El Dorado, Ark.-based Murphy USA, which operates nearly 1,500 sites located primarily in the Southwest, Southeast and Midwest U.S, announced an update to its 2021 capital allocation strategy, including plans for new store locations and raze-and-rebuild projects at existing kiosks.
The company and its team of nearly 10,000 employees serve an estimated 1.7 million customers each day through its network of retail gasoline stations in 25 states. The majority of Murphy USA’s sites are located in close proximity to Walmart stores. The company also markets gasoline and other products at standalone stores under the Murphy Express brand.
In the announcement, the company reaffirmed its accelerated organic growth objectives to build up to 50 new-to-industry (NTI) locations per year beginning in 2021 of the larger 2,800-square-foot formats and raze and rebuild (R&R) 25 existing kiosks into its 1,400-square-foot small-store format on Walmart parking lots.
An NTI pipeline of over 100 locations has been developed over the past two years to be able to deliver this level of growth on a sustainable basis. Key to achieving the highest potential returns from its large and small format stores is the development and execution of enhanced food and beverage (F&B) capabilities, with several recent hires along with the upcoming renewal of the company’s supply chain contract with Core-Mark reflecting early steps in this strategic capability building effort.
In order to accelerate the development of these critical capabilities, the company said it is open to pursuing targeted merger and acquisition activity in addition to organic growth.
Food and Beverage Model
Targets could include chains with at-scale food and beverage capabilities where an acquisition could deliver immediate benefits versus solely building the capabilities internally, the company said. Such an acquisition could not only be accretive, whether near term or longer term, based on synergies leveraging Murphy USA’s scale but also could create reverse synergies as the food and beverage capabilities and platforms acquired could upgrade Murphy USA’s existing offerings.
Whether the company builds or buys these capabilities, it intends to develop a fit-for-purpose food and beverage model for its portfolio of stores and a differentiated offer to its customers to enable it to achieve the highest possible returns from its organic and inorganic growth plans, the company said. Murphy USA may also explore the potential acquisition of mid-sized regional chains where there is a strong strategic fit and that complement its organic growth strategy.
“The combination of these capital allocation choices takes advantage of Murphy USA’s strong financial position and flexibility, accelerating organic growth plans, scale and capabilities to win in today’s challenging COVID environment, and focus on delivering exceptional and sustained value to long-term shareholders,” the company said.
Based on the company’s long-term outlook, it expects to execute and deliver on its plans while maintaining a conservative balance sheet at or near 2.5-times debt-to-EBITDA ratio or lower. The updated strategy reflects a continued refinement to the capital allocation strategy and discipline that has been a hallmark of the company since its 2013 spinoff.
Given what the company called its robust cash balances and low balance sheet leverage, the board of directors has authorized a new share repurchase authorization of up to $500 million.
With ongoing volatility and increasing uncertainty affecting equity markets, and with potential regulatory action or fiscal policy changes following the presidential election, the company said it is diversifying its shareholder distribution mechanisms to provide “consistent and meaningful” returns of capital to shareholders. The board has also authorized a quarterly 25-cents-per-share dividend, or $1 per share annualized, with an initial quarterly dividend payable Dec. 1, 2020, to shareholders.
Murphy USA also reported its third-quarter 2020 financial results. Its net income was $66.9 million in Q3, compared to net income of $69.2 million in the same period in 2019. Total fuel contribution for the quarter was 22.3 cents per gallon, compared to 20.1 in Q3 2019.
Total retail gallons decreased 11.9% in the quarter compared to third-quarter 2019, while volumes on a same-store sales basis decreased 12.7%.
Merchandise contribution dollars increased 6.2% to $118.1 million in the period compared to the prior-year quarter on average unit margins of 15.6% in the current quarter.