Murphy : Quarterly Earnings Document

Murphy USA Inc. NYSE:MUSA

FQ2 2021 Earnings Call Transcripts

Thursday, July 29, 2021 3:00 PM GMT

S&P Global Market Intelligence Estimates

		-FQ2 2021-		-FQ3 2021-	-FY 2021-	-FY 2022-
	CONSENSUS	ACTUAL	SURPRISE	CONSENSUS	CONSENSUS	CONSENSUS
EPS Normalized	3.00	4.81	60.33	2.56	10.34	9.25
Revenue (mm)	4240.49	4456.00	5.08	4583.50	17048.75	17700.77
Currency: USD

Consensus as of Jul-28-2021 11:51 PM GMT

		- EPS NORMALIZED -
	CONSENSUS	ACTUAL	SURPRISE
FQ3 2020	2.55	2.27	(10.98 %)
FQ4 2020	2.17	2.22	2.30 %
FQ1 2021	1.52	2.26	48.68 %
FQ2 2021	3.00	4.81	60.33 %

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Contents

Table of Contents

Call Participants..................................................................................	3
Presentation..................................................................................	4
Question and Answer..................................................................................	10

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MURPHY USA INC. FQ2 2021 EARNINGS CALL | JUL 29, 2021

Call Participants

EXECUTIVES

Andrew Clyde

Christian Pikul

Vice President of Investor

Relations & FP&A

Malynda K. West

Executive VP of Fuels, CFO &

Treasurer

ANALYSTS

Benjamin Bienvenu

John Macalister Royall

JPMorgan Chase & Co, Research

Division

Matthew Jacob Fishbein

Jefferies LLC, Research Division

Robert Kenneth Griffin

Raymond James & Associates,

Inc., Research Division

Sam Reid

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MURPHY USA INC. FQ2 2021 EARNINGS CALL | JUL 29, 2021

Presentation

Operator

Good day, and thank you for standing by. Welcome to the Murphy USA Second Quarter 2021 Earnings Conference Call. [Operator Instructions] And please be advised that today's s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Christian Pikul.

Christian Pikul

Vice President of Investor Relations & FP&A

Yes. Thank you. Good morning, everybody. Again, thanks for joining us. 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 give us an overview of the financial results, and then we will open up the call to Q&A after a brief discussion around our revised guidance.

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 1995. 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 todays 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 Investors section of our website. With that, I will turn the call over to Andrew.

Andrew Clyde

Thank you, Christian. Good morning, and welcome to everyone joining us today. We're very pleased with Q2 performance, which led to the second strongest quarter in our history from a financial perspective, comping against outsized OPEC and COVID impacted results from last year.

While the end results were impressive, this was by far the single most challenging quarter from an operations and execution perspective we have ever faced as a company. I am very proud of our entire team, as we overcame many significant obstacles to deliver these strong financial results. Make no mistake, these results were the outcome of a deliberate set of choices and intentional actions taken during the quarter that built on decisions and capabilities we have developed since then, which in turn helped us overcome these challenges and deliver bottom line results in the manner you have come to expect, as Murphy USA shareholders.

So rather than walk through operational highlights, as I would normally do, I want to take this opportunity to do something different as we reflect on the COVID environment, recognize and thank key contributors, including our field and home office heroes and communicate to you just how nimble and responsive our business can be when it comes to serving customers, working with strategic partners, supporting our employees and delivering for all our stakeholders.

To frame this conversation we created a top 10 list of some of the achievements we think are most representative of the Murphy USA's spirit, commitment and passion for business. #1, leading through merchandise supply chain disruptions. We were certainly not the only retailer to face potentially disruptive supply chain issues, but our team was proactive with the extra mile to ensure we could continue serving our customers. Let me give you a few examples. One of the reasons we were drawing a quick check was a shared culture in the work ethic, and during the quarter, the team proved themselves as committed

to their customers as we are to ours. When faced with supply shortages that potentially impacted their

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MURPHY USA INC. FQ2 2021 EARNINGS CALL | JUL 29, 2021

prepared food offer, the operations team filled the void to make sure product got from suppliers to the stores, including renting trucks themselves to deliver fresh produce so they could keep serving customers. That is what I call amazing spirit and a commitment to customer service.

On the merchandise front, some of our largest suppliers were disrupted due to raw material availability and workforce shortages, which resulted in reduced availability of certain items. Our team had to go the extra mile to ensure our stores remain stocked, keeping in constant contact with vendor partners, taking deliveries of product outside normal operating hours, adjusting the promotional calendar when appropriate and communicating updated planogram tactics to the stores.

#2, adapting to the ransomware attack on the Colonial pipeline. Low probability and almost unforeseeable outlier events continue to make headlines with the most recent being the ransomware attack on the Colonial pipeline where we are one of the largest shippers. The event mirrored in many ways, a major hurricane, for which we are very well prepared as we witnessed significant pre-buying activity before outages began.

The event impacted nearly a third of our stores and resulted in widespread gasoline shortages across the Southeastern United States. Our supply team with their capabilities, experiences and assets was able to optimize routing of fuel supplies from other markets while leveraging our fuel carrier partnerships and storage positions to help minimize operational impact. As such, total volume impact was minimal across the time horizon of the event.

#3, navigating continued driver shortages for fuel and merchandise logistics. Driver availability, which has been a material and contributing factor to broader fuel and merchandise supply chain challenges also impacted store operations. In this case, our scale and strategic relationships with fuel carriers help to minimize outages and rate increases on the field transport side. From a broader merchandising perspective, store operations were challenged as fewer deliveries translated to extra labor and effort to stock and display some direct distributed products, further taxing store-level employees.

Our renewed partnership with Core-Mark continue to pay dividends, as they maintained excellent fill rates on core products and their new track my order real-time logistics technology allowed efficient use of store labor. Despite the 3 externalities highlighted above, we continue to press forward with major initiatives to drive improvements to position the business for the future.

#4, engaging customers and store associates through innovative tobacco promotions. Despite comping against last year's record pantry loading results, we were pleased but not surprised to see tobacco sales and margins continue to grow favorably against the prior year quarter, which showed material outperformance that some investors may have thought was transitory. On a same-store basis, we grew tobacco sales slightly, but margin dollars grew at a 2.2% rate in the second quarter versus 2020.

Meanwhile, the 2-year stack shows growth north of 20%, meaning we have maintained and grown tobacco contribution from existing customers and new customers that we are able to better serve during the pandemic. Through targeted category investments in shelf space and fixtures coupled with our scale and upselling ability and, of course, the unique advantages of our Murphy Drive Reward's capability, we have become the retailer of choice for new product promotional activity in the broader tobacco category.

A distinction that enhances our long-term participation in the evolving category, as manufacturers continue to support and promote alternative nicotine products as they did in Q2. Our store employees know how to upsell product and having effective promotions is one way in which we keep them motivated and engaged. They were incentivized through contest and bonus opportunities, which help drive results in both the tobacco and nontobacco space. In a normal environment, the ability to properly staff our stores might not be a noteworthy event, but in our case, it was critical to executing effective promotions with our vendor partners, most notably in the tobacco space.

#5, resetting large-format stores to achieve their return potential. Our success in the tobacco space does not mean that we have taken our eye off the ball in the center of the store categories either. To further our goal of optimizing return on capital employed after analyzing opportunities in our large format 2,800 square foot store design, we implemented a reset across a group of pilot stores, resulting in increased

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