Murphy Usa Inc. · NYSE:MUSA
Murphy Usa — Investor Day (May 2017)
59 slides from Murphy Usa's investor day presentation, May 16, 2017
Slide 1: Murphy USA Inc. 2017 Investor Day
Murphy USA Inc. (MUSA) 2017 Investor Day New York, NY ● May 16, 2017 Murphy USA Inc. 1
Slide 2: Cautionary Statement
Cautionary Statement This presentation contains forward-looking statements. These statements, which express management’s current views concerning future events or results, are subject to inherent risks and uncertainties. Factors that could cause actual results to differ materially from those express
Slide 3: Today's Presenters
Today’s Presenters Andrew Clyde, President and Chief Executive Officer • Appointed President and Chief Executive Officer on January 8, 2013 • Leads the development and execution of corporate-wide strategy, growth initiatives and strategic allocation decisions to drive long-term shareholder value • S
Slide 4: Summary of major events since 2015 Analyst Day
Summary of major events since 2015 Analyst Day • On 1/25/16, Murphy USA announced its MUSA Relative Stock Performance Independent Growth Plan Indexed From Spinoff to May 12, 2017 – MUSA will no longer purchase land from 200 Walmart but will instead source new sites from third-parties to build Murphy
Slide 5: The competitive landscape continues to evolve
The competitive landscape continues to evolve Hypermarkets Murphy USA QuikTrip Big-Box C-Stores Supermarkets and mass merchants with Walmart Sheetz Large stores with small-box forecourts comprehensive offerings Kroger Wawa including food offer Strength: Low fuel prices and integrated loyalty Safeway
Slide 6: MUSA's potential framed with simple formula for value creation
MUSA’S potential framed with simple formula for value creation MUSA Formula for EPS Growth MUSA Value Creation Drivers Organic Growth Disciplined * Capital Allocation Fuel Contribution + Commitment Modest to Share Organic Unit EPS Fuel Repurchase Growth Growth Breakeven − Corporate High Sustained Co
Slide 7: Past performance is not indicative…but it looks pretty good
Past performance is not indicative…but it looks pretty good Performance 2017 Guidance Metric Period (2013-2016) (As Revised) Organic Growth New Units Annual Growth 4-Year Range 38 to 73 Up to 50 Raze-and-Rebuilds Annual Growth 4-Year Range 0 to 10 Up to 20 Fuel Contribution Fuel Volume K, APSM 4-Yea
Slide 8: Organic Growth
Organic Growth Murphy USA Inc. 8
Slide 9: Independent Growth provides both high-returns and flexibility
Organic Growth Independent Growth provides both high-returns and flexibility Estimated New Store Growth Independent Growth Plan • MUSA will build its final Murphy USA stores on Walmart-sourced sites in 2017 1,451 1,501 1,551 1,401 • Independent Growth via Murphy Express 1,335 291 341 391 249 means:
Slide 10: Express outperformance highlights Independent Growth Plan
Organic Growth Express outperformance highlights Independent Growth Plan 2015 Build-Class Small Walk-in Format Full Year 2016 • 2015 Express build class outperforms USA stores built the same year 261 – Fuel Volumes were 18% higher in 2016 222 2015 Class – Merchandise Sales were 30% higher in 2016 co
Slide 11: Express builds performed similar to the network average
Organic Growth Express builds performed similar to the network average 2015 Express Builds vs. Network Small Walk-in Format Full Year 2016 • The 2015 Express class is performing in-line with expectations and with 263 261 comparable stores built prior to 2015 – Fuel Volumes were within 1% of the aver
Slide 12: Expectations for the Independent Growth Plan remain strong
Organic Growth Expectations for the Independent Growth Plan remain strong Build Class Pro Forma Pro-Forma Assumptions $K, APSM, 1200 Format 2017 Class • Fuel volumes 47 Sites, APSM Fuel Contribution $ 46.7 – Per-site volume assumptions driven by - Average volume, APSM 286.6 independent site selectio
Slide 13: Early raze-and-rebuild results are meeting expectations
Organic Growth Early raze-and-rebuild results are meeting expectations Average Uplift (APSM) 2016 Raze-and-Rebuild Class (n = 10) Q4 2015 vs. Q4 2016 Fuel Volume Tobacco Sales(1) Non-tobacco Sales Site Opex(2) ROIC(3) (K, gal) ($K) ($K) ($K) 461 57 138 Pro-Forma 16.4% Model 27 23 23 Seasonally 122 4
Slide 14: Super Coolers drive unit volume, sales, and margin growth
Organic Growth Super Coolers drive unit volume, sales, and margin growth Kiosk Penetration Super Cooler Uplift(1) Super Cooler Benefits Through Fiscal 2017 Year End 86 Stores with 2015 SC Install CSD Non-CSD 780 • Planned installations in 2017 Remainder 55 will bring the total 3-door Super Cooler co
Slide 15: Refreshed stores look great and improve customer experience
Organic Growth Refreshed stores look great and improve customer experience Accelerated Refresh Program Store Network Status Annual activity, USA network 2015 – 2017e • Accelerated Program targets ~88% of USA network candidates(1) 1,027 1,451 – Typical costs of $30k - $35k per site completed by – Pro
Slide 16: The majority of our stores will be small-format versus kiosk
Organic Growth The majority of our stores will be small-format versus kiosk Store Count by Format Store Activity (2012 – 2019e) 2012 – 2019e 1,551 • Over 350 small and large format stores 103 constructed 1,165 82 707 • 71 raze-and-rebuild projects completed 316 • Entire USA network refreshed 767 741
Slide 17: Fuel Contribution
Fuel Contribution Murphy USA Inc. 17
Slide 18: Our model generates high volumes with lower margin volatility
Fuel Contribution Our model generates high volumes with lower margin volatility Annual Fuel Volumes (MMgal) / Avg Store Average Total Fuel Margins(1,2) (cpg) Last Fiscal Year Past 16 Fiscal Quarters from January 2017 10% 22% 19% 19.9 19.4 3.1 17.9 16.3 67% 55% 28% 2.2 MUSA CASY ATD (US) Speedway Sta
Slide 19: We project fuel demand to be relatively stable in MUSA's markets
Fuel Contribution We project fuel demand to be relatively stable in MUSA’s markets Total US Light Duty Vehicle Demand 2027 Fuel Projections Indexed to 2016 99.3% 99.8% 103.1% 1.5% 96.4% 97.0% 100.1% Annual Growth 2016-2027 VMT 96.6% 97.2% 100.3% 1.0% 93.8% 94.4% 97.4% 94.0% 94.6% 97.6% 0.5% 91.3% 91
Slide 20: VMT is a function of economic growth, moderated by gas prices
Fuel Contribution VMT is a function of economic growth, moderated by gas prices VMT: Historical Drivers and Forecast Predicted vs. Actual VMT Change Total Vehicle Miles Traveled 1997-2016 1995-2027E 4.0% 4.0T 3.79T 3.5% 3.59T 3.5T 3.0% 3.0T 2.5% Predicted VMT Change 2.5T VMT (T of Miles) 2.0% 2016 E
Slide 21: Fuel economy impacted by CAFE regulations, scenarios
Fuel Contribution Fuel economy impacted by CAFE regulations, 3 scenarios CAFE Target: Potential Outcomes CAFE Scenarios (MPG) MPG 1• Continued Tightening 49.7 – CAFE standards upheld through 2025, and then 50 1 continue to be pressed upward at a similar rate 45 2 – Would require additional legislati
Slide 22: Fleet fuel economy rises more slowly than the CAFE standard
Fuel Contribution Fleet fuel economy rises more slowly than the CAFE standard US CAFE New Car MPG Targets MPG 1975-2027 (MPG) Scenario 44.5 2 45 CAFE Target - New Cars 40 CAFE OTR - New Cars +39.9% OTR Fleet MPG 35 30 +28.9% 25 +16.7% 20 20.8 15 10 Forecast 5 0 1975 1980 1985 1990 1995 2000 2005 201
Slide 23: EV adoption will be more impactful outside of MUSA's footprint
Fuel Contribution EV adoption will be more impactful outside of MUSA’s footprint ZEV States & 2016 Top Ten States by EV Sales Forecasted EV Sales Penetration 2018-2027 10.8% 11% 1.1% DC 1.0% ZEV States 10% 1.0% Total US 0.3% 9% 8.8% Non-ZEV States 0.4% 8% 0.4% 0.5% 7% 1.9% 6% 0.3% 5% 3.8% 3.8% 4% 3.
Slide 24: Autonomous vehicles unlikely to have material impact by 2027
Fuel Contribution Autonomous vehicles unlikely to have material impact by 2027 US New Vehicle Sales by US Vehicle Install Base by NHTSA Level NHTSA Levels of Autonomy Millions of Vehicles Millions of Vehicles 18 17 17 300 1% 280 <1% 3% 271 2% 16 7% Level 4 Level 4 5% <1% 16% Level 3 250 13% Level 3
Slide 25: Other disruptions to demand are unlikely to impact our forecast
Fuel Contribution Other disruptions to demand are unlikely to impact our forecast Summary • Substantial EV penetration will occur only when they are economically attractive relative to ICE vehicles Electric • Under current and plausible US gas prices and vehicle incentives EVs are “out of the money”
Slide 26: What drives volume most is the demand segment we serve
Fuel Contribution What drives volume most is the demand segment we serve Demand Segments – Murphy Geography Primary Reason for Selecting Brand Survey Results Survey Results 10% 8% 2% 3% 16% 26% Convenience segment 43% 37% fluctuates with gas prices 47% and more convenient low-priced outlets 8% 66% 1
Slide 27: We generate margin from the refinery gate to the pump
Fuel Contribution We generate margin from the refinery gate to the pump Crude Gas Pipeline Pipeline Crude Gas Vessel Refinery Barge Gasoline Terminal Truck to (spot price) (rack price, RIN sale) Retail Store Murphy USA Inc. 27
Slide 28: Proprietary sourcing capabilities are an important advantage
Fuel Contribution Proprietary sourcing capabilities are an important advantage 2016 Supply Mix Percent of Retail Volumes • Our proprietary supply chain investments 3rd Party provide: Contract 42% – Secure, ratable supply capability that is a source 3rd Party of our retail advantage Rack – Less volat
Slide 29: Our fuel margins reside within a historical range of 14 to 16 cpg
Fuel Contribution Our fuel margins reside within a historical range of 14 to 16 cpg MUSA Total Fuel Margin CPG • We expect to earn 14 to16 cpg in total 18.5 fuel contribution from our combined retail 16.4 2.7 and PS&W plus RIN sources 16.0 14.9 15.4 14.4 3.4 14.0 • MUSA’s total fuel margin has come
Slide 30: Rack price minus laid-in costs = Spot-to-rack margin
Fuel Contribution Rack price minus laid-in costs = Spot-to-rack margin Illustrative Spot-to-Rack Market Structure PS&W Contribution (Without RINs) Market without RINs 174 Rack Price 174 Retail Transfer Price 171 3 3 (Costs) (6) (Spot Price) (165) 6 165 = Spot-to-Rack =3 PS&W + RIN sale --- Other Inc
Slide 31: RINs are in spot price—offsetting negative spot-to-rack margins
Fuel Contribution RINs are in spot price—offsetting negative spot-to-rack margins Refiners and Importers incorporate their …thus, RIN income is not a windfall expected RIN costs in the spot price… Illustrative Spot-to-Rack Market Structure PS&W Contribution (With RINs) With RINs 181 3 Rack Price 174
Slide 32: Our integrated supply assets naturally reduce margin volatility
Fuel Contribution Our integrated supply assets naturally reduce margin volatility Price swings inversely affect RIN prices offset in spot-to-rack margin retail margins and inventory gains Spot-to-Rack vs. RIN Contribution ($MM) Margin Contribution (CPG) by Driver 2014-2016 2014-2016 CPG CPG 181 300
Slide 33: The RFS program is working as intended for all parties
Fuel Contribution The RFS program is working as intended for all parties Key Elements Attributes of the RFS Program • Current system provides a workable, stable, program that uses RINs as an Clear Goals incentive to increase volumes of renewable fuels in the transportation pool Well-Established • Sy
Slide 34: The various inputs make near-term margins difficult to forecast
Fuel Contribution The various inputs make near-term margins difficult to forecast Spot Gasoline (cpg) MUSA Total Fuel Margins 300 2014 – 1Q 2017 (Monthly) 200 CPG 28 100 0 24 12/13 06/14 12/14 06/15 12/15 06/16 12/16 Spot Ethanol (cpg) 20 400 300 16 200 100 12 0 12/13 06/14 12/14 06/15 12/15 06/16 1
Slide 35: Fuel Breakeven
Fuel Breakeven Murphy USA Inc. 35
Slide 36: Our initiatives improve our competitive position dramatically
Fuel Breakeven Our initiatives improve our competitive position dramatically Fuel Breakeven Requirement CPG (2012 – 2016) 3.4 2.8 2.8 2.5 1.6 2012 2013 2014 2015 2016 Fuel (Merchandise Margin − Site Opex − Allocated Field G&A) = Breakeven Fuel Gallons Note: Site OPEX excludes credit card fees; G&A a
Slide 37: Volatility favors our low-cost business model
Fuel Breakeven Volatility favors our low-cost business model Total Fuel and Breakeven Margin (cpg) 2013 – 2016 Fuel Breakeven Margin (cpg) PS&W plus RIN 22.7 25 Retail Margins 20.4 20 18.7 18.5 17.9 16.4 16.7 14.9 15.5 15.4 15.4 15 13.8 14.0 13.9 14.0 12.3 10.1 CPG 10 5 3.4 2.8 2.5 1.6 0 -5 FY Q1 Q2
Slide 38: MUSA's business model bucks industry trends
Fuel Breakeven MUSA’s business model bucks industry trends Cumulative Growth in Cumulative Growth in Industry Metrics (APSM) MUSA Metrics (APSM) 2014 - 2016 2014 - 2016 21.5% (6.3%) contraction 15.2% 13.1% 9.1% 7.0% 6.5% +16.3% Data Not expansion Available 2.5% 1.4% 0.9% 2014 2015 2016 -3.2% 2014 20
Slide 39: Core-Mark transition and labor model were big drivers in 2016
Fuel Breakeven Core-Mark transition and labor model were big drivers in 2016 Core-Mark Transition Labor Model Implementation • Enhanced store margin improvement through • Optimized labor hours through standardizing enhanced rebates and lower mark-ups store procedures • Reduced labor hours and store
Slide 40: Millions drive past our prime locations every day
Fuel Breakeven Millions drive past our prime locations every day 26 States … 1,400 Stores … Murphy USA Inc. 40
Slide 41: Our strategy revolves around a simple journey
Fuel Breakeven Our strategy revolves around a simple journey Path to Purchase Our customer’s journey from the neighborhoods we are in… to our fuel pumps… to our stores… 1 2 3 Acquisition Conversion Basket Building Attract more of the millions Do more to engage Get them to buy more customers Murphy U
Slide 42: Our biggest categories are driven by 4 truths: Cigarettes
Fuel Breakeven Our biggest categories are driven by 4 truths: Cigarettes Cigarettes Four Truths MUSA Reaction 1. Units will continue to decline 1. Maximize the value of the cigarette customer 2. Manufacturers will increase price annually 2. Price with Precision 3. Manufacturer funding will shift awa
Slide 43: Our biggest categories are driven by 4 truths: Beverages
Fuel Breakeven Our biggest categories are driven by 4 truths: Beverages Beverages Four Truths MUSA Reaction 1. CSD will continue to decline 1. Grow capacity 2. Consumer demand preferences will 2. Add variety always change 3. Optimize promotions 3. Outside influence will impact consumer preference an
Slide 44: Our biggest categories are driven by 4 truths: Beer
Fuel Breakeven Our biggest categories are driven by 4 truths: Beer Beer Four Truths MUSA Reaction 1. Per capita beer consumption will 1. Own segment gap left by larger continue to decline retailers – single serve 2. Brewers will increase price annually 2. Capitalize on promotions and plus- selling t
Slide 45: We grow by pulling analytical levers in two main areas
Fuel Breakeven We grow by pulling analytical levers in two main areas Accelerate Core Growth from New Increasing productivity Stores & Customers Floor & Mix Optimization Segmentation Personalization Price Promotion with Effectiveness Precision Murphy USA Inc. 45
Slide 46: We evaluate all initiatives through three lenses
Fuel Breakeven We evaluate all initiatives through three lenses Is it what Desirable customers want? Viable Feasible Will it make Can the stores money in the execute with long run? excellence? Murphy USA Inc. 46
Slide 47: Heightened focus on sales and execution
Fuel Breakeven Heightened focus on sales and execution 2017 Priorities 2017 Initiatives • Commission Program Drive Sales • Up-sell / Conversion Performance Management • Labor Performance Management Reduce Costs • Store Staffing Optimization Ensure Great • Store Standards (SOPs) Looking Stores • Walk
Slide 48: Initiatives in 2017 will actively strengthen the Operators' role
Fuel Breakeven Initiatives in 2017 will actively strengthen the Operators’ role 2017 Initiative Previous State Current State • Rewarding cigarette growth • Rewarding merchandise mix diversity Commissions • Very complicated program • Simple program Program • Punitive in nature • Rewards sales and pro
Slide 49: Corporate Costs
Corporate Costs Murphy USA Inc. 49
Slide 50: Corporate investments are focused on building capabilities
Corporate Costs Corporate investments are focused on building capabilities Growing Well-Positioned Asset Base • Build out network catering to value- conscious consumers in front of world- Pre-Spinoff class traffic aggregator Focus • Develop and standardize most productive store formats • Retained mi
Slide 51: Our SG&A investment will enhance capabilities and scalability
Corporate Costs Our SG&A investment will enhance capabilities and scalability Total SG&A ($MM) • People 2014 – 2017e – Establish competencies to achieve corporate goals and strategies 138 – Align incentive plans with principles and 129 competencies 119 123 – Empower leadership to drive change and su
Slide 52: Incentive structure aligns management and shareholders
Corporate Costs Incentive structure aligns management and shareholders Incentive metrics are designed to ensure that: • Management executes and supports value creation activities • We remain good stewards of our existing assets and invest capital to support long- term goals Cash Incentive Metrics Eq
Slide 53: Shares Outstanding
Shares Outstanding Murphy USA Inc. 53
Slide 54: Capital allocation policy balances growth and capital returns
Shares Outstanding Capital allocation policy balances growth and capital returns Capital Allocation ($MM) Capital Allocation ($MM) 2014 - 2016 2014 - 2016 $587 Retail Growth Capital $464 $323 39% $248 50% $191 $52 $264 7% $216 Share 4% $139 Repurchases Retail Corporate Maintenance Capital Capital 20
Slide 55: Capital is prioritized for network growth and improvements
Shares Outstanding Capital is prioritized for network growth and improvements Annual Capital Expenditure ($MM) 2014-2017e $264 $275 25 20 • Growth capital is allocated to the 13 $216 38 65 highest-return new store 28 opportunities within the framework of 8 $139 a finite growth business model 18 201
Slide 56: Opportunistic share repurchases integral to EPS growth formula
Shares Outstanding Opportunistic share repurchases integral to EPS growth formula Commitment to Share Disciplined and Decisive Repurchases Over Dividend Approach to Timing Shares Outstanding MUSA Share Price vs. Shares Repurchased Fiscal Year End Calendar Year 2016 Shares 46.7 MUSA Share Repurchased
Slide 57: Leverage at corporate level is consistent with low-cost model
Shares Outstanding Leverage at corporate level is consistent with low-cost model • Long-term fixed rate leverage protects our industry-leading cost structure from rising Corporate inflation/interest rates Level Debt Aligned • Term Loan availability provides flexibility to With Strategy toggle capita
Slide 58: We have strategically added leverage to boost equity returns
Shares Outstanding We have strategically added leverage to boost equity returns Leverage Structure and Ratio 2013 to 2017e Total Debt Debt / • Adding appropriate debt to the balance sheet allows us to leverage business ($MM) EBITDA 2.4x improvements for the benefit of long- 1,400 2.5x 1,200 2.0x ter
Slide 59: Through our formula, we continue to build a bright future
Through our formula, we continue to build a bright future MUSA Formula for EPS Growth MUSA Value Creation Drivers Organic Growth Disciplined * Capital Allocation Fuel Contribution + Commitment Modest to Share Organic Unit EPS Fuel Repurchase Growth Growth Breakeven − Corporate High Sustained Costs E