6 Key Takeaways From Murphy USA’s 3rd-Quarter 2017

EL DORADO, Ark. -- Hurricanes dominated Murphy USA Inc.’s attention during the company’s third-quarter 2017, but they didn’t prevent the retailer from attaining improved results.

"Third-quarter results were impacted by the severity and devastation wrought by hurricanes Harvey and Irma, yet the resilience of our people and business model was evident in the quarterly results," said President and CEO Andrew Clyde.

Murphy USA reported net income of $67.9 million for the quarter, compared to net income of $45.5 million in third-quarter 2016.

Here are the key financial takeaways (for more highlights from the quarter, click here) …

“Our first priority as these [hurricane] crises unfolded was to coordinate and ensure the safety of our employees,” Clyde said on the company’s earnings call Nov. 2. “All members of the Murphy USA family were safe and accounted for within 24 to 48 hours. We retained 100% of our store managers and assistant store managers, and 95% of our hourly cashiers who quickly reopened most of our locations generally within one to five days of closure.”

During Harvey, Murphy USA closed approximately 80 stores in the Houston area, about 90% of which were operational within five days of the storm's passing, Clyde said. All of the remaining stores returned to service within three weeks and experienced minimal damage, he said.

For Irma in Florida, Murphy USA reopened 100% of the affected stores within four days, including stores in communities without power.

He also said that the company provided assistance to employees through grants and a “need fund” that employees and suppliers support. “We also took special steps to work with first responders, including staging generators in anticipation of power outages and prioritizing fuel supply to source on evacuation routes in and out of the affected areas,” he said.

“While per-store metrics were negatively impacted from both a fuel volume and merchandise perspective, once prices had reached equilibrium following the refinery shutdowns, the retreat in wholesale prices contributed to a robust margin environment in September, which helped offset a period of negative margins as Harvey made landfall,” said Clyde. “While the per-store metrics were visibly impacted as one might expect given the magnitude of these events, the ensuing strong retail fuel margin environment coupled with our proprietary supply chain positions more than made up for the volumetric weakness in the financial results.”

Total fuel contribution—retail fuel margin and product-supply and wholesale (PS&W) results including renewable fuels identification numbers (RINs)—for third-quarter 2017 was 20.5 cents per gallon (CPG) compared to 15.4 CPG in third-quarter 2016. Total fuel-contribution dollars increased 25.7% in third-quarter 2017 due primarily to higher retail margins, combined with the higher year-over-year contribution from PS&W and RINs.

Total retail gallons declined 5.5% to 1 billion gallons during third-quarter 2017, while volumes on an average-per-store month (APSM) basis declined 9.5% vs. third-quarter 2016. Total retail fuel contribution increased 6.6% during the quarter despite the decrease in total retail gallons sold, attributable mainly to the effects of the hurricanes.

PS&W contribution and RINs continued to show sequential improvement since the first quarter of 2017, achieving 5.0 CPG of retail-equivalent margin.

Total merchandise sales increased 1.1% to $605.6 million in third-quarter 2017 from $599 million in third-quarter 2016, with margins generally flat at 16%. On a per-store-month basis, total merchandise contribution declined 2.3%, due mostly to accelerated traffic declines, which were primarily related to the hurricanes and to lower tobacco contribution. Merchandise contribution dollars grew 2% during third-quarter 2017 to $97.7 million.

Here are some category specifics …

“Tobacco sales continue to decline with the market but incremental softness in the quarter was attributable to the downtime associated with the storms, retail-price compression resulting from recent M&A activity and competitive intensity that remains persistent in the category but at a more moderate pace than we've seen in prior years,” Clyde said. “Despite these headwinds, margin rates continue to expand in the tobacco category due to price optimization, promotional activity and our product mix. In fact, we are likely to see a benefit in the fourth quarter from the manufacturer price increase that came both earlier in the year and at a higher absolute rate than before.”

The beverage category is Murphy USA’s largest after tobacco.

“Beverage sales have seen a disproportionate impact of lower traffic in the quarter, as it is typically an add-on sale, with particular weakness in carbonated soft drinks,” Clyse said. “However, we are continuing to see sales and margin growth in the noncarbonated segments as we invest in larger formats and supercoolers.”

During third-quarter 2017, Murphy USA opened 12 new c-stores and five raze-and-rebuild locations, bringing its total count to 1,423, including 1,154 Murphy USA and 269 Murphy Express sites in the Southwest, Southeast and Midwest.

The company has 23 stores under construction, including three kiosks undergoing raze-and-rebuilds, which will return to operation as 1,200-square-foot stores before the end of the year. Since Sept. 30, Murphy USA has opened 10 stores.

With more than 1,400 convenience stores, El Dorado, Ark.-based Murphy USA ranked No. 5 on CSP's 2017 Top 202 list of the largest c-store chains in the United States.