Murphy USA Inc.

everyone to the Murphy USA third quarter 2024 earnings conference call. All participants are in a listen-only mode. We will also conduct a question and answer session and the instructions will be given later. I would now like to turn the call over to Christian Peichel, Vice President of Investor Relations. Please go ahead.

Hey, thank you, Dustin. Good morning, everybody. Thanks for joining us. With me today 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 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. Thank you, Christian, and good morning, everyone.

Murphy USA continued to demonstrate the benefits of its advantaged business model as we delivered strong third quarter results from our core categories, once again benefiting from our distinctive everyday low-price positioning and with the growing segment of value-focused consumers. In addition to our strong current period results, I'm very excited about the acceleration in organic growth as current construction projects underway put us in a great place for Q4 openings and sets the foundation for more new stores and earnings growth in 2025 and beyond. Our efforts to front load our real estate pipeline have paid off as we've seen more stores exit the permitting process than expected. As such, we are updating our CapEx projections for the year as we take advantage of this beneficial timing. I want to acknowledge our asset development team who worked hard to build this high-quality pipeline and implement process improvements to ensure we would hit our goals this year and put us in a better position for rateable store growth going forward. Gallagher will provide some more details on our CapEx and growth programs later in the call. Unpacking third quarter results, we see continued outperformance in our core non-discretionary categories, including fuel and nicotine. We grew both fuel volumes and retail margins, with total and APSM volumes up 2% and 1.1% respectively. Retail margins were up a little over 3 cents versus the prior year, largely due to a modest falling price environment. All-in fuel margins were about 2 cents lower when combined with PS&W results, which behaved as we expected in a period of falling wholesale prices. In fact, the entire $0.05 per gallon difference versus the prior year quarter is attributable to the accounting and timing variance associated with our internal supply transactions and inventory positions impacted by the year-over-year difference in price movement. For the full year, we expect PS&W contribution to land closer to the low end of the $0.02 to $0.03 per gallon range we have told investors to expect over the long term, as we continue to see a long supply market with lower volatility. Looking at our merchandise results, notably across the Murphy geographies, we are seeing the incremental benefit in basket building categories from the customer trade down in our traffic driving categories. In turn, we are leveraging the strengths of these core categories, including fuel, nicotine, beer, and lottery, to drive transactions in other more discretionary categories across the center of the store. Performance within the nicotine ecosystem specifically remains exceptionally strong. We are continuing to grow our market share in combustible products, eclipsing 20 percent share in Murphy markets. Similarly, we are taking share in driving sales and margin growth in traditional smokeless products and the fast-growing oral nicotine category, where collectively we are seeing double-digit growth in sales and margin, further differentiating our performance versus peers. Under the Murphy Banner stores, we saw total packaged beverage sales and margin growth of 2.9% and 6.2% respectively. Further, we saw mid-high single-digit strength in general merchandise, candy, and salty snacks, each of which grew share in our markets versus broader declines registered in the Nielsen data. In total, Murphy stores grew non-nicotine total sales and margin 2.7% and 4.8% respectively, underscoring both the strength of our core customers in our core geographies and the relative attractiveness of our offer. These results reflect the value of 2024 initiatives, including personalization of MDR offers to encourage customers to experience different elements of the MRF USA offer, as well as analytics-driven pricing and assortment strategies to optimize our offer and leverage price elasticities at the SKU level. On the QuickCheck side, Competition from QSR value pricing continued in Q3, continuing to pressure food and beverage traffic and margins and center store baskets. Nevertheless, fuel had a great quarter in the Northeast, where total volumes were up 2.9% and fuel margin dollars were up 9.2%. Coffee sales were a bright spot, up 4.3% on a per-store basis, with made-order specialty drinks up 14% on a per-store basis. as QuickCheck placed second nationally in CSP's annual survey of coffee programs. Overall, food and beverage sales per store were essentially flat, with center of store sales down 1.2%. Recognizing the inside traffic headwinds will likely persist into 2025, we are taking intentional action to drive QuickCheck traffic and further increase the competitiveness of our value offer. In fact, inside transactions at QuickCheck have improved throughout the third quarter, from a 6% year-over-year decline in July to a 1% decline in September. We kicked off the fourth quarter with new value offers and promotions in the breakfast and lunch day parts, featuring our $3.99 6-inch Italian spicy chicken or chicken tender sub sandwich. Additionally, we expanded our value offer on breakfast with a $5 breakfast bundle, including a breakfast sandwich, spuds, and any size coffee. And while it's early in the sandwich promotion, we are seeing significant customer uptake in the six-inch sub offer, where volumes were up 63%. And perhaps more encouragingly, we are seeing a 16% increase in total sandwich units, meaning we are seeing cross-pollination across the category. Coupled with the higher traction in the New York Giants premium subs versus their inaugural launch last year, We are very encouraged by the trips and transactions we are seeing attached to this core traffic driving category. Further capitalized on this momentum, we expect the newly designed and relaunched QuickCheck Rewards program, which went live earlier this week, to offer additional opportunities to engage with our customers and drive sales in 2025. The new app will feature mobile ordering and delivery, in-app payment options, the ability to earn points on fuel transactions, and extends deeper into more center of store categories. This is another great example of a cross-functional capability we are bringing to QuickCheck based on the huge success and impact of our own Murphy Drive Rewards program. Taking these initiatives together, we expect to show incremental improvement in transactions into the fourth quarter at QuickCheck, setting the stage for a more robust recovery in 2025. Turning to operating expense, Average per store month OpEx was up 4% in the third quarter, a sequential improvement versus the first half of 2024 as we start to lap some wage increases and other investments we made in the stores in the second half of 2023. Importantly, only half of this increase is attributable to same store increases, meaning the other half of the growth reflects the impact of a higher mix of larger new stores and raising rebuilt stores in the network. Given that we will be adding more new stores this year, next year, and beyond, we expect this trend to continue and would therefore expect same-store costs to increase at about a 3% clip, which would translate into network-wide per-store cost growth in the 5% to 6% range going forward. The team has done a great job this year making QuickCheck stores more efficient through demand planning and implementing a more sophisticated and efficient store labor model a process we also expect to roll out at Murphy Stores next year. Before I turn the call over to Gallagher to provide more color on our store growth and capital allocation, I just want to reiterate we are very pleased with third quarter results. We have a lot of irons in the fire to further optimize and grow the business in the fourth quarter, and the team is engaged and excited, all of which suggests 2025 will be another rewarding year for our team members and our shareholders.