Murphy USA (MUSA) - 2022 Q2 - Quarterly Report

Part I – Financial Information Item 1. Financial Statements (Unaudited) Presents Murphy USA's unaudited consolidated financial statements, including balance sheets, income, cash flows, equity, and detailed notes Consolidated Balance Sheets) Presents Murphy USA's financial position, detailing assets, liabilities, and equity at specific dates Consolidated Balance Sheet Highlights (Millions of dollars) | Metric | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :------------------ | | Total Assets | $4,217.8 | $4,048.2 | | Total Liabilities | $3,455.1 | $3,241.0 | | Total Stockholders' Equity | $762.7 | $807.2 | | Current Assets | $882.3 | $767.8 | | Current Liabilities | $852.7 | $675.3 | - Total assets increased by $169.6 million, primarily driven by increases in accounts receivable and inventories[8] - Total liabilities increased by $214.1 million, mainly due to higher trade accounts payable and accrued liabilities[8] Consolidated Statements of Income) Presents Murphy USA's financial performance, detailing revenues, operating income, and net income for specified periods Consolidated Statements of Income (Three Months Ended June 30, Millions of dollars, except per share amounts) | Metric | 2022 | 2021 | YoY Change (%) | | :------------------------- | :----- | :----- | :------------- | | Total Operating Revenues | $6,766.7 | $4,456.0 | 51.9% | | Income from Operations | $262.3 | $190.2 | 37.9% | | Net Income | $183.3 | $128.8 | 42.3% | | Diluted Earnings Per Share | $7.53 | $4.79 | 57.2% | Consolidated Statements of Income (Six Months Ended June 30, Millions of dollars, except per share amounts) | Metric | 2022 | 2021 | YoY Change (%) | | :------------------------- | :----- | :----- | :------------- | | Total Operating Revenues | $11,885.1 | $7,993.1 | 48.7% | | Income from Operations | $483.0 | $284.8 | 69.6% | | Net Income | $335.7 | $184.1 | 82.3% | | Diluted Earnings Per Share | $13.59 | $6.73 | 101.9% | - Petroleum product sales significantly increased, contributing to the overall revenue growth[9] Consolidated Statements of Comprehensive Income) Reports Murphy USA's comprehensive income, including net income and other comprehensive income (loss) components Consolidated Statements of Comprehensive Income (Millions of dollars) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net Income | $183.3 | $128.8 | | Other Comprehensive Income (Loss) | $0.2 | $0.2 | | Comprehensive Income | $183.5 | $129.0 | | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net Income | $335.7 | $184.1 | | Other Comprehensive Income (Loss) | $0.4 | $0.4 | | Comprehensive Income | $336.1 | $184.5 | - Other comprehensive income (loss) remained stable and immaterial across both periods[13] Consolidated Statements of Cash Flows) Summarizes Murphy USA's cash inflows and outflows from operating, investing, and financing activities for specified periods Consolidated Statements of Cash Flows (Six Months Ended June 30, Millions of dollars) | Activity | 2022 | 2021 | | :--------------------------------------- | :----- | :----- | | Net cash provided by operating activities | $516.5 | $330.8 | | Net cash required by investing activities | $(137.4) | $(778.3) | | Net cash required by financing activities | $(395.1) | $448.9 | | Net increase (decrease) in cash | $(16.0) | $1.4 | | Cash at end of period | $240.4 | $165.0 | - Operating cash flow increased significantly due to higher net income and changes in noncash working capital[16] - Investing cash requirements decreased substantially in 2022 due to the absence of a major acquisition like QuickChek, which occurred in 2021[16] - Financing activities shifted from providing cash in 2021 to requiring cash in 2022, primarily due to increased share repurchases and no new debt borrowings[16] Consolidated Statements of Changes in Equity) Details changes in Murphy USA's stockholders' equity, including net income, share repurchases, and other equity adjustments Total Stockholders' Equity (Millions of dollars) | Date | Amount | | :----------------- | :----- | | December 31, 2021 | $807.2 | | June 30, 2022 | $762.7 | - The decrease in total stockholders' equity was primarily influenced by significant treasury stock repurchases ($355.4 million for the six months ended June 30, 2022), partially offset by net income[22] - Retained earnings increased from $2,112.4 million at December 31, 2021, to $2,433.3 million at June 30, 2022, driven by net income[22] Notes to Consolidated Financial Statements (Unaudited)) Provides detailed explanations and breakdowns for various accounts and accounting policies within the financial statements Note 1 — Description of Business and Basis of Presentation) Describes Murphy USA's business operations, QuickChek acquisition, and the basis of financial statement presentation - Murphy USA Inc operates a network of 1,695 retail gasoline and convenience stores (Murphy USA, Murphy Express, QuickChek) and markets refined products to unbranded wholesale customers[25] - The company acquired QuickChek Corporation on January 29, 2021, expanding its network and food and beverage capabilities[26] - Recently issued accounting standards (ASU 2021-01 and ASU 2021-08) are not expected to have a material impact on the consolidated financial statements[30][31] Note 2 — Revenues) Details Murphy USA's revenue recognition policies and provides a breakdown of operating revenues by source - Revenue is recognized when control of petroleum products, convenience merchandise, Renewable Identification Numbers (RINs), and other assets is transferred to customers[33] Total Operating Revenues by Source (Three Months Ended June 30, Millions of dollars) | Revenue Source | 2022 | 2021 | | :----------------------- | :----- | :----- | | Petroleum product sales | $5,690.3 | $3,404.5 | | Merchandise sales | $994.6 | $963.4 | | Other operating revenues | $81.8 | $88.1 | | Total operating revenues | $6,766.7 | $4,456.0 | Total Operating Revenues by Source (Six Months Ended June 30, Millions of dollars) | Revenue Source | 2022 | 2021 | | :----------------------- | :----- | :----- | | Petroleum product sales | $9,838.7 | $6,040.3 | | Merchandise sales | $1,886.6 | $1,796.6 | | Other operating revenues | $159.8 | $156.2 | | Total operating revenues | $11,885.1 | $7,993.1 | - Trade accounts receivable related to customer contracts increased from $111.8 million at December 31, 2021, to $208.6 million at June 30, 2022[45] Note 3 — Inventories) Explains Murphy USA's inventory valuation methods and provides a breakdown of inventory categories and LIFO reserve Inventories (Millions of dollars) | Category | June 30, 2022 | December 31, 2021 | | :------------------------------------------ | :------------ | :------------------ | | Petroleum products - FIFO basis | $590.2 | $339.8 | | Store merchandise for resale - FIFO basis | $188.7 | $173.1 | | Less LIFO reserve | $(473.5) | $(228.0) | | Total inventories | $314.0 | $292.3 | - Petroleum products and certain QuickChek store merchandise are valued using the Last-In, First-Out (LIFO) method[46] - The LIFO reserve for petroleum products increased from $227.5 million at December 31, 2021, to $473.0 million at June 30, 2022[46] Note 4 — Business Acquisition) Details the acquisition of QuickChek Corporation, including purchase price, goodwill, and related costs - On January 29, 2021, Murphy USA acquired 100% of QuickChek Corporation for $641.1 million (net of cash acquired) to expand into the Northeast and enhance food and beverage capabilities[48][51] - The acquisition resulted in the recognition of $328.0 million in goodwill, reflecting expected synergies[49][51] Acquisition Related Costs (Millions of dollars) | Period | 2022 | 2021 | | :-------------------------------- | :--- | :--- | | Six months ended June 30 | $1.0 | $9.0 | Note 5 — Goodwill and Intangible Assets) Provides information on Murphy USA's goodwill and intangible assets, including amortization and indefinite-lived assets - Goodwill remained constant at $328.0 million at both June 30, 2022, and December 31, 2021, assigned to the Marketing segment[54][55] Intangible Assets, Net of Amortization (Millions of dollars) | Category | June 30, 2022 | December 31, 2021 | | :------------------------------------------ | :------------ | :------------------ | | Intangible assets subject to amortization | $24.9 | $25.1 | | Intangible assets not subject to amortization | $115.6 | $115.6 | | Total intangible assets, net | $140.5 | $140.7 | - The trade name, valued at $115.4 million, has an indefinite life and is not subject to amortization[56][58] Note 6 — Long-Term Debt) Details Murphy USA's long-term debt obligations, including senior notes, term loans, revolving credit facility, and covenants Long-Term Debt, Net of Current Maturities (Millions of dollars) | Date | Amount | | :----------------- | :----- | | June 30, 2022 | $1,795.5 | | December 31, 2021 | $1,800.1 | - The company's debt includes $300 million of 5.625% Senior Notes due 2027, $500 million of 4.75% Senior Notes due 2029, and $500 million of 3.75% Senior Notes due 2031[59][60][62][63] - A senior secured term loan of $396 million was outstanding at June 30, 2022, due January 2028, with quarterly principal payments of $1 million[59][66] - The company has a $350 million revolving credit facility, which was undrawn at June 30, 2022, with $4.7 million in outstanding letters of credit[66] - The total leverage ratio at June 30, 2022, was 1.76 to 1.0, well below the covenant limit of 5.0 to 1.0, indicating no limitation on restricted payments[72] Note 7 — Asset Retirement Obligations (ARO)) Explains Murphy USA's asset retirement obligations, primarily related to store dismantling, and changes in the liability - The majority of ARO relates to estimated costs to dismantle and abandon retail gasoline stores[74] Asset Retirement Obligations (Millions of dollars) | Metric | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :------------------ | | Balance at beginning of period | $39.2 | $35.1 | | Accretion expense | $1.4 | $2.5 | | Settlements of liabilities | $(1.5) | $(1.0) | | Liabilities incurred | $1.0 | $1.4 | | Balance at end of period | $40.1 | $39.2 | Note 8 — Income Taxes) Presents Murphy USA's approximate effective tax rates and details tax benefits related to stock compensation Approximate Effective Tax Rates | Period | 2022 | 2021 | | :------------------------ | :----- | :----- | | Three months ended June 30 | 24.0% | 24.2% | | Six months ended June 30 | 24.0% | 24.3% | - For the six months ended June 30, 2022, the company recognized approximately $2.0 million of excess tax benefits related to stock compensation[78] Note 9 — Incentive Plans) Describes Murphy USA's equity incentive plans, including stock options, RSUs, PSUs, and related compensation expense - The company operates the MUSA 2013 Long-Term Incentive Plan and the 2013 Stock Plan for Non-employee Directors, granting stock options, restricted stock units (RSUs), and performance-based restricted stock units (PSUs)[80][90] Share-Based Compensation Expense (Millions of dollars) | Period | 2022 | 2021 | | :-------------------------------- | :--- | :--- | | Six months ended June 30 | $7.0 | $7.4 | Outstanding Equity Awards (June 30, 2022) | Award Type | Number of Units | | :-------------------------------- | :-------------- | | Stock Options | 338,250 | | Employee Restricted Stock Units | 153,354 | | Employee Performance-Based RSUs | 105,763 | | Director Restricted Stock Units | 26,863 | Note 10 — Financial Instruments and Risk Management) Outlines Murphy USA's use of derivative instruments to manage commodity price and interest rate risks - The company makes limited use of derivative instruments to manage commodity price and interest rate risks, not for speculative purposes[93] - All current commodity derivative activity was immaterial as of June 30, 2022[93] Pre-tax Gains Reclassified to Interest Expense from Interest Rate Swap (Millions of dollars) | Period | 2022 | 2021 | | :-------------------------------- | :--- | :--- | | Three months ended June 30 | $0.3 | $0.2 | | Six months ended June 30 | $0.5 | $0.4 | - The remaining balance of accumulated other comprehensive loss on the previous interest rate swap was $1.1 million at June 30, 2022[95] Note 11 — Earnings Per Share) Details Murphy USA's basic and diluted earnings per common share, including the impact of share repurchases Earnings Per Common Share (Three Months Ended June 30) | Metric | 2022 | 2021 | | :------------------- | :----- | :----- | | Basic EPS | $7.65 | $4.85 | | Diluted EPS | $7.53 | $4.79 | Earnings Per Common Share (Six Months Ended June 30) | Metric | 2022 | 2021 | | :------------------- | :----- | :----- | | Basic EPS | $13.81 | $6.82 | | Diluted EPS | $13.59 | $6.73 | - The company repurchased 1,716,166 shares of common stock for $355.4 million during the six months ended June 30, 2022, under its share repurchase program[97] - Diluted weighted-average common shares outstanding decreased from 27,351 thousand in 2021 to 24,708 thousand in 2022 for the six-month period[99] Note 12 — Other Financial Information) Provides additional financial disclosures, including cash income taxes paid, interest paid, and noncash working capital changes Cash Flow Disclosures (Six Months Ended June 30, Millions of dollars) | Metric | 2022 | 2021 | | :-------------------------------- | :--- | :--- | | Cash income taxes paid, net of refunds | $87.4 | $44.6 | | Interest paid, net of capitalized amounts | $39.5 | $31.4 | Net (Increase) Decrease in Noncash Operating Working Capital (Six Months Ended June 30, Millions of dollars) | Metric | 2022 | 2021 | | :------------------------------------------ | :--- | :--- | | Accounts receivable | $(99.9) | $(83.4) | | Inventories | $(21.8) | $(8.3) | | Accounts payable and accrued liabilities | $175.9 | $114.1 | | Net (increase) decrease in working capital | $47.8 | $17.3 | Note 13 — Assets and Liabilities Measured at Fair Value) Details the fair value measurements of Murphy USA's financial instruments, including debt and derivatives - The fair value of commodity derivatives contracts and interest rate swap derivatives was immaterial at June 30, 2022[105] Fair Value of Current and Long-Term Debt (excluding finance leases, Millions of dollars) | Date | Carrying Amount | Fair Value | | :----------------- | :-------------- | :--------- | | June 30, 2022 | $(1,673.3) | $(1,661.8) | | December 31, 2021 | $(1,673.5) | $(1,709.5) | - The fair value of current and long-term debt was estimated based on Level 1 inputs (rates offered for debt of the same maturities)[106] Note 14 — Contingencies) Discusses Murphy USA's legal proceedings, environmental liabilities, insurance claims, and contingent liabilities - The company is subject to various governmental actions, environmental laws, and legal proceedings, including climate change lawsuits[108][111][115] - Management believes that future remediation costs for known contamination sites and the ultimate resolution of legal matters will not have a material adverse effect on the company's net income, financial condition, or liquidity[114][115] - An accrued liability of $42.8 million is maintained for estimated incurred but unpaid insurance claims as of June 30, 2022[117] - Contingent liabilities of $9.8 million on outstanding letters of credit at June 30, 2022, are considered to have a remote likelihood of being drawn[120] Note 15 — Lease Accounting) Explains Murphy USA's lease accounting policies and provides details on leased assets, liabilities, and lease costs - Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments[121] Leased Assets and Liabilities (Millions of dollars) | Metric | June 30, 2022 | December 31, 2021 | | :-------------------- | :------------ | :------------------ | | Total leased assets | $574.1 | $556.5 | | Total lease liabilities | $591.3 | $568.6 | Net Lease Costs (Six Months Ended June 30, Millions of dollars) | Lease Type | 2022 | 2021 | | :------------------------ | :--- | :--- | | Operating lease cost | $24.5 | $19.8 | | Finance lease cost | $12.5 | $10.0 | | Total net lease costs | $37.0 | $29.8 | - The weighted average remaining lease term for operating leases was 16.1 years and for finance leases was 13.4 years at June 30, 2022[128] Note 16 — Business Segment) Describes Murphy USA's single operating segment (Marketing) and presents its financial performance - The company operates as a single Marketing segment, which includes retail marketing stores and product supply and wholesale assets[129] Marketing Segment Performance (Millions of dollars) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :---------------- | :------------------------------- | :------------------------------- | | External Revenues | $6,766.7 | $4,455.9 | | Income (Loss) | $199.1 | $145.6 | | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :---------------- | :------------------------------- | :------------------------------- | | External Revenues | $11,885.0 | $7,993.0 | | Income (Loss) | $368.2 | $226.0 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations) This section provides management's analysis of Murphy USA's financial performance, significant trends, and future outlook. It highlights strong revenue and net income growth for Q2 and YTD June 2022, driven by higher fuel and merchandise contributions, despite inflationary pressures and volatile crude oil prices. The company's liquidity remains strong, supported by operating cash flow and available credit facilities, with ongoing investments in store expansion and share repurchases Executive Overview) Provides an overview of Murphy USA's operations, key financial highlights, and strategic initiatives - Murphy USA operates 1,695 stores across 27 states, including Murphy USA, Murphy Express, and QuickChek brands, with the QuickChek acquisition in 2021 enhancing its food and beverage model[136][137] - Net income for Q2 2022 increased to $183.3 million ($7.53 diluted EPS) from $128.8 million ($4.79 diluted EPS) in Q2 2021, driven by higher fuel and merchandise contributions[150] - Crude oil prices averaged $109 per barrel in Q2 2022, up from $66 in Q2 2021, impacting fuel costs and retail prices[141] - Total fuel contribution for Q2 2022 was 34.9 cents per gallon (cpg), compared to 28.2 cpg in Q2 2021[141] - Anticipated capital expenditures for full year 2022 range from $350 million to $400 million, primarily for retail growth[144] - The company maintains strong liquidity with $240.4 million in cash and cash equivalents and an undrawn $350 million revolving credit facility at June 30, 2022[194] Results of Operations) Analyzes Murphy USA's financial performance, including revenue drivers, expenses, and segment contributions Consolidated Net Income (Millions of dollars, except per share amounts) | Period | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Three months ended June 30 | $183.3 | $128.8 | | Diluted EPS (3 months) | $7.53 | $4.79 | | Six months ended June 30 | $335.7 | $184.1 | | Diluted EPS (6 months) | $13.59 | $6.73 | - Total operating revenues for Q2 2022 increased by $2.3 billion (51.9%) compared to Q2 2021, driven by higher retail fuel sales prices and volumes, and increased merchandise sales[154] - Store and other operating expenses increased by $43.3 million (20.7%) in Q2 2022, primarily due to higher payment fees, employee-related costs, and store maintenance[156] Marketing Segment Income (Millions of dollars) | Period | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Three months ended June 30 | $199.1 | $145.6 | | Six months ended June 30 | $368.2 | $226.0 | - Retail fuel margin increased to 26.5 cpg in Q2 2022 from 21.8 cpg in Q2 2021, with retail fuel volumes improving by 7.8%[175] - Total merchandise sales increased by 3.2% to $994.6 million in Q2 2022, with total merchandise contribution improving by 6.6%[177] Adjusted EBITDA (Millions of dollars) | Period | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Three months ended June 30 | $316.6 | $244.5 | | Six months ended June 30 | $593.6 | $399.3 | Capital Resources and Liquidity) Examines Murphy USA's cash flow, capital expenditures, debt, and share repurchase activities - Net cash provided by operating activities increased to $516.5 million for the six months ended June 30, 2022, from $330.8 million in 2021[196] - Cash required by investing activities decreased to $137.4 million in 2022 from $778.3 million in 2021, primarily due to the QuickChek acquisition in the prior year[197] - Financing activities required $395.1 million in cash in 2022, compared to providing $448.9 million in 2021, mainly due to increased share repurchases and no new debt borrowings[198] Share Repurchase Program (Six Months Ended June 30) | Year | Shares Repurchased | Amount (Millions $) | | :--- | :----------------- | :------------------ | | 2022 | 1,716,166 | $355.4 | | 2021 | 1,483,758 | $198.3 | - Approximately $664.6 million remained authorized for share repurchases under the $1 billion program as of June 30, 2022[200] Capital Spending by Segment (Six Months Ended June 30, Millions of dollars) | Segment | 2022 | 2021 | | :-------------------- | :--- | :--- | | Marketing | $133.0 | $120.2 | | Corporate and other | $14.5 | $24.0 | | Total | $147.5 | $144.6 | Critical Accounting Policies) Summarizes Murphy USA's critical accounting policies and any recent updates or changes - There have been no material updates to the company's critical accounting policies since its Annual Report on Form 10-K for the year ended December 31, 2021[220] FORWARD-LOOKING STATEMENTS) Highlights forward-looking statements and associated risks and uncertainties regarding future performance - The report contains forward-looking statements regarding M&A activity, store openings, margins, RINs sales, operational trends, dividends, and share repurchases[222] - These statements are subject to significant risks and uncertainties, including the ability to realize QuickChek synergies, maintain the Walmart relationship, execute growth strategy, manage supply chain, geopolitical events, severe weather, cybersecurity, regulatory changes, capital allocation, debt covenants, credit availability, and interest rates[222] - The company undertakes no obligation to update or revise any forward-looking statements[223] Item 3. Quantitative and Qualitative Disclosures About Market Risk) Assesses Murphy USA's exposure to market risks from commodity prices and interest rates, and risk management strategies - The company is exposed to market risks from volatility in refined product prices (gasoline and diesel) and interest rates on its floating rate term loan and revolving facility[224][226] - Limited derivative instruments, including short-term commodity derivative contracts and an interest rate swap hedging $90.5 million of the term loan, are used for risk management[225][227] - A 10% increase or decrease in commodity prices or the underlying interest rate would have an immaterial impact on the company's financial statements[225][227] Item 4. Controls and Procedures) Reports on the effectiveness of Murphy USA's disclosure controls and internal control over financial reporting - Management, with the participation of principal executive and financial officers, concluded that disclosure controls and procedures were effective as of June 30, 2022[229] - There have been no material changes in the company's internal control over financial reporting during the quarter ended June 30, 2022[230] Part II – Other Information Item 1. Legal Proceedings) Details Murphy USA's involvement in legal proceedings, including climate change lawsuits, and their potential impact - The company is engaged in routine legal proceedings incidental to its business[231] - Lawsuits alleging damages from climate change have been filed against energy companies, including Murphy USA, by the City of Charleston, SC, and the state of Delaware[232] - Based on available information, the ultimate resolution of these legal matters is not expected to have a material adverse effect on the company's net income, financial condition, or liquidity[231] Item 1A. Risk Factors) Confirms no new material risk factors beyond those previously disclosed in annual and quarterly reports - No new risk factors have been identified since the Annual Report on Form 10-K and the prior quarterly report on Form 10-Q[233] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds) Reports on Murphy USA's share repurchase program, including shares bought and remaining authorization Issuer Purchases of Equity Securities (Three Months Ended June 30, 2022) | Period Duration | Total Number of Shares Purchased | Average Price Paid Per Share | | :-------------------------- | :------------------------------- | :--------------------------- | | April 1, 2022 to April 30, 2022 | 84,430 | $215.87 | | May 1, 2022 to May 31, 2022 | 296,280 | $239.85 | | June 1, 2022 to June 30, 2022 | 498,503 | $229.37 | | Total (3 months) | 879,213 | $231.60 | - As of June 30, 2022, approximately $664.6 million remained available for repurchase under the $1 billion share repurchase program authorized through December 31, 2026[234] Item 5. Other Information) Indicates that there is no other information to report in this section - No other information is reported in this section[235] Item 6. Exhibits) Lists all exhibits filed with the Form 10-Q, including certifications required by the Sarbanes-Oxley Act and various Inline XBRL documents - Exhibits include certifications required by Rule 13a-14(a) and 18 U.S.C Section 1350 for principal executive and financial officers[240] - Inline XBRL documents (Instance, Schema, Calculation, Definition, Labels, Presentation Linkbase) and the Cover Page Interactive Data File are also listed as exhibits[240] Signatures Certifies the accuracy of the report by authorized officers of Murphy USA Inc - The report was signed on behalf of Murphy USA Inc by Donald R Smith Jr, Vice President and Controller (Chief Accounting Officer and Duly Authorized Officer), on July 28, 2022[238]