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Murphy USA (MUSA) Q1 Earnings Beat on Retail Margin Strength

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Shares of Murphy USA Inc. (MUSA - Free Report) rallied on Friday after it reported earnings and sales that were better than expectations even as it withdrew full-year retail fuel volume guidance for 2020 amid coronavirus uncertainty.

The company reported first-quarter 2020 earnings per share of $2.92, beating the Zacks Consensus Estimate of $2.80 and significantly higher than the year-earlier quarter’s bottom line of 16 cents.

The outperformance could be attributed to strong retail margin of 26.9 cents per gallon, which soared 220% year over year and also breezed past the Zacks Consensus Estimate of 9.7 cents.

Murphy USA’s operating revenues of $3.2 billion rose 2.2% year over year and beat the Zacks Consensus Estimate by $142.7 million due to higher merchandise sales.

Revenues from petroleum product sales came in at $2.5 billion, down 1% from the first quarter of 2019. However, merchandise sales, at $687.5 million, rose 13.4% year over year.

The beat on the top and bottom lines sent Murphy USA stock up more than 5% to change hands at $108.22 a share on Friday. Yet, shares are about 7.6% lower year to date.



Key Takeaways

The company’s total fuel contribution surged 84.9% year over year to $237 million, primarily on the back of margin expansion. Total fuel contribution (including retail fuel margin plus product supply and wholesale results) came in at 22.5 cents per gallon, improving from 12.3 cents per gallon in the first quarter of 2019.

Retail fuel contribution more than tripled year over year to $283 million driven by soaring margins, which jumped to 26.9 cents per gallon from 8.4 cents in the corresponding period of 2019. While retail gallons edged up 1.2% from the year-ago period to 1,053.7 million in the quarter under review, it failed to beat the Zacks Consensus Estimate of $1,081 million. Volumes on an SSS basis (or, fuel gallons per month) fell 1% from the first quarter of 2019. Meanwhile, average retail gasoline prices during the quarter were $2.14 per gallon, essentially flat from a year ago.

Contribution from Merchandise increased 10.3% to $107.5 million on higher sales even as unit margins, at 15.6%, fell from the year-ago period’s 16.1%. On SSS basis, total merchandise contribution was up 9.4% year over year in the quarter under review on the back of higher tobacco margins that increased 17.2%. Meanwhile, merchandise sales rose 11.8% on SSS basis.

Fuel gallons were down slightly (by 0.2%) while merchandise sales increased 11.8% on average per store month (or APSM) basis.
 

Murphy USA Inc. Price, Consensus and EPS Surprise

 

Murphy USA Inc. Price, Consensus and EPS Surprise

Murphy USA Inc. price-consensus-eps-surprise-chart | Murphy USA Inc. Quote

Balance Sheet

As of Mar 31, Murphy USA — which opened two new retail locations in the quarter to bring its store count to 1,491  — had cash and cash equivalents of $200.3 million, and long-term debt (including lease obligations) of $987.4 million, with a debt-to-capitalization ratio of 56.9%.

During the quarter, the company bought back shares worth $140.6 million.

Guidance

Notwithstanding Murphy USA’s stellar first-quarter performance, the coronavirus outbreak and efforts to stem the contagion’s spread are likely to throw up significant challenges to the business. As it is, the motor fuel retailer is facing lower customer demand since mid-March, while store wise average retail fuel volumes on APSM basis are currently trending below the earlier 2020 projection of 250-255 thousand gallons. This has prompted the El Dorado, AR-based company to take back its retail fuel volume expectation for this year. But Murphy USA is still maintaining its guidance for organic growth, fuel break-even, corporate costs and capital spending.   

Zacks Rank & Key Picks

Murphy USA, which came into existence following the 2013 spin-off of Murphy Oil Corporation’s (MUR - Free Report) downstream business into a separate, independent and publicly-traded entity, holds a Zacks Rank #2 (Buy).

Apart from Murphy USA, investors interested in the the energy space could look at some other options like Montage Resources Corporation and Southwestern Energy Company (SWN - Free Report) that also cary a Zacks Rank #2.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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