products and Theyre higher contribution.
Speaker Change: Margin per use equivalent that change in.
Speaker Change: Yeah.
From growth associated with that will be positive and it may show up in a higher unit margin or it may not depending on how much the traditional products grow in relation to that but it will absolutely grow more contribution margin dollars.
Speaker Change: And the third area of possible tailwind for us.
Would be if.
Speaker Change: Other retailers.
Manufacturers and distributors and the FDA and the Doj.
It would take a more responsible.
Speaker Change: Our approach towards.
Speaker Change: The illicit an illegal products in the market place.
Speaker Change: As we mentioned.
The state took.
Speaker Change: And we saw a significant uplift across the tobacco nicotine categories in that state and so we see that as a <unk>.
Speaker Change: Opportunity down the road as some have projected almost 80% of vapor products are considered illicit or illegal products.
Speaker Change: Yes, very much agree thank you Andrew I'll pass it on.
Speaker Change: Thanks.
Alan: Thank you Alan.
Our next question comes from the line of Bobby Griffin from Raymond James.
Your line is open good morning, everybody.
Good morning, Thanks for taking my questions Congrats on a good quarter.
Speaker Change: Thanks, Bobby Andrew I wanted to first circle back on the consumer behavior in a clearly a lot of different moving parts in today's economy. We've talked in past calls about the <unk> promotional pressure and things like that but on a high level. How would you characterize at all versus <unk> is it.
Starting to get stable.
When you look at the consumer pressure, just curious kind of what you would characterize it on a sequential basis to help us frame it up as we're heading into 2025.
Speaker Change: Okay.
Speaker Change: On a sequential basis it does feel like its stabilizing.
Speaker Change: Somewhat.
Speaker Change: Sorry.
Really the promotional had.
Speaker Change: <unk> been out there so sequentially.
As we see some of the retailers announcing whether it's a coffee program or sandwich program backing away.
From some of those that's going to be positive.
Speaker Change: We're having to make a trade off.
The $3 99, six inch promotional subs. So we're seeing a shift in mix from 12 inch to six inch.
Speaker Change: <unk>.
The uplift we're seeing on that.
As more than breakeven to positive so.
Speaker Change: The customers definitely value focused we see some of that play off in the center of the store.
With the basket not being maybe as complete.
But I think with some certainty.
Speaker Change: And the economy will continue to see the value customer.
By eating as we've seen over the last couple of quarters I think it is going to be some of the competitive.
Speaker Change: Relief that.
We certainly expect to see.
Speaker Change: Later in 2025, but Q1 Q2, we probably expect to continue to see competitive.
Value offers from a broader set of <unk>.
Certainly on the <unk> on the yes, I was going.
I'd say on the Murphy side.
Speaker Change: We continue to see.
Speaker Change: The core fuel nicotine.
Speaker Change: Beer lottery categories, driving consumers and we're continuing to see the trade down.
Murphy from other retailers as evidenced in our and our share growth.
And so.
Good news is it represents a higher proportion of our total network.
Speaker Change:
A higher proportion of our future growth as well so while we're doing concrete steps to intentionally address some of the traffic headwinds.
Quick check those same types of steps at Murphy or having even more compounding benefit.
Speaker Change: Okay I appreciate that.
And then can you talk about something we first talked about in March I think you guys identified some opportunities I believe the phrases like pulling up the bottom quartile of each quartile of their stores and EBITDA and just curious where we are in that journey and we still kind of in the identified stage of finding the stores and finding the opportunities are we moving towards more into.
The execution side of that where that starts to flow through in 'twenty five just anything there on one of those initiatives that we're talking about.
mendy: Hey, good morning, Bobby this is mendy.
I'm happy to take your question. Thanks for thank you for remembering and asking.
Actually we have made progress on that initiative, we've done the work to really separate our stores and to groups based on those structural factors that we can look towards on a like for like basis.
The variability in performance.
The good news is we do see variability, we have 30 clusters of similar stores and.
And because we now see variability on like for like stores that says that the variance should be controllable at least to some degree.
And we're also now able to attribute most of that addressable variability to some 11 different performance drivers and of those drivers fuel sales influenced by dispenser health represents our largest theoretical upside so what we're going to be doing next is proof of concept.
Speaker Change: Test beginning as early as actually next week to a small set of stores with a plan to roll out to a larger set.
And and that proof of concept really will lead us assess what is it really feasible at the store.
<unk> do we have and getting that benefit both app store and at the home office.
And we will help to inform a larger rollout so.
Still in the testing and learning phases and we're in the early days of that but we will continue to be able to refine what is really possible for upside capture what investments also are we going to have to put against that in order to get that benefit capture and also how do we make that benefit sustaining as we go forward. So yes, we should see some.
Benefits for that in the next year.
But again, we're trying to keep our expectations conservative at this point because there is no perfect store and even though you might find some theoretical opportunity trying to figure out what is actually realistic to expect and what gaps do we have at the store and in home office to actually get that potential we're still trying to figure that out.
As we come into next year after having done the pilot will be a lot more informed about what the actual potential as and we will be able to start really putting some numbers behind us and giving you. Some more concrete guidance of what we can expect and when we can expect to get the benefit.
Bobby one thing I'll add to that those inherent structural uncontrollable factors absolutely make up the top half of that range that we presented in our investor deck. So we're working on the bottom half of that range and as Mindy said.
Bobby Andrew: Moving that out the other thing is if theres one thing this incredible team of people.
Does is they are always looking for the next opportunity and pushing it forward, but we also have a few things that we want to complete with excellence like our digital transformation initiative that continues to roll into Q1 of next year. Our in store experience initiative, where we've remodeled stores and taken the learnings of that into our store up tomorrow.
Speaker Change: And then some other common systems.
Work that we're doing across across the enterprise and so there's a pacing mechanism there.
Speaker Change: So reflecting.
Things that we've started that are delivering.
Real tangible benefits to the bottom line that we want to finish with excellence.
Speaker Change: Andy.
Leading the initiative with Gallagher rightly focusing on the biggest upside opportunity on fuel can make a huge difference because that is one of our traffic driving category that impacts the entire store.
Speaker Change: So more to come on that in February, but it's really something that.
We're not going to probably see fully baked in until 2026.
Thank you I appreciate the details best of luck here in the fourth quarter.
Speaker Change: Great. Thank you.
Thank you.
Speaker Change: Seeing as there are no more questions in the queue that concludes our question and answer session.
Now ill turn the call back over to Andrew Clyde for closing remarks.
Andrew Clyde: Great well, thanks, everyone for joining it's great to see a quarter come together, despite all the noise and uncertainty.
Out there in the marketplace and with consumers and I think it's just evidence that our brands are delivering on our value offer that just continues to resonate our capability investments are continuing to translate into real results that are meaningful to the business and the consumers.
Andrew Clyde: And our teams across the enterprise are doing a great job in terms of preparing us for future growth and that work the $1 3 billion in 2028, so a big thanks to all the teams out there that have went through a lot in Q3 with the hurricanes and the initiatives and everything that's going on so congratulations to them and we'll look forward to.
Speaking with investors soon thank you.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Speaker Change: Okay.
Speaker Change: Yeah.