Murphy USA Puts Spinoff in Rearview Mirror

EL DORADO, Ark. -- Murphy USA Inc. has fully moved past its Sept. 3 spinoff from Murphy Oil Corp. and is now putting all of its resources into two goals: building new stores and paying off debt.

Murphy USA opened 11 new stores in its 2014 fiscal first quarter ended March 31, President and CEO Andrew Clyde reported today during the company's earnings call. Another six stores have opened since the quarter ended and an additional 13 sites are under construction, he added. Most of the new stores measure 1,200 square feet or more.

Regarding debt, Murphy USA recently paid off its entire $150-million term loan, meaning the operator of 1,214 convenience stores in 23 states as of March 31 can focus on free cash flow and further growing its business.

In addition to new store openings, Murphy USA is growing its business via in-store merchandise sales. During its 2014 first quarter, every non-tobacco, in-store merchandise category enjoyed growth, according to Clyde. Merchandise margins rose 1.1 percent year over year to 14 percent.

"Beverage sales were up 3.3 percent thanks in part to our buy three, get 10 cents off promotion," the CEO noted. "And candy sales were up 3.6 percent as they were prominently featured in our Circle of Stars contest."

Total retail fuel volume came in at 910 million gallons for Murphy USA's latest quarter vs. 880 million gallons during the same period in 2013. However, retail fuel margins suffered a 4.2-cent decrease to 6.8 cents per gallon. Fuel margins were impacted by a "flat to rising" wholesale price environment compared to a sharp decline in the prior-year quarter, the company stated.

Also on the negative side of the ledger was tobacco sales, which dropped $21 million year over year. Clyde stressed, though, that smokeless tobacco sales enjoyed an excellent first quarter.

Overall, Murphy USA's earnings dropped to $9.6 million for its latest quarter vs. $22 million in its 2013 first quarter. Lower retail fuel margins were cited as the main reason for the net profit decline year over year.

When questioned by a Wall Street analyst during today's earnings call, Clyde responded that Murphy USA has no intention to convert its company into a master limited partnership or real estate investment trust due to its different business model compared to other convenience store-related companies that have taken this route.

However, the chief executive did say the company will discuss the possibility of initiating a dividend and/or buying back shares at its next board of directors meeting. Given its low debt, the fact that it owns approximately 90 percent of the real estate on which its stores are housed, and its generation of $200 million in annual free cash flow, financial publication Barron's stated that Murphy USA would be comfortable paying $50 million to $60 million annually to its shareholders as a dividend.