Murphy USA Inc. has released its financial results for the three and nine months ended Sept. 30, 2015.
For the three month period ended Sept. 30, 2015, the Company reported net income of $60.5 million or $1.41 per diluted share. Net income was $62.7 million, or $1.36 per diluted share, for the comparable period in 2014. Income from continuing operations was $60 million for the current quarter compared to $56.6 million for the third quarter of 2014, a 6% increase. Income from discontinued operations (which includes the operations of the Hereford ethanol plant for all periods and the Hankinson ethanol plant for the first quarter of 2014 only) was $0.5 million in the current quarter compared to $6 million in the 2014 quarter. The increase in income from continuing operations reflects higher retail fuel margins and improved merchandise margins which were partially offset by lower product supply and wholesale contribution and lower realized sales prices for Renewable Identification Numbers (RINs) in the period.
“Volatility continued in quarter three and carried into quarter four, leading to solid retail fuel margins, while overall fuel demand and per site volume comps remained strong, especially after periods that compared to the prior year enhanced fuel discount,” said President and CEO Andrew Clyde. “Merchandise contribution continues to expand as our new store formats lead to higher sales and improved product mix while keeping our low cost operating model in place. This combination of margin expansion and cost control drives Murphy USA’s competitive position in the marketplace.”
Adjusted EBITDA (this non-GAAP measure is described and reconciled to the corresponding GAAP measure in the Supplemental Disclosure section of this release) was $128.5 million for the three month period ended Sept. 30, 2015, compared to $119.4 million for the same period in 2014.
Total quarterly retail fuel gallons sold increased 3.5% to 1.08 billion in 2015 compared to 1.04 billion gallons sold in 2014. Retail fuel gallons sold on an APSM basis decreased 0.7% to 279,086 gallons (same store sales (SSS) decrease of 1.1%). Retail fuel margins (before credit card expenses) increased 0.6 cents per gallon (cpg) to 18.1 cpg in the 2015 quarter compared to 17.5 cpg in the 2014 period. Retail fuel margins were supported by sharp decreases in wholesale prices during the period. The current quarter did not include the Walmart 10/15 cent discount program which was in effect for July, August and the first week of September in 2014. Product supply and wholesale margin dollars excluding RINs decreased to a negative $22.4 million in the 2015 period compared to a negative $15.6 million in the third quarter of 2014. Income generated from the sale of RINs decreased to $20 million in the 2015 period from $25 million in the 2014 period as 53 million RINs were sold at an average price of 38 cents per RIN in the current period.
Quarterly merchandise revenues rose $30.6 million or 5.5% to $592 million from $561 million in the 2014 period. Merchandise unit margins were a consecutive record 14.6% in the current quarter, an increase 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 13.9% with the largest increases shown in general merchandise, packaged beverages and lottery/lotto while margin dollars increased 19.1%. On an APSM basis, merchandise sales were up 1.1% as non-tobacco products had an increase of 9.2% which was partially offset by a decline of 1.2% in tobacco sales. On a SSS basis, merchandise sales were up 1.7% as tobacco products were essentially flat, offset by a 7.5% increase in non tobacco sales. Quarterly merchandise margin dollars on an APSM basis were up 7.5% (7.6% SSS) with tobacco margin dollars up 3% (up 4.6% SSS) and an increase in non-tobacco margin dollars of 14.2% (12.1% SSS). The difference between the APSM and SSS results highlights the impact of the 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.
Station and other operating expenses declined $1.5 million to $121.6 million for the current quarter, compared to $123.1 million for the same period in 2014. Retail costs on an APSM basis declined 2.1% 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 increased 0.7%. Lower shrink and promotion expenses in the current period were more than offset by higher maintenance and wages which led to the higher overall operating costs excluding payment fees. Selling, general and administrative (SG&A) expenses increased $3.3 million to $33 million due primarily to higher professional services fees for ongoing projects.
After quarter end, the Company reached an agreement to sell the Hereford, Texas ethanol plant to Green Plains Inc. for a purchase price of $93.8 million which includes estimated working capital. The agreement is subject to customary closing conditions and regulatory approvals and the transaction is expected to close in the month of November. The plant met the criterion for held for sale presentation and discontinued operations treatment. Amounts for all periods presented have been recast to reflect the discontinued operations presentation. Income from discontinued operations was $0.5 million for 2015 compared to discontinued operations of $6 million in quarter three 2014 reflecting markedly lower market crush spreads (44 cpg lower) which were partially offset by higher throughput and the addition of corn oil sales.
For the nine month period ended September 30, 2015, the Company reported net income of $109.7 million or $2.47 per diluted share. Net income was $145.5 million, or $3.13 per diluted share, for the comparable period in 2014. Income from continuing operations was $108.4 million for 2015 compared to $128.7 million for the 2014 period. Income from discontinued operations (which includes the operations of our Hereford ethanol plant for all periods and the Hankinson ethanol plant for the first quarter of 2014 only) was $1.3 million in the 2015 period compared to $16.8 million in the 2014 period. The 2014 period contained an after-tax benefit of $10.9 million from a LIFO decrement and a 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 $265.5 million for the nine month period ended September 30, 2015, compared to $285 million for the same period in 2014.
Total retail fuel sales increased 3.7% to 3.05 billion gallons sold in 2015 compared to 2.94 billion gallons sold in 2014. Retail fuel gallons sold on an APSM basis decreased 0.8% to 266,034 gallons (SSS decrease of 0.8%). Retail fuel margins (before credit card expenses) decreased 0.2 cpg to 12.5 cpg in 2015 compared to 12.7 cpg in 2014.
Merchandise revenues rose $75.9 million or 4.7% to $1.69 billion from $1.61 billion in the 2014 period. Merchandise unit margins increased to 14.4% in 2015 from 13.8% in 2014 due to improved margins for cigarettes and certain non tobacco products. Total non-tobacco sales dollars increased 12.6% with the largest increases shown in packaged beverages, lottery/lotto, and general merchandise while margin dollars increased 13.7%.
Station and other operating expenses decreased $2.7 million or 0.8% in total in the current period compared to 2014 levels and also declined 0.6% on an APSM basis excluding credit card expenses, primarily due to lower shrink. Selling, general and administrative (SG&A) expenses increased $10.4 million, or 12%, in 2015 reflecting higher professional services fees for ongoing projects.
During the third quarter of 2015, Murphy USA opened 14 retail locations. Through early November 2015, the Company has opened an additional nine sites. With the addition of all these stores, Murphy USA has 1,300 total locations in operation that include 1,081 Murphy USA sites and 219 Murphy Express sites. It also has 36 sites currently under construction that will be added to the network in the near future.
Cash Flow and Financial Resources
For the quarter ended Sept. 30, 2015, cash flow provided by operating activities decreased $6.9 million to $71 million due primarily to lower income from discontinued operations along with lower net income. Cash flows required by investing activities in the third quarter of 2015 increased $24.2 million to $67.1 million, consisting primarily of property additions. Cash flows used in financing activities increased $58 million to $59 million in the third quarter of 2015 due to the share repurchase program that was recently completed. 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 $9.2 million compared to $35.8 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 of continuing operations at September 30, 2015 totaled $65.3 million and there were no borrowings under the asset-based loan facility. Using September 30, 2015 information, the borrowing base was recalculated at $221.4 million in October 2015 and remains undrawn. Total debt at Sept. 30, 2015 of $489.9 million (net of unamortized debt discount and debt issuance costs) consisted primarily of the $500 million in senior unsecured notes due in 2023.
Capital expenditures for the nine month period ended Sept. 30, 2015, increased $71.1 million to $155.7 million from $84.6 million in 2014. Current period capital expenditures include $125.4 million for retail growth and $22.3 million spent on retail maintenance items.
“Our commitment to execution and driving shareholder value was clearly evident this quarter,” said Clyde. “Our organic growth plan is on track to deliver over 70 new sites by year end, the $250 million share repurchase program was completed, and the Hereford ethanol plant sales process moved into the final steps to deliver $94 million in proceeds. These key steps, coupled with our ongoing business improvement programs, reinforce Murphy USA’s priorities and differentiated organic growth strategy.”