Murphy USA Inc.

Good morning and welcome to the Murphy USA second quarter 2023 earnings conference call. My name is Brianna and I will be your conference operator today. Please note that this call is being recorded. All lines have been placed on listen-only mode at this time. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star followed by the number 1 on your telephone keypad. To withdraw your question, again press star 1. I will now turn the call over to Christian Peichel, Vice President of Investor Relations. Please go ahead.

Yeah, thanks, Brianna. Good morning, everyone. Thank you for joining us all today. With me are Andrew Clyde, President and Chief Executive Officer, Mindy West, Executive Vice President and Chief Financial Officer, and Donnie Smith, Vice President and Controller. After some opening comments from Andrew, Mindy will provide an overview of the financial results, and then we will open up the call to Q&A. Please keep in mind that some of the comments made during this call, including the Q&A portion, will be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. As such, no assurances can be given that these events will occur or that the projections will be attained. A variety of factors exist that may cause actual results to differ. For further discussion of risk factors, please see the latest Murphy USA Forms 10-K, 10-Q, 8-K, and other relevant SEC filings. MurphyUSA takes no duty to publicly update or revise any forward-looking statements. During today's call, we may also provide certain performance measures that do not conform to generally accepted accounting principles or GAAP. We have provided schedules to reconcile these non-GAAP measures with the reported results on a GAAP basis as part of our earnings press release, which can be found on the investor section of our website. With that, I'll turn the call over to Andrew.

Thank you, Christian. Good morning and welcome to everyone joining us today. We are excited to discuss our exceptional second quarter performance, which reaffirms the strength of our strategy and business model and our enduring commitment to driving sustainable value for all our stakeholders. MurphyUSA reported another impressive quarter of financial results in Q2, underpinned by continued strength across all major categories. Beginning with fuel, we achieved nearly flat APSM volumes in Q2, including positive volumes in May and June, as we held market share gains achieved last year and continue to outperform the Opus volume survey in our geographies. We built on merchandise sales and margin momentum, led by total volume and market share gains in tobacco, and sales and contribution growth in non-tobacco categories. Tobacco share grew across all subcategories as we continued to promote and provide affordability to our customers, while our non-tobacco categories saw broad-based strength led by energy sales up 21% and units up over 13%. Food and beverage across the enterprise also accelerated in Q2, with sales and margins up 6% and 3%, respectively. Despite some of the traffic challenges that continued to impact the Northeast, our QuickCheck stores posted record food and beverage sales in Q2, with record margin months in May and June. On the cost side, our already low-cost model saw per-store operating expense growth of less than 4% in Q2 as we continue to leverage our scale, reduce overtime, and lap targeted wage increases from the prior year. Notably, as inflation eases, associate engagement remains high as together we focus on our mission to help customers affordably meet their non-discretionary needs. If I take a step back and consider the relatively benign external operating environment of the second quarter, with nothing extraordinary taking place, and then think about the high bar we are lapping from the prior year period, I view our results as even more exceptional. Turning specifically to fuel margins, the past three years can be characterized by exogenous events, including pandemic-driven demand destruction, geopolitical instability, severe volatility, steeply rising prices, and precipitous price fall-offs. Each and every quarter was distinct in its own way. The one constant has been significantly higher fuel margins as the industry supply curve steepened due to cost and traffic headwinds for marginal retailers. Some investors and even analysts have been reticent to believe that higher margins are sustainable, and they wanted to see the results in a more normal period. Following three years of macro uncertainty and one-time events, there was absolutely nothing remarkable about the environment in Q2. In fact, the only thing you may find remarkable about the quarter is that we are once again reporting all-in fuel margins on the high end of our range at 29.5 cents per gallon. In recent months, more investors and analysts have asked me, are we really still debating higher fuel margins? My answer, of course, is no, we are not. There is no internal debate at Merck USA. The answer to us appears quite clear. Looking ahead, while we do not know the market dynamics that will define the rest of Q3, we do not expect a quarter as remarkable as the third quarter of 2022. During Q3 2022, we achieved significant share gains, growing total gallons over 13% at all-in margins of 38 cents per gallon. while peers reported flat or declining volumes. As we have stated previously, these exceptional prior year gains at high margins are not repeatable in a normal quarter, but were instead the result of a prolonged period of rapidly falling prices that we only witness every six to eight years. I don't particularly like talking about two-year stacks, but we know that Q3 will be a difficult comparison and want to set expectations accordingly. As a hypothetical, Flat same-store gallons in Q3 this year would result in an industry-leading two-year stack of 9%, while declines as high as 4% would still likely leave peers with a two-year stack of 5%. Internally, we are focused on sustaining last year's share gains while continuing to drive traffic to our stores through our loyalty program, in-store promotions, and overall pricing strategies. And while fully maintaining Q3 share gains would be an ambitious goal where we would need some help from the macro environment, I do believe that any two-year stack for fuel volumes greater than 5% would demonstrate strong execution against our long-term strategy. Turning to merchandise, as I mentioned at the beginning of this call, we are really pleased with the second quarter performance and seeing that momentum continue into the second half of the year. I believe the strong results speak for themselves So I want to spend a little bit more time today talking about the exciting aspects of the QuickCheck integration and how synergies and other benefits are manifesting across the enterprise. We are in the early stages of recognizing significant benefits from product and menu innovation, as well as enhanced promotional and marketing activities to help improve store performance, particularly in the food and beverage categories. The combined learnings of both companies are coalescing into sustainable and material performance drivers of the business, and so I want to share some examples on this call. Starting with branded products and promotions, we are creating new opportunities to engage with our customers outside of fuel and tobacco. We think this is a significant building block upon which we can implement further improvements to in-store traffic and profitability. As an example, We saw strong sales from a limited time made-to-order watermelon smoothie at QuickCheck, which was subsequently reimagined and introduced as a limited time offer Sour Patch Kids branded frozen slushy product at Murphy USA stores. Similarly, edible cookie dough and brownie bite cups first introduced in the QuickCheck open coolers were quickly followed up at Murphy stores. Having successfully increased the level of promotional awareness of QC's two-for-five-dollar breakfast sandwiches, where we grew both sales and margins by 11% in the quarter, we have introduced similar two-for promotions for Murphy grab-and-go items across multiple categories and day parts. We expect to accelerate the use of promotions and limited-time offers across the enterprise in the second half of 2023, giving customers even more reason to come inside our stores. Turning to innovation, the QuickCheck format is the perfect test and learn environment to identify high potential products that have strong overlap with MurphyUSA customers, and the QuickCheck team has been leading these innovation efforts. For instance, we develop products with well-known national brands, including a new and exclusive sugar-free frozen energy drink with Prime, and partnered with Red Bull on both iced and exclusive to QC frozen flavored infusions, creating a new traffic driving and basket building category in store at QC. In addition to the introduction of nitro coffee at QC, these innovations are expected to lead to new dispensed beverage options at Murphy branded stores. We also continue to innovate in our growing core categories where the made to order menu at QC is being realigned with consumer insights and fresh product preferences. This will lead to some exciting new sandwiches, signature sandwiches to be introduced in the second half of 2023. Maintaining a differentiated offer is vital not only to customer engagement, but to encourage customer retention. We need to give customers more reason to come into our stores and even more reasons to want to come back. As we incubate and unleash this innovative mindset across the enterprise, we are increasingly excited about the future opportunities to impact store performance. Turning to marketing and other customer-facing improvements, with the right products and the right amount of innovation, clearly communicating and presenting our improved and distinctive offer to customers is becoming increasingly important for both QuickCheck and MRF USA. From a visual marketing perspective, through the insights learned from our in-store experience campaign, we recently kicked off a series of retrofits on existing 2,800 square foot stores, featuring a new layout based on learnings from QuickCheck. Selling space is optimized, allowing for easier traffic flow. Queuing lanes have been added that promote impulse sales and reduce congestion around the register, while at the same time we improve lighting and signage. This layout is specifically designed around driving food and beverage sales at Murphy stores, enabling access to more desirable assortment of high-quality grab-and-go, grab-and-reheat-and-go, and self-serve dispensed beverages that are more accessible, visually appealing, and relevant to our customers. With the right assets in the right places, selling the right products, managed by the right people, we are in a unique position as a company to fully realize benefits and more intentionally drive food and beverage sales through targeted marketing strategies that go beyond our most effective marketing tool of everyday low prices. We are in the early stages of further leveraging our digital assets to unlock significant value inside the store through machine learning tests, and we are more and more excited about the potential of the combined business. I'm now going to hand the call over to Mindy to briefly review the financial results, and then we will wrap up and open up the call to Q&A.