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It has been about a month since the last earnings report for Murphy USA (MUSA). Shares have added about 4.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Murphy USA due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Murphy USA Q3 Earnings Top Estimates, Increase Y/Y
Murphy USA reported third-quarter 2020 adjusted earnings per share of $2.61, beating the Zacks Consensus Estimate of $2.56 and increasing from the year-earlier quarter’s bottom line of $2.55. The outperformance could be attributed to a higher retail margin of 19 cents per gallon, which rose 3.3% year over year.
However, Murphy USA’s operating revenues of $2.8 billion fell 22.4% year over year and missed the Zacks Consensus Estimate by $147 million due to lower petroleum product sales.
Revenues from petroleum product sales came in at $2.1 billion, down 30.7% from the third quarter of 2019. But merchandise sales, at $756.8 million, rose 11.1% year over year.
The company’s total fuel contribution fell 2.6% year over year to $219.8 million, impacted by volume contraction, partly offset by margin expansion. Total fuel contribution (including retail fuel margin plus product supply and wholesale results) came in at 22.3 cents per gallon, improving from 20.1 cents per gallon in the third quarter of 2019.
Retail fuel contribution was down 9.1% year over year to $187.7 million although margins increased to 19 cents per gallon from 18.4 cents in the corresponding period of 2019. Retail gallons declined 11.9% from the year-ago period to 987.3 million in the quarter under review and failed to beat the Zacks Consensus Estimate of 1 billion. Volumes on an SSS basis (or fuel gallons per month) fell 12.7% from the third quarter of 2019. Meanwhile, the average retail gasoline price during the quarter was $1.90 per gallon, down significantly from $2.38 per gallon a year ago.
Contribution from Merchandise increased 6.2% to $118.1 million on higher sales even as unit margins, at 15.6%, fell from the year-ago period’s 16.3%. On an SSS basis, total merchandise contribution was up 6.6% year over year in the quarter under review on the back of 9% higher tobacco margins. Meanwhile, merchandise sales rose 10.5% on an SSS basis.
Fuel gallons were down 12.1% from the prior-year period while merchandise sales increased 10.9% on an average per store month (or APSM) basis.
As of Sep 30, Murphy USA — which opened four new retail locations, renovated five existing stores and closed one site in the quarter to bring its store count to 1,488 — had cash and cash equivalents of $317.5 million, and long-term debt (including lease obligations) of $963.2 million, with a debt-to-capitalization ratio of 51.8%.
During the quarter, the company bought back shares worth $90 million.
Murphy USA reiterated its 2020 projections apart from a $10 million increase in its selling and general expenses due to charitable contributions made in the third quarter. Based on the continued recovery in customer traffic over the past few months and Murphy USA’s excellent operating execution, the company expects to achieve adjusted EBITDA of more than $500 million in 2021. The company aims to build up to 50 new larger-format stores annually starting next year and 25 raze-and-rebuilds in 2021. The motor fuel retailer added that it is open to grow inorganically as well.
Murphy USA, which claimed that same-store fuel gallons have recovered to 94% of the year-ago levels, came out with an updated capital allocation strategy along with the earnings release. Murphy USA initiated a cash dividend of 25 cents per share with the first instalment to be paid on Dec 1 and announced a $500 million share repurchase program. The new authorization comes on top of the existing $400 million scheme, which is likely to conclude in 2021.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 22.22% due to these changes.
Currently, Murphy USA has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Murphy USA has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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