Murphy USA 4Q earnings slide 34%, but easily beats Wall Street estimates

Murphy USA’s profits fell more than 34% in the fourth quarter as rising wholesale gas prices cut overall margins, but the El Dorado convenience store operator was still able to close out the fiscal year with a profitable performance as the company seeks to expand its footprint beyond Walmart’s parking lot.

For the period ended Dec. 31, 2016, the El Dorado spin-off of Murphy Oil Corp. reported earnings of $43.8 million, or $1.14 per share, down 32% from year-ago earnings of $66.7 million, or $1.58 per share. Fourth quarter revenue rose slight to $3 billion, compared to $2.9 billion in the same period a year ago.

Despite falling below last year’s mark, Murphy USA fourth quarter financials easily beat Wall Street’s earnings estimates of $1.03 per share on revenue of $3 billion, according to a survey of seven analysts by Thomson Reuters. The better-than-expected financial report left Murphy officials upbeat going into fiscal 2017.

“We are very pleased with the company’s performance in 2016 despite a challenging fourth quarter fuel environment,” said Murphy USA President and CEO Andrew Clyde. “The transformational changes we made to our business generated $57 million of (earnings before taxes) growth versus 2015.”

For the full year 2016, net income was $221.5 million, or $5.59 per share, up 25.6 % compared to $176.3 million or $4.02 per diluted share in 2015. Yearly revenue, however, fell 9.5% from $11.5 billion in fiscal 2016 to $12.7 billion in same period of 2015.

Clyde noted that Murphy improved merchandise margins by 120 basis points and saw a 4.1% improvement in per-store operating expenses, which more than offset lower retail fuel margins that were more than a penny below the company’s half-year guidance.

“Despite the weakest retail fuel margin environment since 2010, EPS growth remained robust due to a more efficient operating structure and our balanced capital allocation strategy combining organic growth with share repurchases,” Clyde said.

During the quarter, Murphy USA opened 37 retail locations in Q4 2016, bringing the total store count to 1,401, consisting of 1,152 Murphy USA sites and 249 Murphy Express sites. A total of 27 stores are currently under construction including 16 high-performing locations that were closed in late January 2017 to be razed and rebuilt and are expected to return to operation in the second quarter as larger format stores.

Other key fourth quarter and yearly highlights include:

· Total retail gallons declined 0.7% to 1.07 billion gallons for the network in fourth quarter while volumes on an average per store month basis (APSM) declined 5.9% versus prior year quarter and retail fuel margins declined from 12.4 cents per gallon (cpg) to 10.6 cpg. For the full year, total gallons were up 1.7% to 4.20 billion, and retail fuel margins averaged 11.6 cpg, down from 12.5 cpg in 2015.

· Product supply and wholesale (PS&W) contribution, including RIN income, was $51.5 million in Q4 2016, adding 4.8 cpg on a retail gallon equivalent basis versus 1.5 cpg in the 2015 period. For the full-year 2016, PS&W including RIN income was $161.4 million, or 3.9 cpg on a retail equivalent basis compared to $100.7 million, or 2.4 cpg in 2015.

· Merchandise contribution dollars during the quarter grew 7.1% year over year, or 1.5% APSM, to $89.8 million at average unit margins of 15.3%. For the full year, merchandise contribution dollars increased 11.2% to $364.1 million at average margins of 15.6%, up 120 basis points from 14.4% in 2015.

Murphy USA also repurchased approximately 1.7 million shares during the fourth quarter for $111 million at an average price of approximately $66.50 per share bringing full year repurchasing activity to $323 million and 4.9 million shares, leaving approximately $177 million remaining under the previously announced program of up to $500 million through 2017.

In Wednesday’s trading session, Murphy USA shares (NYSE: MUSA) fell 50 cents to close at $63.20. The Arkansas company’s shares have traded in the range of $54.28 to $80.44 during the past 52 weeks.