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Murphy USA (MUSA) Stock Hits New 52-Week High on Q2 Earnings

Murphy USA Inc.'s MUSA share price hit a new 52-week high of $141.22 during the trading session on Jul 23. As a matter of fact, the stock has surged more than 15% since its second-quarter earnings announcement on Jul 21.

The company’s strong second-quarter earnings and investor optimism, backed by healthy fuel margins and a positive outlook overcoming the coronavirus uncertainty, prompted the rally. 

What Did Murphy USA’s Earnings Unveil?

The company reported second-quarter 2020 earnings per share of $5.73, beating the Zacks Consensus Estimate of $4.84 and significantly higher than the year-earlier quarter’s bottom line of $1.01.

The outperformance could be attributed to strong retail margin of 31.7 cents per gallon, which soared 136.6% year over year and breezed past the Zacks Consensus Estimate of 22.5 cents.

However, Murphy USA’s operating revenues of $2.4 billion fell 37.4% year over year and missed the Zacks Consensus Estimate by $190 million due to lower petroleum product sales.

Revenues from petroleum product sales came in at $1.6 billion, down 49.2% from the second quarter of 2019. However, merchandise sales, at $767.1 million rose 16.4% year over year.

Murphy USA Inc. Price, Consensus and EPS Surprise

Murphy USA Inc. Price, Consensus and EPS Surprise

Murphy USA Inc. price-consensus-eps-surprise-chart | Murphy USA Inc. Quote

Key Takeaways

The company’s total fuel contribution surged 93.6% year over year to $324.6 million, primarily on the back of margin expansion. Total fuel contribution (including retail fuel margin plus product supply and wholesale results) came in at 38.3 cents per gallon, improving from 14.7 cents per gallon in the second quarter of 2019.

Retail fuel contribution was up 76.4% year over year to $268.8 million driven by soaring margins, which jumped to 31.7 cents per gallon from 13.4 cents in the corresponding period of 2019. Retail gallons fell 25.7% from the year-ago period to $847.2 million in the quarter under review and failed to beat the Zacks Consensus Estimate of $1.1 billion. Volumes on an SSS basis (or, fuel gallons per month) plunged 27.4% from the second quarter of 2019. Meanwhile, average retail gasoline prices during the quarter were $1.71 per gallon, down significantly from $2.48 per gallon a year ago.

Contribution from Merchandise increased 12.2% to $118.4 million on higher sales even as unit margins, at 15.4%, fell from the year-ago period’s 16%. On SSS basis, total merchandise contribution was up 12.2% year over year in the quarter under review on the back of higher tobacco margins that increased 19.2%. Meanwhile, merchandise sales rose 14.4% on SSS basis.

Fuel gallons were down 26.7% from the prior-year period while merchandise sales increased 14.8% on average per store month (or APSM) basis.

Balance Sheet

As of Jun 30, Murphy USA — which opened three new retail location, renovated eight existing stores and sold nine sites in the quarter to bring its store count to 1,485   — had cash and cash equivalents of $403.6 million, and long-term debt (including lease obligations) of $975.3 million, with a debt-to-capitalization ratio of 51.5%.

Guidance

The coronavirus outbreak and efforts to stem the contagion’s spread threw up significant challenges to Murphy USA’s business. This prompted the El Dorado, AR-based company to take back its retail fuel volume expectation for this year in April. However, based on the continued recovery in customer traffic over the past few months, the company has reinstated 2020 fuel volume projection to a range of 217.5 to 222.5 thousand gallons on APSM basis, as against 250-255 thousand gallons per the original guidance. 

Further, the company’s updated 2020 guidance include 25-27 new stores and 28-30 raze-and-rebuilds, $455-$460 million in merchandise margin contribution (up from $430-$435 million before), and $250-$275 million in capital expenditures (compared to $225-$275 million previously).

Finally, the motor fuel retailer believes that the strong operational performance and solidification of the positive trends observed will allow it to achieve sustainable EBITDA of more than $500 million in 2021, two years earlier than thought.

Zacks Rank & Key Picks

Murphy USA, which came into existence following the 2013 spin-off of Murphy Oil Corporation’s MUR downstream business into a separate, independent and publicly-traded entity, holds a Zacks Rank #3 (Hold).

Meanwhile, investors interested in the energy space could look at some better options like Chevron CVX and USA Compression Partners, LP USAC that sport a Zacks Rank #1 (Strong Buy).

You can see the complete list of today’s Zacks #1 Rank stocks here.

Over 30 days, San Ramon, CA-based Chevron has seen the Zacks Consensus Estimate for 2020 increase 196.3%.

USA Compression Partners has a 100% track of outperforming estimates over the last four quarters at an average rate of 162.5%.

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