Murphy USA (MUSA) - 2022 Q4 - Annual Report

Part I Business Murphy USA operates 1,712 retail stores across 27 states, primarily marketing motor fuel and convenience merchandise - The company's competitive strengths are built around five key pillars: - Strategic Proximity to Walmart: The majority of stores are near Walmart locations, generating significant customer traffic and leveraging fuel discount programs like Walmart+[15] - Value Proposition: Competitively priced fuel and low-priced tobacco products appeal to value-conscious consumers[17] - Low-Cost Operating Model: Smaller store footprints and a high percentage of owned properties (76%) contribute to lower overhead and operating costs[18] - Distinctive Fuel Supply Chain: Diverse sourcing options, shipper status on major pipelines, and a strong distribution system ensure reliable, low-cost fuel supply[19] - Resilient Financial Profile: A strong asset base and conservative financial structure enable the company to weather market volatility and return capital to shareholders[20] - Murphy USA's business strategy focuses on several key initiatives: - Organic Growth: Plans to build up to 45 new-to-industry (NTI) locations and 30 raze-and-rebuilds in 2023, with a target of up to 55 NTI stores annually in the future[24] - Merchandise Diversification: Leveraging QuickChek's expertise to enhance food and beverage offerings across the network[25] - Cost Leadership: Implementing efficiency initiatives to control operating and overhead costs[26] - Market Volatility Advantage: Utilizing its supply chain to maintain low prices and consistent margins during fuel price volatility[27] - Long-Term Investment: Maintaining a strong financial position to support growth, dividends, and share repurchases[28] - As of December 31, 2022, the company had over 15,100 employees, comprising 6,000 full-time and 9,100 part-time workers, guided by core principles of Integrity, Respect, Citizenship, and Spirit[59][61] Store Network Overview (as of Dec 31, 2022) | Brand | Number of Stores | | :--- | :--- | | Murphy USA | 1,151 | | Murphy Express | 404 | | QuickChek | 157 | | Total | 1,712 | Key Operating and Financial Indicators (2018-2022) | Indicator | 2022 | 2021 | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Stores | 1,712 | 1,679 | 1,503 | 1,489 | 1,472 | | Total Fuel Contribution (cpg) | 34.3 | 26.3 | 25.2 | 16.1 | 16.2 | | Retail Fuel Margin (cpg) | 29.6 | 21.9 | 22.9 | 13.8 | 14.7 | | Gallons Sold/Store Month (thousands) | 244.6 | 229.4 | 219.5 | 248.3 | 244.0 | | Merchandise Sales/Store Month ($ thousands) | $193.5 | $186.7 | $166.3 | $148.7 | $139.7 | | Merchandise Margin (%) | 19.7% | 19.1% | 15.6% | 16.0% | 16.5% | Risk Factors The company identifies numerous risks to its business, operations, and financial condition, notably commodity price volatility and Walmart reliance - Business and Financial Risks: - Commodity Price Volatility: Net income is significantly affected by volatile oil and gasoline prices, which can compress gross margins[85] - Walmart Relationship: A majority of Murphy branded stores are near Walmart Supercenters, making the relationship a key driver, and any deterioration could adversely affect operations[88] - Indebtedness: Existing debt could restrict business operations, limit flexibility, and make it more difficult to meet payment obligations[73] - RINs Revenue: Revenue generated from Renewable Identification Numbers (RINs) may not be sustainable due to fluctuating prices and regulatory uncertainty[89] - Industry and Market Risks: - Intense Competition: The company competes with other fuel retailers, including integrated oil companies and non-traditional retailers like supermarkets and discount clubs, on price, convenience, and consumer appeal[110] - Tobacco Legislation: Sales of tobacco products are a significant portion of merchandise sales, and future legislation, tax increases, or campaigns against smoking could adversely affect revenue and profits[112] - Changes in Consumer Behavior: The development of alternative energy technologies and increased adoption of electric vehicles could reduce long-term demand for gasoline[116] - Pandemics: Outbreaks like COVID-19 can disrupt supply chains, reduce customer traffic due to travel restrictions, and negatively impact demand for fuel and merchandise[108] - Operational and Other Risks: - Supply Chain Reliance: The company relies on third-party transportation and a single primary supplier (Core-Mark) for over 74% of its merchandise, exposing it to supply interruption risks[91][99] - Environmental Regulations: The business is subject to stringent environmental laws, which could expose it to significant expenditures and liabilities for remediation and compliance[122] - Data Security: A failure to protect sensitive customer, employee, or vendor data could result in financial loss, regulatory sanctions, and reputational damage[133] - QuickChek Acquisition: The anticipated benefits and synergies from the QuickChek acquisition may not be fully realized or may take longer than expected[104] Unresolved Staff Comments As of December 31, 2022, the company had no unresolved comments from the U.S. Securities and Exchange Commission staff - The Company reported no unresolved comments from the SEC staff as of the end of the fiscal year[141] Properties The company's properties include its headquarters, QuickChek office, and numerous owned and leased retail stores and terminals - The company's principal properties consist of its headquarters, support centers, and its network of owned and leased retail stores and terminals, as described in Item 1 of this report[67][142] Legal Proceedings Murphy USA is involved in ordinary course legal proceedings, including climate change lawsuits, with no material adverse financial impact expected - The company is a defendant in lawsuits filed by the City of Charleston, South Carolina, and the state of Delaware, which allege damages resulting from climate change[144] - Management believes that the ultimate resolution of all legal proceedings, which have arisen in the ordinary course of business, is not expected to have a material adverse effect on the company's financial results[143] Information About our Executive Officers This section provides biographical information for the company's executive officers as of December 31, 2022 - Key executive officers of the company include: - R. Andrew Clyde: President and Chief Executive Officer[147] - Mindy K. West: Executive Vice President, Fuels, Chief Financial Officer, and Treasurer[148] - Robert J. Chumley: Senior Vice President, Chief Digital Officer[149] - Renee M. Bacon: Senior Vice President, Sales and Operations and Chief Merchandising Officer[150] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE under 'MUSA', with active dividends and a significant share repurchase program - The company paid total dividends of $1.27 per share during 2022, an increase from $1.04 per share in 2021[159] - In 2022, the company repurchased 3,328,795 common shares for a total of $806.4 million, at an average price of $242.24 per share[162] Issuer Purchases of Equity Securities (Q4 2022) | Period | Total Shares Purchased (Shares) | Average Price Paid Per Share ($/Share) | Approx. Dollar Value Remaining Under Plan ($) | | :--- | :--- | :--- | :--- | | Oct 2022 | 371,671 | $277.44 | $349,999,922 | | Nov 2022 | 100,082 | $290.57 | $320,918,746 | | Dec 2022 | 374,238 | $286.60 | $213,661,734 | | Q4 Total | 845,991 | $283.05 | $213,661,734 | Cumulative Shareholder Return Performance ($100 Investment on Dec 31, 2017) | Date | Murphy USA Inc. ($) | S&P 500 Index ($) | S&P Retail Select Index ($) | | :--- | :--- | :--- | :--- | | Dec 31, 2017 | $100 | $100 | $100 | | Dec 31, 2018 | $95 | $94 | $91 | | Dec 31, 2019 | $146 | $121 | $102 | | Dec 31, 2020 | $163 | $140 | $142 | | Dec 31, 2021 | $248 | $178 | $202 | | Dec 31, 2022 | $348 | $144 | $136 | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, Murphy USA's net income significantly increased to $672.9 million, driven by higher fuel margins and volumes Results of Operations For fiscal year 2022, net income rose to $672.9 million, driven by higher fuel contribution and improved merchandise performance Consolidated Financial Highlights (2022 vs. 2021) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total Revenues ($ billion) | $23.4 | $17.4 | | Net Income ($ million) | $672.9 | $396.9 | | Diluted EPS ($) | $28.10 | $14.92 | Total Fuel Contribution Analysis | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total Fuel Contribution ($ M) | $1,630.0 | $1,144.3 | | Retail Fuel Volume (Million gal) | 4,751.5 | 4,352.2 | | Total Fuel Contribution (cpg) | 34.3 | 26.3 | | Retail Fuel Margin (cpg) | 29.6 | 21.9 | Merchandise Performance Analysis | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total Merchandise Contribution ($ M) | $767.1 | $701.6 | | Total Merchandise Sales ($ M) | $3,903.2 | $3,677.7 | | Merchandise Unit Margin (%) | 19.7% | 19.1% | Reconciliation of Net Income to Adjusted EBITDA | (Millions of dollars) | 2022 | 2021 | | :--- | :--- | :--- | | Net income | $672.9 | $396.9 | | Income tax expense | $210.9 | $125.0 | | Interest expense, net | $82.3 | $82.3 | | Depreciation and amortization | $220.4 | $212.6 | | EBITDA | $1,186.5 | $816.8 | | Other adjustments | $4.4 | $11.2 | | Adjusted EBITDA | $1,190.9 | $828.0 | Capital Resources and Liquidity The company maintained strong liquidity in 2022 with $994.7 million in operating cash flow, funding share repurchases and property additions - Capital expenditures for 2023 are expected to range from $375 million to $425 million, primarily allocated to retail growth ($285M-$315M) and maintenance capital ($50M-$60M)[246] Cash Flow Summary (2022 vs. 2021) | (Millions of dollars) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash from Operating Activities | $994.7 | $737.4 | | Net cash used in Investing Activities | $(319.3) | $(914.2) | | Net cash (used in) from Financing Activities | $(871.3) | $269.6 | Long-Term Debt Summary (as of Dec 31, 2022) | Debt Instrument | Amount (Millions) | | :--- | :--- | | 5.625% senior notes due 2027 | $298.4 | | 4.75% senior notes due 2029 | $495.8 | | 3.75% senior notes due 2031 | $494.9 | | Term loan due 2028 | $393.3 | | Capitalized lease obligations & other | $133.6 | | Total Long-Term Debt | $1,816.0 | Critical Accounting Policies The company's critical accounting policies involve significant judgment in areas like goodwill impairment and asset retirement obligations - Goodwill and intangible assets are tested for impairment annually, or more frequently if indicators of impairment exist[247] - Long-lived assets, such as individual retail stores, are reviewed for impairment whenever events, like consistent negative cash flow over a 24-month period, indicate the carrying amount may not be recoverable[249] - The company records asset retirement obligations (AROs) for the estimated future cost to remove underground storage tanks, based on historical costs and estimates of future changes[255][256] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from commodity price volatility and interest rate fluctuations, managed through limited derivative use - The company is exposed to commodity price risk from volatility in crude oil and refined product prices, which it manages with limited use of derivative instruments[261] - Interest rate risk exists due to the floating-rate term loan ($394 million balance at year-end 2022) tied to LIBOR, with an interest rate swap hedging a portion[263][264] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2022, including balance sheets and income statements Consolidated Balance Sheet Data (as of Dec 31) | (Millions of dollars) | 2022 | 2021 | | :--- | :--- | :--- | | Total Current Assets | $726.8 | $767.8 | | Total Assets | $4,123.2 | $4,048.2 | | Total Current Liabilities | $854.2 | $675.3 | | Total Liabilities | $3,482.5 | $3,241.0 | | Total Stockholders' Equity | $640.7 | $807.2 | Consolidated Income Statement Data (Year Ended Dec 31) | (Millions of dollars) | 2022 | 2021 | | :--- | :--- | :--- | | Total Operating Revenues | $23,446.1 | $17,360.5 | | Income from Operations | $968.4 | $604.0 | | Income Before Income Taxes | $883.8 | $521.9 | | Net Income | $672.9 | $396.9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no changes or disagreements with its accountants on accounting principles or financial disclosure - There were no disagreements with accountants on accounting and financial disclosure[266] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[266] - Based on an evaluation against the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2022[268] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement - Required information for this item is incorporated by reference from the company's 2023 Proxy Statement[272] Executive Compensation Information regarding executive and director compensation is incorporated by reference from the definitive Proxy Statement - Required information for this item is incorporated by reference from the company's 2023 Proxy Statement[274] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and equity compensation plans is incorporated by reference from the Proxy Statement - Required information for this item is incorporated by reference from the company's 2023 Proxy Statement[275] Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the Proxy Statement - Required information for this item is incorporated by reference from the company's 2023 Proxy Statement[275] Principal Accountant Fees and Services Information regarding fees paid to and services provided by the principal independent accountant is incorporated by reference - Required information for this item is incorporated by reference from the company's 2023 Proxy Statement[276] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K - This section provides an index of all financial statements, schedules, and exhibits included in or incorporated by reference into the Form 10-K filing[278][282] Form 10-K Summary The company indicates that there is no Form 10-K summary provided in this report - No Form 10-K summary is provided[287]