Form 8-K Murphy USA Inc. For: Aug 05

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

[   ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

[   ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

[   ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act

(17 CFR 240.14d-2(b))

 

[   ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

(17 CFR 240.13e-4(c))

 

 

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Item 2.02.   Results of Operations and Financial Condition

 

On August 5, 2015, Murphy USA Inc. issued a news release announcing its earnings for the three months and six months ended June 30, 2015.    The full text of this news release is attached hereto as Exhibit 99.1.

 

The information in this Item 2.02 and Item 9.01, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference in such filing.

 

Item 9.01.  Financial Statements and Exhibits

 

(d)Exhibits

 

99.1        News release issued by Murphy USA Inc., dated August 5, 2015, announcing earnings for the three months and six months ended June 30, 2015

 

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Signature

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

Date:  August 5, 2015

 

 

 

 

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Exhibit Index

 

Exhibit No.       Description

 

99.1                        News release issued by Murphy USA Inc., dated August 5, 2015,  announcing earnings for the three months and six months ended June 30, 2015

 

 

 

 

 

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Murphy USA Inc. Reports Second Quarter 2015 Results

 

El Dorado, Arkansas, August 5, 2015 – Murphy USA Inc. (NYSE: MUSA), a leading marketer of retail motor fuel products and convenience merchandise, today announced financial results for the three and six months ended June 30, 2015. 

Key Second Quarter 2015 highlights

Three-month results

For the three month period ended June 30,  2015, the Company reported net income of $26.2 million or $0.59 per diluted share on revenues of $3.5 billion.  Net income was $73.2 million, or $1.57 per diluted share, for the comparable period in 2014 on revenues of $4.7 billion.  Average retail fuel prices for the second quarter 2015 (including taxes) were $2.42 per gallon versus $3.47 per gallon in the same period of 2014.  The decrease in earnings reflects lower retail fuel margins, lower product supply and wholesale contribution and lower earnings from ethanol operations partially offset by higher sales of Renewable Identification Numbers (RINs) and improved merchandise margins.  The 2014 period contained a tax benefit of $6.8 million due to lower state income tax rates.     

“While the Q2 fuel environment was challenging, it was not unexpected as our guidance anticipated this scenario,” said President and CEO Andrew Clyde.  “Spot gasoline prices rose over 77 cpg since January lows, recouping much of last year’s falloff and setting up Q3 2015 nicely as crude prices tumbled again in late June.  Volatility continues to be front and center and our business model both demonstrated its resilience and strengthened its core as same store merchandise sales and margin dollars grew while per store operating expenses were further reduced,” said Mr. Clyde.

Adjusted EBITDA (this non-GAAP measure is described and reconciled to the corresponding GAAP measure in the Supplemental Disclosure section of this release) was $75.9 million for the

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three month period ended June 30,  2015, compared to $137.2 million for the same period in 2014. 

Total quarterly retail fuel sales increased 1.9% to 1.01 billion gallons sold in 2015 compared to 993.1 million gallons sold in 2014.    Retail fuel gallons sold on an APSM basis decreased 2.4% to 265,158 gallons (SSS decrease of 2.1%).   Retail fuel margins (before credit card expenses) decreased 4.2 cents per gallon (cpg) to 9.0 cpg in the 2015 quarter compared to 13.2 cpg in the 2014 period.  During the quarter, refined product prices experienced sharp increases which adversely impacted both retail margins and volumes.   Volumes were also negatively affected by the absence of the Walmart 10/15 cent discount program which was in effect the latter part of May and all of June in 2014. Product supply and wholesale margin dollars excluding RINs decreased to $14.4 million in the 2015 period compared to $45.4 million in the second quarter of 2014. Income generated from the sale of RINs increased to $36.2 million in the 2015 period from  $23.3 million in the 2014 period as 58 million RINs were sold at an average price of $0.62 per RIN in the current period. 

Quarterly merchandise revenues rose $23.9 million to $572 million from  $548 million in the 2014 period.  Merchandise unit margins increased to a record 14.6% in the current quarter from 13.7% in 2014 due to improved margins for cigarettes and other tobacco products among other categories.  For the current quarter, total non-tobacco sales dollars increased 12.1% with the largest increases shown in general merchandise,  packaged beverages and lottery/lotto while margin dollars increased 11.0%.    On an APSM basis, merchandise sales were flat as tobacco products declined 2.1%,  mostly offset by a 7.5% increase in non-tobacco sales.    On a SSS basis, merchandise sales were up 0.9% as tobacco products declined 0.5%, offset by a 6.2% increase in non tobacco sales.  Quarterly merchandise margin dollars on an APSM basis were  up 6.4% (6.9% SSS) with tobacco margin dollars up 4.9% (up 6.8% SSS) and an increase in non-tobacco margin dollars of 8.6% (7.2% SSS).     The difference between the APSM and SSS results highlights the impact of our growing mix of small store formats (e.g. 1200 sq. ft.) which have a higher mix of non tobacco sales and a ramp up period on tobacco sales. 

Historically, the Company has used the APSM metric to represent certain data on a per site basis.  The APSM metric includes all stores open through the date of the calculation.  Other retailers have used same store sales (SSS) as their metric.  SSS for the Company include aggregated individual store results for all stores open throughout both periods presented.  For all periods presented, the store must have been open for the entire calendar year to be included in the comparison.  Remodeled stores that remained open or were closed for just a very brief time (less than a month) during the period being compared remain in the same store sales calculation.  If a store is replaced, either at the same location (raze and rebuild) or relocated to a new location, it will typically be immaterial and will also remain in the calculation.  Newly constructed sites do not enter the calculation until they are open for each full year for the periods being compared (open by January 1, 2014 for the sites being compared in the 2015 versus 2014 calculations). 

Station and other operating expenses declined $2.7 million to $130.5 million for the current quarter, compared to $133.2 million for the same period in 2014.  Retail costs on an APSM basis declined 6.5% period over period, primarily due to reduced credit card fees associated with lower retail fuel prices.  Excluding credit card expenses, station operating expenses on an APSM basis decreased 2.5%.  Lower shrink, maintenance and promotion expenses in the

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current period led to the lower overall operating costs.  Selling, general and administrative (SG&A) expenses increased $3.6 million to $33.2 million due primarily to higher professional services fees for ongoing projects.     

The Company’s ethanol plant in Hereford, Texas, generated an operating income of $1.4 million for 2015 compared to net earnings of $8.8 million in  Q2 2014 reflecting markedly lower market crush spreads (43 cpg lower) which were partially offset by  a record quarterly yield of 2.88 gallons per bushel, higher throughput and the addition of corn oil sales.  Plant production increased 9% to 23.9 million gallons.  The improved yield and higher production was a result of better plant operations stemming from our capital and operational improvement programs, including the addition of a distillers’ corn oil system and other enhancement projects.              

Interest expense decreased by $2.2 million in 2015 compared to the prior year quarter due to the repayment in May 2014 of a $150 million term loan under our credit facilities and no repeat of a $1.9 million charge related to a write-off of deferred debt costs for the repaid term loan. 

Capital expenditures for the quarter ended June 30,  2015, increased $29.6 million to $58.9 million from $29.3 million in 2014.  Current period capital expenditures include $48.2 million for retail growth and $7.3 million spent on retail maintenance items. 

Six-month results

For the six month period ended June 30, 2015, the Company reported net income of $49.1 million or $1.09 per diluted share on revenues of $6.5 billion.  Net income was $82.9 million, or $1.77 per diluted share, for the comparable period in 2014 on revenues of $8.9 billion.  Average retail fuel prices for 2015 (including taxes) were $2.26 per gallon versus $3.35 per gallon in the same period of 2014. The decrease in earnings reflects lower product supply and wholesale contribution, lower earnings from ethanol operations and lower retail fuel margins partially offset by higher RIN sales and improved merchandise margins.  The 2014 period contained an after-tax benefit of $10.9 million from a LIFO decrement and the previously mentioned state tax benefit of $6.8 million.   

Adjusted EBITDA (this non-GAAP measure is described and reconciled to the corresponding GAAP measure in the Supplemental Disclosure section of this release) was $138.6 million for the six month period ended June 30, 2015, compared to $180.4 million for the same period in 2014. 

Total retail fuel sales increased 3.7% to 1.97 billion gallons sold in 2015 compared to 1.90 billion gallons sold in 2014.  Retail fuel gallons sold on an APSM basis decreased 0.8% to 259,425 gallons (SSS decrease of 0.6%).  Retail fuel margins (before credit card expenses) decreased 0.6 cpg to 9.5 cpg in 2015 compared to 10.1 cpg in 2014.  Product supply and wholesale margin dollars excluding RINs decreased to $13.3 million in the 2015 period compared to $75.2 million in 2014.  The 2014 period included a benefit of $17.8 million related to a LIFO decrement. Income generated from the sale of RINs increased to $73.8 million in the 2015 period from $40.9 million in the 2014 period as 112 million RINs were sold at an average price of $0.66 per RIN in the current period. 

Merchandise revenues rose $45.3 million to $1.10 billion from $1.05 billion in the 2014 period.  Merchandise unit margins increased to 14.3% in 2015 from 13.9% in 2014 due to improved

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margins for cigarettes and certain non tobacco products.  Total non-tobacco sales dollars increased 11.9% with the largest increases shown in packaged beverages, lottery/lotto, and alternative snacks while margin dollars increased 10.8%.  On an APSM basis, merchandise sales were down 0.2% as tobacco products declined 2.2%, mostly offset by a 7.1% increase in non-tobacco sales.    On a SSS basis, merchandise sales were up 0.9% as tobacco products declined 0.4%, more than offset by a 5.8% increase in non tobacco sales.  Merchandise margin dollars on an APSM basis were up 3.2% (3.8% SSS) with tobacco margin dollars up 1.5% (up 3.3% SSS) and an increase in non-tobacco margin dollars of 5.9% (4.7% SSS).   

Station and other operating expenses declined $3.1 million to $252.6 million for the current year, compared to $255.7 million for the same period in 2014.  Retail costs on an APSM basis declined 5.8% period over period, primarily due to reduced credit card fees associated with lower retail fuel prices.  Excluding credit card expenses, station operating expenses on an APSM basis decreased 1.4%.  Lower shrink, promotion expense, and labor costs in the current period led to the lower overall operating costs.  Selling, general and administrative (SG&A) expenses increased $6.9 million to $64.7 million due primarily to higher professional services fees for ongoing projects.   

The Company’s ethanol plant in Hereford, Texas, generated an operating income of $0.8 million for 2015 compared to net earnings of $10.0 million in 2014 reflecting lower market crush spreads which were partially offset by a  record yield of 2.85, higher throughput and the addition of corn oil sales.  Plant production increased 18% to 46.2 million gallons.  The improved yield and higher production was a result of better plant operations stemming from our recent capital and operational improvement program.      

Interest expense decreased by $3.0 million in 2015 compared to the prior year due to the repayment in May 2014 of a $150 million term loan under our credit facilities and no repeat of a $1.9 million charge related to a write-off of deferred debt costs for the repaid term loan. 

Capital expenditures for the six month period ended June 30, 2015, increased $38.3 million to $91.4 million from $53.1 million in 2014.  Current period capital expenditures include $70.6 million for retail growth and $15.7 million spent on retail maintenance items.

 

Station Openings

During the second quarter of 2015, Murphy USA opened nine retail locations.  Through early August 2015, the Company has opened an additional five sites.   With the addition of all these stores, Murphy USA has 1,282 total locations in operation that include 1,069 Murphy USA sites and 213 Murphy Express sites.  We also have 39 sites currently under construction that will be added to our network in the near future. 

Cash Flow and Financial Resources

For the quarter ended June 30,  2015, cash flow provided by operating activities increased $17.7 million to  $43.4 million due primarily to increased changes in noncash working capital partially offset by lower net income.  Cash flows required by investing activities in the second quarter of 2015 increased $29.8 million to $59.1 million, consisting primarily of property additions.  Cash flows used in financing activities increased $45.0 million to $150.6 million in the second quarter

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of 2015 due to the share repurchase program currently being executed as announced in late 2014.  Free cash flow (this non-GAAP measure is described and reconciled to the corresponding GAAP measure in the Supplemental Disclosure section of this release) for the period was negative $15.4 million compared to negative $3.6 million in the prior year period.  The large decrease was due to higher capital expenditures and reduction of income taxes payable.

Cash and cash equivalents on hand at  June 30,  2015 totaled $121.4 million and there were no borrowings under the asset-based loan facility, which was put in place with an initial borrowing base limit of $450.0 million in mid-August 2013.  Using June 30,  2015  information, the borrowing base was recalculated at $297.5 million in July 2015 and remains undrawn.  Total debt at June 30,  2015 of $489.3 million (net of unamortized debt discount and debt issuance costs)  consisted primarily of the $500.0 million in senior unsecured notes due in 2023.     

“Looking ahead, we remain focused on our strategic allocation of capital,” said Mr. Clyde.  “Our non-core Hereford and CAM Pipeline assets have been significantly improved and are now more attractive to prospective future buyers. We delivered on our $250-million share repurchase program with over $191-million completed since its inception. We continue to invest in new stores and have refreshed 140 older stores year to date.  This long-term focus is what makes Murphy USA a strong competitor over the long run.”

Earnings Call Information

The Company will host a conference call on August 6,  2015, at 10:00 a.m. Central time to discuss second quarter 2015 results.  The conference call number is  1 (877) 291-1367 and the conference number is 76957507. A live audio webcast of the conference call and the earnings and investor related materials, including reconciliations of any non-GAAP financial measures to GAAP financial measures and any other applicable disclosures, will be available on that same day on the investor section of the Murphy USA website (http://ir.corporate.murphyusa.com).  Online replays of the earnings call will be available through Murphy USA’s web site and a recording of the call will be available through August 10,  2015, by dialing 1(855) 859-2056 and referencing conference number 76957507.  

Forward-Looking Statements

Certain statements in this news release contain or may suggest “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995) that involve risk and uncertainties, including, but not limited to anticipated store openings, fuel margins, merchandise margins, sales of RINs and trends in our operations.  Such statements are based upon the current beliefs and expectations of the company’s management and are subject to significant risks and uncertainties.  Actual future results may differ materially from historical results or current expectations depending upon factors including, but not limited to: our ability to continue to maintain a good business relationship with Walmart; successful execution of our growth strategy, including our ability to realize the anticipated benefits from such growth initiatives, and the timely completion of construction associated with our newly planned stores which may be impacted  by the financial health of third parties; our ability to effectively manage our inventory, disruptions in our supply chain and our ability to control costs; the impact of any systems failures, cybersecurity and/or security breaches, including any security breach that results in

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theft, transfer or unauthorized disclosure of customer, employee or company information or our compliance with information security and privacy laws and regulations in the event of such an incident; successful execution of our information technology strategy; future tobacco or e-cigarette legislation and any other efforts that make purchasing tobacco products more costly or difficult could hurt our revenues and impact gross margins; efficient and proper allocation of our capital resources; compliance with debt covenants; availability and cost of credit; and changes in interest rates.  Our SEC reports, including our Annual Report on our Form 10-K for the year ended December 31, 2014 (filed February 27,  2015)  and, when available, our Quarterly Report on Form 10-Q for the quarterly period ended June 30,  2015 contain other information on these and other factors that could affect our financial results and cause actual results to differ materially from any forward-looking information we may provide.  The company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events, new information or future circumstances. 

Contacts: Investors/Media

Investor Relations:

Tammy L. Taylor (870) 881-6853, Sr. Manager Investor Relations, [email protected]

 

Media Relations:

Jerianne Thomas (870) 875-7770, Director, Corporate Communications; [email protected]

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I

Murphy USA Inc.

Consolidated Statements of Income

(Unaudited)

 

 

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Murphy USA Inc.

Segment Operating Results

(Unaudited)

 

 

 

 

 

 

 

 

Same store sales information (compared to APSM metrics)

 

 

 

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Murphy USA Inc.

Consolidated Balance Sheets

 

 

 

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Murphy USA Inc.

Consolidated Statement of Cash Flows

(Unaudited)

 

 

 

 

 

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Supplemental Disclosure Regarding Non-GAAP Financial Information 

The following table sets forth the Company’s Adjusted EBITDA for the three and six months ended June 30,  2015 and 2014.  EBITDA means net income (loss) plus net interest expense, plus income tax expense, depreciation and amortization, and Adjusted EBITDA adds back (i) other non-cash items (e.g., impairment of properties and accretion of asset retirement obligations) and (ii) other items that management does not consider to be meaningful in assessing our operating performance (e.g., (income) from discontinued operations, gain (loss) on sale of assets and other non-operating expense (income)).  EBITDA and Adjusted EBITDA are not measures that are prepared in accordance with U.S. generally accepted accounting principles (GAAP).

We use this Adjusted EBITDA in our operational and financial decision-making, believing that such measure is useful to eliminate certain items in order to focus on what we deem to be a more reliable indicator of ongoing operating performance and our ability to generate cash flow from operations.    Adjusted EBITDA is also used by many of our investors, research analysts, investment bankers, and lenders to assess our operating performance.  However, non-GAAP measures are not a substitute for GAAP disclosures, and Adjusted EBITDA may be prepared differently by us than by other companies using similarly titled non-GAAP measures.

The reconciliation of net income to EBITDA and Adjusted EBITDA is as follows:

 

 

 

The Company also considers Free Cash Flow in the operation of its business.  Free cash flow is defined as net cash provided by operating activities in a period minus payments for property and equipment made in that period.  Free cash flow is also considered a non-GAAP financial measure.  Management believes, however, that free cash flow, which measures our ability to generate additional cash from our business operations, is an important financial measure for us in evaluating the Company’s performance.  Free cash flow should be considered in addition to, rather than as a substitute for consolidated net income as a measure of our performance and net cash provided by operating activities as a measure of our liquidity. 

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Numerous methods may exist to calculate a company’s free cash flow.  As a result, the method used by our management to calculate our free cash flow may differ from the methods other companies use to calculate their free cash flow.  The following table provides a reconciliation of free cash flow, a non-GAAP financial measure, to net cash provided by operating activities, which we believe to be the GAAP financial measure most directly comparable to free cash flow:

 

 

 

 

 

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