Murphy USA Inc.

and I will be your conference operator today. At this time, I would like to welcome everyone to the Murphy USA second quarter 2024 earnings conference call. All lines have been placed on mute 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, again, press star and 1. I would now like to turn the call over to Christian Peichel, Vice President of Invested Relations. You may begin.

Hey, thank you, Bailey. Good morning, everybody, and thank you all for joining us today. With me are Andrew Clyde, Chief Executive Officer, Mindy West, Chief Operating Officer, Gallagher Jeff, Chief Financial Officer, and Donnie Smith, Chief Accounting Officer. After some opening comments from Andrew, Gallagher 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 recent SEC filings. Murphy USA 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 those 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, and thanks everyone for joining us today. We're very pleased with MurphyUSA's second quarter results. We believe our flywheel is clearly in motion, delivering advantage results to our business and creating value for our investors. Let's start today's call by taking stock of how the business as a whole is performing. Our core fuel business is delivering excellent results in a low volatility environment. which is historically when it is more difficult to grow volume. The structural dynamics that support higher break-even economics in the industry persist, as evidenced by all-in margins of 31.7 cents, 2.2 cents per gallon higher than the prior year period. As a result, second quarter retail fuel margin contribution dollars were the highest Q2 in company history, underscoring the sustainable and enduring success of MurphyUSA's Advantage model. Turning to merchandise performance, same store sales and margin growth were strong, driven by exceptional performance across tobacco categories. While total merchandise margins were up nearly 5% in the second quarter, year-to-date results are falling short of our high expectations. Given a slow start in Q1, softness in some discretionary center store categories, and lighter than expected traffic in quick check markets resulting in fewer transactions that were built into our internal plan, total fuel year Total full year merchandise margin growth will be around 4% as reflected in our adjusted guided range from $830 million to $840 million. Our initiatives are on track, but the early results will not overcome the impact of these drivers. Inflation is real and remains impactful to our customers. We have especially seen the effects in the Northeast markets where we see lower inflation for food at home versus food away from home, and that remains a challenge. We also note that QSR promotional intensity has increased, where many QSRs are pivoting back to value and competing for share in prepared food and beverages, which are core traffic driving categories at QuickCheck. As a result, year-over-year sales comps remain down about 2% at QuickCheck in the second quarter, with similar performance into July. This represents the largest variation to our total merchandise plan, where we anticipated more of a rebound in transactions year over year at QuickCheck. Similar to MDR members, QC rewards members remain very active, shopping with greater frequency and with larger baskets. But with one less trip or a trade down, it adds up. With our commitment to value pricing, the new QC rewards rollout coming up, and other initiatives, we are well positioned to get that incremental trip and trade up back. That said, there are some incredible bright spots on the Merch side that highlight where we not only win in the current environment, but sustain the wins thereafter. We continue to invest and reinvest in the tobacco category from a price, promotion, and capability perspective, driving strong growth across all products within the broader nicotine ecosystem. Our leadership in combustible products has built a strong foundation upon which we continue to grow share in vapor, oral nicotine, and other non-combustible products that are not only growing sales and margins in the low double-digit range, but also come with higher margins. We intend to support our customers as they transition to non-combustible products, leveraging our advantage volume position and promotional strength to continue to drive growth in the nicotine category. In the first state that has actually cracked down on illicit vapor products, we have already seen a strong resurgence in our volume to the products that the FDA has approved. Hopefully more to come on that front. In the center of the store, results are mixed between non-discretionary and discretionary products, but one thing remains clear. The MurphyUSA customer spend on non-discretionary products in our store remains very strong. Make no mistake, our customers are not immune to the inflationary pressures impacting household budgets of Americans living paycheck to paycheck, which we believe to be a growing customer segment. As such, they are making choices in their discretionary spend at our stores. Yet their spend on what we consider categories that remain core to our customers, such as fuel, tobacco, beer, salty snacks, and packaged beverages, remain strong. Thus, overall spend at Murphy stores is not only stable and resilient, it's growing. In the Murphy footprint, traffic driving categories, including fuel and tobacco, are bringing people to the store and growing the basket in the center of store categories attached to the visit. Remarkably, total tobacco margin dollars were up 12%, and non-tobacco margin dollars were up 4.8%, material improvements against what was a very strong second quarter in 2023. The two-year stacks were up 17.8% and 15% respectively in tobacco and non-tobacco margin growth, illustrating the powerful impact of Murphy's Advantage Model and the resilience of our customer. Unpacking results at the category level, customer spend remained strong in beer and salty snacks. product that customers not only don't want to forego, but are buying more of, compelled by our value offer. Per store margin growth in beer and salty snacks were up 11% and 9% respectively, offsetting softness in candy and lottery, where customers are making different choices. Packaged beverage, the largest center of store category from a sales and margin perspective, has improved sequentially from the first quarter, exhibiting seasonal momentum up 2.4% in per store margins outpacing the Nielsen data in gaining market share in our footprint, driven by higher promotional intensity and carbonated soft drinks. General merchandise margin growth, the second largest center store category, was more robust, up 5.6%, reflecting improvements from our initiatives and cost of goods that are margin accretive. Of note, general merchandise is one of the areas we reimagined with our in-store experience campaign focused on enhancing performance at our larger format stores, adding 200 additional SKUs and 700 additional facings to optimize selling space. Early results are promising across center store categories as we enhance the customer experience, improve sales velocity, and improve employee productivity. Looking at operating expenses, second quarter OPEX on a per store basis was up 6.2% year over year, down sequentially from up 6.7% in the first quarter, and remains on track to finish within our internal plan and the 2024 guided range. The primary drivers of OPEX growth remains the larger stores we are building, including raise and rebuilds, intentional wage investments we made in 2023, including elevating the assistant manager cohort, and higher maintenance costs, largely attributable to warranty expirations on dispensers we replace for a large part of the network in 2018 and 19 as part of our EMV compliance. Despite the headwinds we are seeing in certain parts of the business, we're very confident in the future growth drivers that will create value, including maintaining a relentless focus on EDLP and value pricing, generating additional value and efficiency from our stores as part of our store productivity excellence campaign, leveraging the benefits of digital transformation to address and offset pockets of weakness in discretionary categories, and ramping up new store additions in 2024 and 2025 and beyond. These are the building blocks of sustainable growth that are the material drivers of our $1.3 billion EBITDA target in 2028 and the catalyst to our flywheel. Our core fuel and tobacco categories continue to outperform, and our customer remains resilient, giving us further assurance we can meet this goal and continue our track record of delivering top-tier shareholder returns. I'll now turn the call over to Gallagher to give you more color on how we are allocating our cash flow to grow the business and create value for shareholders. Gallagher?