|Murphy USA Inc. Reports Second Quarter 2017 Results|
El Dorado, Arkansas, August 2, 2017 - Murphy USA Inc. (NYSE: MUSA), a leading marketer of retail motor fuel products and convenience merchandise, today announced financial results for the three and six months ended June 30, 2017.
"Our strong results in the second quarter demonstrate the substantial earnings power of our low cost, high volume business model during periods of favorable retail fuel margins," said President and CEO Andrew Clyde. "Meanwhile, our merchandise profits are accelerating while per-store operating costs continue to decline, creating further upside operating leverage while reducing the Company's earnings volatility during periods of challenging fuel margins. Midstream conditions improved during the second quarter as the RIN market returned to an equilibrium status after regulatory clarity emerged, although PS&W contribution remains pressured by an oversupplied market and depressed rack prices." Clyde concluded, "With our debt issuance, 29% earnings per share growth, and further execution on our improvement initiatives during the quarter, we continue to optimize and improve operating and financial leverage for the benefit of shareholders."
Net income, adjusted EBITDA and earnings per share all improved Q2 2017 versus Q2 2016 period due to higher total fuel margins, higher network fuel volumes, and increased merchandise margins. Adjusted EBITDA generated in the first half of 2017 was below the first half of 2016 due primarily to lower total fuel margins, while net income and earnings per share declines over the period were also driven by the $56 million gain recognized from the CAM pipeline sale during Q1 2016.
Total fuel contribution dollars increased 10.8% in Q2 2017 due primarily to higher retail margins, offset by lower year-over-year contribution from PS&W plus RINs.
Total retail fuel contribution increased 57.2% during the quarter as falling product prices created a more favorable market structure and margin environment versus the consistently rising wholesale prices of Q2 2016. Also, total network retail gallons sold in the quarter increased 2.5% due to new store growth, offsetting APSM retail volume declines of 2.0%. Product Supply & Wholesale contribution, along with fundamental midstream conditions, improved sequentially during the current quarter.
Total merchandise sales increased 2.8% to $605.7 million in the second quarter 2017 from $589.5 million in second quarter 2016, with margins increasing to 16.1% versus 15.7%, respectively. On a per-store-month basis, merchandise contribution increased 0.8% driven by a 2.3% increase in non-tobacco APSM contribution, offset by a 0.3% decline in tobacco APSM contribution. Non-tobacco APSM sales and contribution benefited from promotion innovation, while the tobacco-related decline was driven by lower volumes.
Total station and other operating expenses increased $4.3 million for the quarter, reflecting new store additions and slightly higher payment fees. However, on a per store basis, operating expenses excluding payment fees declined 2.4%. SG&A declined $1.0 million to $31.3 million in the quarter due to timing of spending for enterprise wide initiatives.
Murphy USA opened five retail locations in Q2 2017 (not including twelve raze and rebuilds), bringing the quarter end store count to 1,411, consisting of 1,154 Murphy USA sites and 257 Murphy Express sites. A total of 24 stores are currently under construction along with 2 kiosks undergoing a raze and rebuild which will return to operation as 1,200 sq. foot stores before year end. Seven stores have opened since the end of second quarter 2017.
Cash balances on June 30, 2017 totaled $197.1 million. Long-term debt consisted of approximately $491 million in carrying value of 6% senior notes due in 2023, $295 million in carrying value of 5.625% senior notes due in 2027 and $97 million of term debt less $15 million of current maturities, which is reflected in current liabilities. Remaining undrawn borrowing capacity under the ABL was $208 million as of June 30, 2017.
Common shares repurchased during the current quarter were approximately 726,000 for $49 million. There is approximately $110 million remaining under the previously authorized program of up to $500 million as of quarter end. At June 30, 2017, the Company had common shares outstanding of 36,051,935.
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The Company will host a conference call on August 3, 2017, at 10:00 a.m. Central time to discuss second quarter 2017 results. The conference call number is 1 (877) 291-1367 and the conference number is 45734993. A live audio webcast of the conference call and the earnings and investor related materials, including reconciliations of any non-GAAP financial measures to GAAP financial measures and any other applicable disclosures, will be available on that same day on the investor section of the Murphy USA website (http://ir.corporate.murphyusa.com). Online replays of the earnings call will be available through Murphy USA's web site and a recording of the call will be available through August 4, 2017, by dialing 1(855) 859-2056 and referencing conference number 45734993. In addition, a transcript of the event will be made available on the website shortly following the conference call.
Certain statements in this news release contain or may suggest "forward-looking" information (as defined in the Private Securities Litigation Reform Act of 1995) that involve risk and uncertainties, including, but not limited to anticipated store openings, fuel margins, merchandise margins, sales of RINs and trends in our operations. Such statements are based upon the current beliefs and expectations of the company's management and are subject to significant risks and uncertainties. Actual future results may differ materially from historical results or current expectations depending upon factors including, but not limited to: our ability to continue to maintain a good business relationship with Walmart; successful execution of our growth strategy, including our ability to realize the anticipated benefits from such growth initiatives, and the timely completion of construction associated with our newly planned stores which may be impacted by the financial health of third parties; our ability to effectively manage our inventory, disruptions in our supply chain and our ability to control costs; the impact of any systems failures, cybersecurity and/or security breaches, including any security breach that results in theft, transfer or unauthorized disclosure of customer, employee or company information or our compliance with information security and privacy laws and regulations in the event of such an incident; successful execution of our information technology strategy; future tobacco or e-cigarette legislation and any other efforts that make purchasing tobacco products more costly or difficult could hurt our revenues and impact gross margins; efficient and proper allocation of our capital resources; compliance with debt covenants; availability and cost of credit; and changes in interest rates. Our SEC report, including our Annual Report on our Form 10-K for the year ended December 31, 2016 contains other information on these and other factors that could affect our financial results and cause actual results to differ materially from any forward-looking information we may provide. The company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events, new information or future circumstances.
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Same store sales information (compared to APSM metrics)
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Supplemental Disclosure Regarding Non-GAAP Financial Information
The following table sets forth the Company's Adjusted EBITDA for the three and six months ended June 30, 2017 and 2016. EBITDA means net income (loss) plus net interest expense, plus income tax expense, depreciation and amortization, and Adjusted EBITDA adds back (i) other non-cash items (e.g., impairment of properties and accretion of asset retirement obligations) and (ii) other items that management does not consider to be meaningful in assessing our operating performance (e.g., (income) from discontinued operations, gain (loss) on sale of assets and other non-operating expense (income)). EBITDA and Adjusted EBITDA are not measures that are prepared in accordance with U.S. generally accepted accounting principles (GAAP).
We use Adjusted EBITDA in our operational and financial decision-making, believing that the measure is useful to eliminate certain items in order to focus on what we deem to be a more reliable indicator of ongoing operating performance and our ability to generate cash flow from operations. Adjusted EBITDA is also used by many of our investors, research analysts, investment bankers, and lenders to assess our operating performance. We believe that the presentation of Adjusted EBITDA provides useful information to investors because it allows understanding of a key measure that we evaluate internally when making operating and strategic decisions, preparing our annual plan, and evaluating our overall performance. However, non-GAAP measures are not a substitute for GAAP disclosures, and Adjusted EBITDA may be prepared differently by us than by other companies using similarly titled non-GAAP measures.
The reconciliation of net income to EBITDA and Adjusted EBITDA is as follows: