Murphy : Quarterly Earnings Document

Contents

Table of Contents

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MURPHY USA INC. FQ2 2023 EARNINGS CALL AUG 03, 2023

Call Participants

EXECUTIVES

Christian Pikul

Vice President of Investor Relations &

FP&A

Malynda K. West

Executive VP of Fuels, CFO &

Treasurer

R. Andrew Clyde

President, CEO & Director

ANALYSTS

Anthony Bonadio

Wells Fargo Securities, LLC, Research

Division

Benjamin Shelton Bienvenu

Stephens Inc., Research Division

Bonnie Lee Herzog

Goldman Sachs Group, Inc., Research

Division

Robert Kenneth Griffin

Raymond James & Associates, Inc.,

Research Division

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MURPHY USA INC. FQ2 2023 EARNINGS CALL AUG 03, 2023

Presentation

Operator

Good morning, and welcome to the Murphy USA Second Quarter 2023 Earnings Conference Call. My name is Brianna, and I will be your conference operator today. [Operator Instructions]

I will now turn the call over to Christian Pikul, Vice President of Investor Relations. Please go ahead.

Christian Pikul

Vice President of Investor Relations & FP&A

Yes. Thanks, Briana. Good morning, everyone. Thank you for joining us all today. With me 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 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 relevant SEC filings. Murphy USA takes no duty to publicly update or revise any forward-looking statements.

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.

With that, I'll turn the call over to Andrew.

R. Andrew Clyde

President, CEO & Director

Thank you, Christian. Good morning, and welcome to everyone joining us today. We are excited to discuss our exceptional second quarter performance, which reaffirms the strength of our strategy and business model and our enduring commitment to driving sustainable value for all our stakeholders.

Murphy USA reported another impressive quarter of financial results in Q2 underpinned by continued strength across all major categories. Beginning with fuel, we achieved nearly flat APSM volumes in Q2, including positive volumes in May and June, as we held market share gains achieved last year and continued to outperform the OPUS volume survey in our geographies.

We built on merchandise sales and margin momentum, led by total volume and market share gains in tobacco, and sales and contribution growth in non-tobacco categories. Tobacco share grew across all subcategories as we continued to promote and provide affordability to our customers, while our non-tobacco category saw broad based strength led by energy sales up 21% in units up over 13%.

Food and beverage across the enterprise also accelerated in Q2 with sales and margins up 6% and 3%, respectively. Despite some of the traffic challenges that continued to impact the Northeast, our QuickChek stores posted record food and beverage sales in Q2 with record margin months in May and June.

On the cost side, our already low cost model saw per store operating expense growth of less than 4% in Q2 as we continued to leverage our scale, reduce overtime, and lap targeted wage increases from the prior year. Notably, as inflation eases, associate engagement reigns high as together we focus on our mission to help customers affordably meet their non-discretionary needs.

If I take a step back and consider the relatively benign external operating environment of the second quarter with nothing extraordinary taking place and then think about the high bar we are lapping from the prior year period, I view our results as even more exceptional.

Turning specifically to fuel margins, the past 3 years can be characterized by exogenous events, including pandemic-driven demand destruction, geopolitical instability, severe volatility, steeply rising prices, and precipitous price fall offs. Each and every quarter was

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MURPHY USA INC. FQ2 2023 EARNINGS CALL AUG 03, 2023

distinct in its own way. The one constant has been significantly higher fuel margins as the industry supply curve steepened due to cost and traffic headwinds for marginal retailers. Some investors and even analysts have been reticent to believe that higher margins are sustainable, and they wanted to see the results in a more normal period.

Well, following 3 years of macro uncertainty and onetime events, there was absolutely nothing remarkable about the environment in Q2. In fact, the only thing you may find remarkable about the quarter is that we are once again reporting all-in fuel margins on the high end of our range at $0.295 per gallon. In recent months, more investors and analysts have asked me, "Are we really still debating higher fuel margins?" My answer, of course, is, no, we are not. There is no internal debate at Murphy USA. The answer to us appears quite clear.

Looking ahead, while we do not know the market dynamics that will define the rest of Q3, we do not expect a quarter as remarkable as the third quarter of 2022. During Q3 2022, we achieved significant share gains, growing total gallons over 13% and all-in margins of $0.38 per gallon, while peers reported flat or declining volumes. As we have stated previously, these exceptional prior year gains and high margins are not repeatable in a normal quarter, but were instead the result of a prolonged period of rapidly falling prices that we only witness every 6 to 8 years.

I don't particularly like talking about 2 year stack, but we know that Q3 will be a difficult comparison and want to set expectations accordingly. As a hypothetical, flat same-store gallons in Q3 this year would result in an industry leading 2 year stack of 9%, while declines as high as 4% would still likely lead peers with a 2 year stack of 5%. Internally, we are focused on sustaining last year share gains while continuing to drive traffic to our stores through our loyalty program, in-store promotions and overall pricing strategy.

And while fully maintaining Q3 share gains would be an ambitious goal, where we would need some help from the macro environment, I do believe that any 2 year stack for fuel volumes greater than 5% would demonstrate strong execution against our long- term strategy.

Turning to merchandise. As I mentioned at the beginning of this call, we are really pleased with the second quarter performance and seeing that momentum continue into the second half of the year. I believe the strong results speak for themselves. So I want to spend a little bit more time today talking about the exciting aspects of the QuickChek integration and how synergies and other benefits are manifesting across the enterprise.

We are in the early stages of recognizing significant benefits from product and menu innovation as well as enhanced promotional and marketing activities to help improve store performance, particularly in the food and beverage category. The combined learnings of both companies are coalescing into sustainable and material performance drivers of the business, and so I want to share some examples on this call.

Starting with branded products and promotions. We are creating new opportunities to engage with our customers outside of fuel and tobacco. We think this is a significant building block upon which we can implement further improvements in store traffic and profitability. As an example, we saw strong sales from a limited time made-to-order watermelon smoothie of QuickChek, which was subsequently reimagined and introduced as a limited time offer Sour Patch Kids branded frozen slushy product at Murphy USA stores. Similarly, edible cookie dough and brownie bites cups first introduced in the QuickChek open coolers were quickly followed up at Murphy stores.

Having successfully increased the level of promotional awareness of QC's 2 for $5 breakfast sandwiches, where we grew both sales and margins by 11% in the quarter, we have introduced similar 2 for promotions for Murphy grab-and-go items across multiple categories in day parts. We expect to accelerate the use of promotions and limited time offers across the enterprise in the second half of 2023, giving customers even more reason to come inside our stores.

Turning to innovation. The QuickChek format is the perfect test and learn environment to identify high potential products that have strong overlap with Murphy USA customers, and the QuickChek team has been leading these innovation efforts. For instance, we develop products with well known national brands, including a new and exclusive sugar-free frozen energy drink with Prime and partnered with Red Bull on both iced and exclusive to QC frozen flavored infusions, creating a new traffic driving and basket building category in store at QC. In addition to the introduction of nitro coffee at QC, these innovations are expected to lead to new dispense beverage options at Murphy branded stores.

We also continued to innovate in our growing core categories where the made-to-order menu at QC is being realigned with consumer insights and fresh product preferences. This will lead to some exciting new sandwiches -- signature sandwiches to be introduced in the second half of 2023.

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