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Murphy USA (MUSA) Down 7% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Murphy USA (MUSA). Shares have lost about 7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Murphy USA due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Murphy USA Q4 Earnings Meet Estimates, Sales Miss Mark

Murphy USAannounced fourth-quarter 2020 adjusted earnings per share of $2.16, same as the Zacks Consensus Estimate and up from the year-earlier quarter’s bottom line of $1.54. The outperformance could be attributed to a higher retail margin of 15.4 cents per gallon, which rose 3.4% year over year.

However, Murphy USA’s operating revenues of $2.9 billion fell 17.3% year over year and missed the Zacks Consensus Estimate by $100 million due to lower petroleum product sales.

Revenues from petroleum product sales came in at $2.1 billion, down 25% from the fourth quarter of 2019. But merchandise sales, at $743.7 million, rose 10.3% year over year.

Key Takeaways

The company’s total fuel contribution rose 9.7% year over year to $200.8 million driven by margin expansion, partly offset by lower volumes. Total fuel contribution (including retail fuel margin plus product supply and wholesale results) came in at 19.8 cents per gallon, improving from 17.1 cents per gallon in the fourth quarter of 2019.

Retail fuel contribution was down 2.5% year over year to $155.5 million although margins increased to 15.4 cents per gallon from 14.9 cents in the corresponding period of 2019. Retail gallons declined 5.5% from the year-ago period to 1 billion in the quarter under review and missed the Zacks Consensus Estimate by 1.9%. Volumes on an SSS basis (or fuel gallons per month) fell 6.7% from the fourth quarter of 2019. Meanwhile, the average retail gasoline price during the quarter was $1.87 per gallon, down significantly from $2.31 per gallon a year ago.

Contribution from Merchandise increased 9.7% to $115.4 million on higher sales even as unit margins, at 15.5%, edged from the year-ago period’s 15.6%. On an SSS basis, total merchandise contribution was up 10.8% year over year in the quarter under review on the back of 14.2% higher tobacco margins. Meanwhile, merchandise sales rose 9.8% on an SSS basis, driven by 10.7% increase in tobacco sales and 7.4% increase in non-tobacco sales.

Fuel gallons were down 5.9% from the prior-year period while merchandise sales increased 9.9% on an average per store month (or APSM) basis.

Balance Sheet

As of Dec 31, Murphy USA — which opened 15 new retail locations and renovated 20 existing stores in the quarter to bring its store count to 1,503   — had cash and cash equivalents of $163.6 million, and long-term debt (including lease obligations) of $951.2 million, with a debt-to-capitalization ratio of 54.8%.

During the quarter, the company bought back shares worth $169.1 million. For the full year, Murphy USA repurchased $399.6 million of its shares.

Guidance

The company projects 2021 fuel volume in a range of 245.5 to 255 thousand gallons on APSM basis. Further, Murphy USA’s 2021 guidance includes up to 55 new stores and up to 25 raze-and-rebuilds, $680-$700 million in merchandise margin contribution, and $325-$375 million in capital expenditures.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -50.1% due to these changes.

VGM Scores

Currently, Murphy USA has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It’s no surprise Murphy USA has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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