MURPHY USA INC. FQ3 2021 EARNINGS CALL | OCT 28, 2021
Presentation
Operator
Good day, and thank you for standing by. Welcome to the Murphy USA Third Quarter 2021 Earnings Conference Call. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Christian Pikul. Please go ahead, sir.
Christian Pikul
Vice President of Investor Relations & FP&A
Yes. Good morning. Thank you, everyone, for joining us. As is the custom, with me today are Andrew Clyde, President and CEO; Mindy West, Executive Vice President and CFO; and Donnie Smith, Vice President and Controller. After some comments from Andrew, Mindy will give us an overview of the financial results and we'll 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 recent 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 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 were very pleased with Q3 performance, which we believe continues to showcase the reasons why Murphy USA's advantage business model is uniquely built to thrive in the current environment, and we expect our competitive advantage to continue to grow over time.
Last quarter, we discussed the top 10 operating challenges the business was facing and how the team overcame those challenges to ensure delivery of strong financial results. Third quarter wasn't really all that different. We saw higher trending crude prices, continued labor challenges, and ongoing supply chain issues. Yet, thanks to our dedicated store associates and support staff, we once again overcame those challenges and delivered another quarter of impressive financial results, further demonstrating the resilience of our business.
It is becoming more evident to us and should be to our investors that the headwinds our industry is facing are ultimately translating to tailwinds for Murphy USA. In fact, in subsequent conversations with investors at virtual conferences in September, we acknowledge that these headwinds exist and are impactful.
However, we also encourage investors to ask the second and third logical follow-up questions to better understand how these pressures are ultimately manifesting in higher breakeven fuel margins for the average retailer.
While there may have been some reluctance to embrace what we have said for some time or structural changes to industry breakeven fuel margins, the narrative has begun to change from when and if to how much. So keeping with that one simple question in mind, I want to give you a slightly different view of the financial results we delivered this quarter and how we think it should impact your view of our business.
MURPHY USA INC. FQ3 2021 EARNINGS CALL | OCT 28, 2021
So looking at our results, if you think about the total merchandise contribution of $187 million or roughly $0.17 per gallon on roughly 1.1 billion gallons sold, and then back out all the store OpEx of about $0.14 per gallon, [indiscernible] field and marketing G&A overhead of $0.02 per gallon, you get about $0.01 per gallon profit of roughly $10 million. So for the sake of argument, the merchandise contribution alone has covered all the operating costs to run the stores, including all the field-related and supporting overhead.
Then if you look at the fuel margin of $26.06 per gallon, back out payment fees of about $0.04 per gallon, and roughly $0.03 per gallon of corporate G&A, you get about [indiscernible] per gallon which is net of $0.01 per rent, which on 1.1 billion gallons sold essentially gets you to our EBITDA of roughly $212 million for the quarter.
When you think about the business that way, the fuel component of our earnings stream is essentially 100% of the profit, generating all the cash flow to service our capital structure and fund our capital allocation decisions. Most importantly, our growth in maintenance capital, the interest on our debt, taxes, the depreciation of our assets, our dividend, and share repurchases. So how do we think about our fuel business and the expected earnings stream it provides?
First, our volumes are higher than the industry average and our public peers, which is a huge advantage. Second, we have demonstrated that with the benefits of our product supply business, our total fuel margins are less volatile over time than our public peers. And with our low-cost structure, we have greater upside exposure to the structural change we are seeing in breakeven fuel margin trends. Last, with elevated prices and increasing price sensitivity across customer segments, our everyday low price position is advantaged to grow share.
And thanks to QuickChek, also a high-volume brand and other initiatives to enhance the food off across our network, we believe we are best positioned amongst our peers to continue to grow the high-margin component of our merchandise contribution that is likely to not only absorb future costs and inflation headwinds but will also lead to even higher nonfuel profits.
Going forward, we are focused on 3 overarching goals to sustain and grow our advantaged value position. First, we will continue to expand our merchandise contribution efficiently. We are not immune to the operating headwinds the industry is facing. But in our situation, these pressures have been largely offset by growth in our merchandise contribution. Put simply, we offset higher cost by just selling more stuff.
Second, we are laser-focused on sustaining and growing our fuel market share profitably. We are doing this through our new stores, which are demonstrating higher volumes, our fuel pricing tactics, and strategies, and optimizing our fuel supply. So we will continue to profitably invest in sustaining our everyday low price position to grow market share over time.
And third, we will continue to grow EBITDA and free cash flow through high-quality organic growth and building better stores, the productivity initiatives around which we have a successful track record of delivering value, and the successful integration and expansion of the QuickChek assets. These strategic priorities are our first calls on capital. Beyond these growth initiatives, we will continue our share repurchase program, given our view of the future outlook for the business and expected future valuation. And last, we are committed to growing the dividend distribution to maintain our modest yield as our shares continue to appreciate.
Ever since our spin, when our business was assigned only a 6 multiple, reflecting in part the market's perception of the more fuel-oriented business, we have demonstrated the enduring value of our resilient and agile business model. What makes our value creation formula so [indiscernible] and powerful in our minds is that the fuel piece of our business is going to likely have the largest exposure to outsized growth in the near term, given the higher trending breakeven fuel margins for the industry.
The headwinds we're seeing are magnified for less efficient operators who sell less fuel and have fewer levers they can pull to maintain profitability. By complementing our fuel exposure with efficient expansion of the merchandise business, we will continue to overcome headwinds, increase the earnings power of the business over time, and grow our multiple as the advantage value player in our retail sector.
Murphy USA Inc. published this content on 02 November 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 02 November 2021 12:19:08 UTC.
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