Murphy USA Inc.

Thank you for standing by. My name is Alex and I will be your conference operator today. At this time, I would like to welcome everyone to the Murphy USA first quarter 2024 earnings conference call. All lines have been placed and muted to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. I would now like to turn the call over to Christian Paykel, Vice President of Investor Relations. Please go ahead.

Hey, thank you, Alex. Good morning, everyone. Thanks for joining us today. With me are Andrew Clyde, Chief Executive Officer, Mindy West, Chief Operating Officer, Gallagher Jeff, our Chief Financial Officer, and Donnie Smith, Chief Accounting Officer. After some opening comments from Andrew, Gallagher is going to provide some additional color commentary, 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 Litigational 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 MurphyUSA forms 10-K, 10-Q, 8-K, and other recent 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 will turn the call over to Andrew.

Thanks, Christian, and thank you, everyone, for joining us today. In addition to discussing our first quarter results, I'd like to welcome our new CFO, Gallagher Jeff, to the call. Gallagher hit the ground running at our March investor conference and is already having a tremendous impact with the team. And likewise, Mindy has fully embraced her broader COO role, and with Gallagher's support, she is standing up the productivity improvement initiative we introduced at the conference. I continue to be very grateful for the incredible leadership team supporting the business here at MRF USA. In addition to the benefit of having great leaders on your team, another thing I've learned about this business is that every quarter is a little bit different. And when it comes to evaluating performance and measuring wins and losses, understanding that context is absolutely critical, especially when your efforts and energy are focused on long-term value creation. Q1 2024 had a few unique factors that separated it from its year-ago counterpart. Product prices were up 50 cents compared to 8 cents in the prior year. We also didn't see a repeat of the beneficial fall-off in prices mid-quarter and overall saw less volatility. In addition, severe weather events were abnormally higher, especially those concentrated on the Atlantic coast from Florida to New Jersey. In that setting, our core fuel and tobacco businesses performed exceptionally well. APSM fuel gallons were essentially flat year over year, and up 2% on a two-year stack on comparable retail margins of 22 cents per gallon, with January retail margins the highest on record. This level of performance in what would historically be a very challenging environment strongly supports our view of the sustainability of the structural industry dynamics that continue to favor MRF USA. And while the Opus industry volume data may not fully represent all the competitors in the market, It certainly highlights that Murphy and QC are taking share in our respective markets. Similarly, the tobacco category saw very strong sales and margin growth of 6% and 4.5% respectively, and units remained healthy across all nicotine categories. Looking at broader industry data, we continue to take share profitably. The stickiness and share gains in fuel and tobacco are two largest categories. reinforced the non-discretionary nature of these categories for our value-seeking consumers. Indeed, we saw a comparable year-over-year purchase behavior across all income cohorts, and we continue to see consumers stock up on fuel and tobacco around major weather events. We also continue to see new to Murphy customers behave the same as they trade down from higher-priced retailers. The bottom line is that the fundamental drivers of our largest and most EBITDA accretive categories continue to grow despite a more acute set of conditions in Q124 relative to the benign conditions of Q123. That said, these same conditions impacted the more discretionary center of store categories due to fewer trips reflecting lower absolute fuel prices and less stocking up behavior for these categories. We also witnessed a lag in lotto lottery as it took longer to build up to similar jackpots, and we believe there is some switching to new and newly legalized online betting sites, which saw significant growth in some of our states. While below our Q1 expectations, there were still bright spots. Murphy-branded stores grew non-tobacco margin dollars by 3.6% APSM, led by innovative dispensed beverage offers with sales up 19% APSM. Packaged beverage sales were up 1.8% APSM, yet contribution margin dollars for the category grew 3% due to pricing and promotionally driven product mix changes. Overall, the two-year stacks for Murphy stores provide a more fulsome view of our performance, indicating APSM non-tobacco sales and margin growth of 12% and 17.2% respectively. At QuickCheck, food and beverage sales were up 3.7% APSM, and contribution margin dollars were up 1.2 percent. This is despite fuel gallons down 1.2 percent APSM. Having seen the recently reported earnings for a number of QSRs where same-store sales results were mixed, we believe our prior decision to stay focused on value pricing amidst some of the increasing food cost inflation is paying off. A recent brand survey further updates and reinforces our strong positioning with consumers. And with more innovative offers to come alongside the enhancements from our digital initiatives, we believe we are very well positioned in the current environment compared to the food brands that are having to make a sharp pivot towards value. Looking ahead to the rest of the year, our core innovation, growth, and productivity initiatives that largely focus on food and beverage and center of store opportunities remain on track with benefits weighted to the second half of the year. coupled with softer Q3 and Q4 2023 comps, we remain confident about the trajectory of this part of the business. The PS&W and RENs component performed in line with our Q1 plan, which accounted for not repeating the higher Q1 2023 REN sales, which were a carryover from Q4 2022 when the EPA announced a proposed rule to establish RFS volumes for 2023, 24, and 2025 which created uncertainty as the market absorbed that information. Moreover, we anticipated tight supply in Q1-23 in a few markets, and our supply model enabled us to capture an advantage in supply-constrained markets that did not repeat in Q1-2024. We continue to believe our supply model provides an advantage that differentiates us from some of our competitors and expect it will continue to provide value within the historical range of 2 to 3 plus cents per gallon. OPEX was also favorable to our internal plan as higher labor costs for specific cohort investments were implemented as planned. We are closely watching the proposed FLSA changes and believe the 2024 impact to be minimal. We are running scenarios and have developed options to address what would be a larger impact in 2025 if the changes go through as proposed. Of note, though, to the extent that the marginal retailers have salaried managers impacted by the regulation, the impact to their business on a cents per gallon basis would be three to six times higher due to their lower volumes. As discussed before, MurphyUSA is certainly not immune to the headwinds that arise from inflation or regulations. It's just that our hyper-focused, everyday low price and everyday low cost model is ensures we are not only not disadvantaged from the changes, but that the vicious cycle experienced by some retailers results in a virtuous cycle for Murphy if the changes ultimately result in higher unit costs being passed through at the gas pump. Looking ahead, with steady momentum from the January through March months, we expect to capitalize on key promotional opportunities around our primary traffic drivers and fully expect to see results improving in the second half. To add a little color to the anticipated lift in merchandise performance, we expect to see continued strength in tobacco, center of store improvement as new pricing and promotional initiatives take hold. As it is still very early in the year, and given all the initiatives underway and their expected second half impact, we remain confident in delivering merchandise results within our guided range, albeit probably something closer to the lower end of the range, as we are unlikely to be able to claw back some of the first quarter headwinds versus our plan. Nevertheless, the run rate impact on next year's merchandise results remains significant and reflects the hard work and highly impactful digital transformation initiatives underway, including a relaunch of the QuickCheck loyalty program, which is underway and should be rolled out in the fourth quarter. In summary, the entire team and I are really excited about all the activity we have going on to build upon the underlying strength of the business, and we look forward to updating you on our progress next quarter. And with that, I'll turn it over to Gallagher.