Earnings Call Transcript - MUSA Q4 2025

Operator, Operator

Thank you for holding. My name is Carly, and I will be your operator for the conference today. I would like to welcome everyone to the Murphy USA Fourth Quarter 2025 Earnings Q&A Call. I will now hand the call over to Christian Pikul. Please proceed.

Christian Pikul, Director of Investor Relations

Thanks, Carly. Good morning, everyone. I appreciate your participation in our first Q&A session focused on the fourth quarter and full year 2025 results. I want to remind everyone to refer to the forward-looking statements included in our remarks from yesterday, which I hope you’ve had a chance to listen to or read. Joining me this morning are Mindy West, President and Chief Executive Officer; Donnie Smith, Chief Accounting Officer and Interim Chief Financial Officer; and Ash Aulds, Director of Investor Relations and FP&A. Carly, you can go ahead and start the questions.

Operator, Operator

Your first question comes from Bobby Griffin with Raymond James.

Robert Griffin, Analyst

Yes. I like the new format getting that out there after the press release. I guess my first question is more on the competitive comments that you put in the prepared remarks. Just curious if you can kind of conceptualize where the competitive kind of pressure is versus 6, 8 months ago? Is it getting worse or getting better? And then, I guess, more importantly, after you see that initial competitive response of new entrants how long does it take the store that's impacted to kind of come back to what you'd say are company-wide trends or company-wide averages.

Mindy West, CEO

Right. That's a great question, Bobby. Our same-store gallons in particular are impacted by those factors of competitive intrusion. And really the pressures vary market by market. So for instance, in 2025, some of our stores had average per store month volumes that were actually higher. We saw that in 9 states that we operate in. Margins were higher in 10 states. But those markets are in different stages of competitive intrusion and pricing behaviors. When we look at Texas, it has both higher margins and higher volumes. Colorado and Florida, though, had lower volumes and lower margins. But those states over time are going to look more like Texas as they mature and stabilize and those new competitor entrants take their share and ultimately raise prices because they also need to make a return on their sites. So our new stores also take share from others and they're outperforming the network. But same-store remains under pressure. So we have to invest an extra penny or so in order to maintain volumes. Typically, when a new entrant enters the market, they do exactly what we do. They price very low at the outset while trying to gain their share from the other competitors already entrenched in the market, and that could take 3 months, it could take 6 months, or it could take a year. Then it depends on how many stores that particular market entrant wants to build and what density they want to build in that market as to how long it will last. Ultimately, everything goes back to normal and margins rise, and we are able to increase our margins as well. In a way, we actually like competition because while it creates disruption when it's happening, as that market matures and stabilizes and the winners acquire their share of customers, then higher margins ultimately follow. We are disciplined in where we build and continuously upgrade. So we're going to be there for the long term, and we're going to be a winner also.

Robert Griffin, Analyst

Okay, that's helpful. I found the comment about the increase in maintenance capital spending interesting, particularly regarding its role in limiting disruption. Can you provide more details about the extent of the disruptions we have experienced? Is this increase in spending a proactive measure to avoid potential issues? I'm trying to understand if there has been any impact on EBITDA that we expect to alleviate following this maintenance capital increase.

Mindy West, CEO

Sure. What I would say is it's more of the latter. It's more of a getting ahead of things before it happens. We have been entirely within a break-fix mode for our history. That means maintenance comes in lumps, but it's difficult to predict. And as our fleet ages, we found the need to proactively invest in equipment that is end-of-life or near end-of-life. This does two things. It results in maintenance expenses that we can predict. It also enhances uptime with that equipment, improving the customer experience and their loyalty to us. The kinds of things that we're talking about doing is a step-up in proactively replacing some dispensers, HVAC units, space, things like that, which are going to cost us a little bit in capital from the beginning. But we'll improve uptime and store performance over time. We think the projected savings from just doing that is roughly $6 million to $8 million, somewhere in that range of maintenance expense that we would avoid by doing that. Of course, the impact on our customers goes even beyond that by being able to serve them in a more consistent fashion.

Operator, Operator

Your next question comes from Bonnie Herzog with Goldman Sachs.

Bonnie Herzog, Analyst

I actually had a question on your long-term guidance, I guess, through '28, and I guess I'm just thinking about this for modeling purposes. Guidance this year of $1 billion does imply stronger EBITDA growth in, I guess, '27 and '28 to ultimately reach that long-term guidance of an EBITDA target of $1.2 billion. So I was just hoping maybe you could talk about the drivers of maybe faster expected growth in the out years and where you see maybe the most upside or maybe most downside. Just trying to think through the potential for you to kind of meet that long-term EBITDA guidance.

Mindy West, CEO

Great question, Bonnie. What you're seeing in our EBITDA guidance is really a function of several factors for 2026. The guidance captures the timing and scale impacts of our new store program. As we get to a level where we can sustain 50-plus NTIs a year and those classes mature, that EBITDA contribution becomes more visible because we would expect that 50 stores can contribute $35 million to $40 million of EBITDA once they complete their 3-year ramp. However, for this year, when an entire class of 50 from last year opens at once, it does create a temporary drag that outweighs the strong 2- and 3-year contributions we are getting from our earlier smaller classes. So it isn't that the stores aren't performing; it's about scaling up our program to deliver the 50-plus stores going forward. One factor is our ability to build 50-plus stores a year and then ramp as expected. The other factor is in a more normalized, more volatile fuel environment. Our EBITDA growth will become even more sustainable because the current fuel environment impacts our same-store performance that the new stores right now are not able to offset this early into their ramp, and that's going to be a headwind this year. The path to the $1.2 billion depends on three levers, two of which we can control. We talked about one, the normalized fuel environment, which we cannot control. Sustaining the 50-plus NTIs annually is within our capability, and we're in a great position to do that and accelerate our growth. Making our business better is also a material driver of future growth. When the environment changes, I believe investors will be very surprised about our business's earnings power. However, if I were to handicap how we can achieve $1.2 billion, I believe it’s a quality pipeline that will deliver $35 million to $40 million at ramp and a 50-plus store ramp per year. I believe we can achieve our initiatives, but the $1.2 million depends on a bit more volatility. In the fourth quarter, even brief spurts of that showed our business functioning well.

Bonnie Herzog, Analyst

Yes. That's super helpful. And honestly, it makes a lot of sense. And yes, volatility is your friend as you kind of suggest. And maybe a quick follow-up then on that because also just in the context of that, the fuel margin, I know, again, it's for modeling purposes, but it did suggest a 30.5% CPG. And so if I'm right, I think that's maybe four years of flat to down fuel margins. So just trying to think through that for how you're kind of thinking about fuel margins. And again, and then also just the breakeven costs? Like how have they been trending recently?

Mindy West, CEO

So for fuel margins, our outlook for the year really reflects what we believe is the highest probability and most likely environment. We think it will still be characterized by relatively low volatility as we go through the year. We believe we're going to see relatively stable and still low fuel prices, which impacts our business model because it makes our customer margins a bit less price sensitive. We believe this is a base case similar to last year. Of course, we're comping several years ago when we experienced the other extreme, which we benefited tremendously from when we saw really high volatility and higher prices, which made our offer even more compelling. We are going to focus on things we can control and improve our business and the earnings power, including levers that in the future could be more fuel immune. For the fuel margin, we think that $0.30-ish all in is right where we need to be. It reflects that structural component because to earn margins at this level despite putting a $0.01 or $0.02 on the street and having low volatility speaks to that structural element that is still there and supporting margins. Regarding breakeven, what I can say is the cost to serve is really not going down, and that breakeven component is still alive and well and playing out industry-wide. The fact that margins were flat this prior year, given the low volatility and the lack of macro support for higher margins, shows that those marginal retailers still require higher margins to breakeven, much less continue investing in their business, which they're not able to do.

Operator, Operator

Your next question comes from Irene Nattel with RBC Capital Markets.

Irene Nattel, Analyst

Before I get to my question, I wanted to clarify something you mentioned, Mindy. You are still planning to put $0.01 to $0.02 a gallon on the street this year, and even with that, you're anticipating 1% to 3% same-store volume pressure. Is that correct?

Mindy West, CEO

We still think that we will continue to see volume pressure in this lower price environment, and we will still need to protect our position, especially against competitive entrants in certain markets by putting some sense on the street in order to maintain our competitive position. So yes.

Irene Nattel, Analyst

And then just moving on to the back hard. Can you talk about how you see the nicotine environment unfolding this year? We had some bright spots last year. How do you think it plays out in 2026 and moving ahead?

Mindy West, CEO

I think we are still the ideal retailer for manufacturers as they help our customers progress down the risk spectrum from cigarettes to other products. We will continue to be very promotion-driven throughout the year. I think we have delivered strongly on promotions. You saw that earlier when we had a promotion; our sales force could get behind that and really sell it. We are having our national leadership conference over these several weeks. I just got home from St. Louis, where we toured the Midwest. We had all our store managers from the Midwest in one location a couple of weeks ago; we were in Houston for the Southwest. All of those store managers are so excited and very promotion-driven. They are contest-driven. I think that culture really underpins our effectiveness in using our manufacturers' promotional dollars. Meanwhile, we still continue to take share in cigarettes and we will continue to do that. The other categories, other nicotine categories are growing strongly, and we don't expect that to slow down. Now we do realize that we're going to be comping a very special one-off promotions. We are not anticipating in our guidance being able to duplicate that but we have placed in our numbers accelerated promotional funding from what we had last year.

Operator, Operator

Your next question is from Ed Kelly with Wells Fargo.

Edward Kelly, Analyst

Good morning, I wanted to ask you about the growth of per store expenses. You had a very strong year in 2025, which was below the initial guidance you provided. The outlook for 2026 assumes that you'll still be operating below the 5% level that you once considered more typical for the run rate. I'm hoping you can discuss the factors driving this for 2026, and overall, what the appropriate run rate for per store expense growth will be over the next few years.

Mindy West, CEO

Great question. The team has done an excellent job managing expenses, resulting in an OpEx increase of only 3.3% last year. Our guidance still predicts that we will stay below that 5% threshold. This year, we expect to maintain our progress due to several factors. Our store excellence campaign and self-maintenance efforts have been pivotal, especially our ability to change card reader batteries in-house, which saved us nearly $2 million on maintenance last year. Additionally, our team has significantly reduced overhead costs, thanks to store managers effectively staffing, scheduling, and motivating their teams to run operations more efficiently. We've implemented strong loss prevention measures by relocating high-shrink items closer to the registers and improving our cash loss and inventory management, resulting in over $4 million saved despite price increases and growth. We anticipate these positive impacts will continue and even strengthen. Proactive equipment replacements will yield ongoing savings in maintenance. Moving forward, I would expect an approximate 4% growth rate, keeping in mind that we are launching many new-to-industry stores, which are larger and come with higher initial costs as we ensure they are fully staffed for excellent customer experiences. The increase in merchandise will grow over time, and much of our OpEx is driven by the expansion into these larger stores. Nevertheless, we will remain focused on operating as efficiently as possible.

Operator, Operator

Your next question comes from Jacob Aiken-Phillips with Melius Research.

Jacob Aiken-Phillips, Analyst

I just wanted to double quick on the larger format stores and some of the cost pressures. I think last year, there was a dynamic where a lot of stores opened towards the end of the year, beginning of the year. The winter storm in February like exacerbated some of those cost pressures. We had this January storm and I guess, February is still pending. But how should we think about the 1Q dynamics there? And then the evolution of that or cadence throughout the year?

Mindy West, CEO

We anticipate some increased maintenance costs due to the winter storms in the first quarter, but we are also benefiting from higher margins as we head into these storms. Overall, we believe these factors will balance out and were factored into the approximately $1 billion we previously mentioned. You are right that when we open a number of larger stores simultaneously, they incur full operating expenses from day one, whereas our fuel takes some time to ramp up and merchandise can take up to three years to fully ramp. While fuel does ramp up more quickly, we are likely capturing market share aggressively, which affects our overall operating expenses. I would say about half of the increase is related to those larger stores.

Jacob Aiken-Phillips, Analyst

Got it. And then just on the small tuck-in acquisitions like you just did 4 and could potentially do some this year. It's a newer dynamic. I'm just curious what exactly you look for? And I know it's early, but like what do you envision as the economic improvement of the stores when like you get the Murphy's merchandising into the stores?

Mindy West, CEO

We are particularly pleased with the Colorado acquisition because it allowed us to selectively choose the stores we wanted instead of taking an entire portfolio with both positive and negative aspects. This approach enabled us to target a market where we wanted to increase our presence quickly and cost-effectively. We managed to open those stores in under 30 days, putting up our signage and arranging our product selection to suit our standards. This effort aimed to retain most of the existing customer base while also utilizing our Murphy Drive Rewards loyalty app and our network of nearby stores to attract more customers. We appreciate the opportunity to cherry-pick in a market where we aimed to enhance density, allowing for rapid expansion without the lengthy process typically involved in organic growth, such as site selection, permitting, construction, and obtaining opening permits. This strategy of supplementing our growth with smaller acquisitions is something we are actively exploring right now.

Jacob Aiken-Phillips, Analyst

Thanks, Mindy. Congrats on the new role.

Mindy West, CEO

Thank you very much.

Operator, Operator

Your next question comes from Pooran Sharma with Stephens Inc.

Pooran Sharma, Analyst

I just wanted to maybe start off with understanding the contribution from the NTIs in year 3. I think you mentioned $35 million to $40 million in yesterday's prepared comments and today as well. I think you mentioned in the prepared comments, you maybe expected? Was it 2 years worth of these 50 class builds contributing $35 million to $40 million. So higher level, should we be thinking that you're going to get about $70 million to $80 million in contribution dollars from these stores and then that would rise to around $100 million to $120 million by 2028 or just wanted to get the right way to frame up that contribution?

Mindy West, CEO

It's more of a gradual process. For the foreseeable future, we will be adding a new group of 50 stores, which will initially slow down our growth since they won't incur full costs right away as they ramp up. We anticipate that each new group of 50 stores will generate between $35 million and $40 million of EBITDA once they reach maturity after a three-year ramp-up period. By 2027, we expect to have the 32 new stores from our 2024 group, the 51 from our 2025 group, and the 45 to 55 from this year, all contributing to EBITDA growth in 2027. This will have a significant impact even if the fuel market does not stabilize, and we may be able to add more than 50 stores to our network as we look past 2027. Therefore, we believe that 2026 will be seen as a crucial turning point for our sustained EBITDA growth. However, the projection of $120 million may be overly ambitious since the new stores will initially reduce EBITDA during their first year.

Pooran Sharma, Analyst

And I wanted to maybe understand the higher-than-expected PS&W and RINs contribution for the quarter. I wanted to understand more specifically what the dynamics at play were during 4Q. As we look and think about PS&W margins in 1Q, I know you're expecting $0.05 for the year. But just with the run-up in RIN prices, should we expect PS&W margins to stay a little bit above that $0.02 to $0.025 per gallon range you'd previously mentioned?

Mindy West, CEO

Sure. When you compare the fourth quarter versus prior year on PS&W, this year's were really supported by stronger arbitrage and stronger line space values but less than prior year due to some downward movements in price. That's explaining it, but there was a little more volatility in the fourth quarter than in the third quarter, for example. You saw the benefit of that in the PS&W line. As we look forward into the first quarter, obviously, these winter storms are impacting the network. It's also impacting price. Too early to say where we're going to end up on PS&W for the quarter at this point because the swings can be pretty dramatic. Safe to say for the full year, we still think we're going to be within that band unless we can see more prolonged volatility sustain itself but that's where we expect PS&W to land for the full year. It’s too early to say for the first quarter. Regarding the RINs, as we always say, the price of the RIN is baked into the price of the gas we pay. While there may be some temporary dislocations if RINs run up very quickly or run down very quickly, over time, it all balances out.

Operator, Operator

Your next question comes from Corey Tarlowe with Jefferies.

Corey Tarlowe, Analyst

Can you talk a little bit about what happened on the tobacco side from a margin perspective in the quarter? And then also maybe what to expect ahead there?

Mindy West, CEO

Sure. What you were seeing here is something we've talked about frequently last year. For the fourth quarter, it's really the timing of promotional dollars impacting that cigarette category, in particular, and the volumes. So importantly, though, although volumes were down, we did grow market share in the cigarette category for both the 4-week and 13-week periods ending January 4. Our volumes did remain strong compared to the market. Keep in mind, these categories are highly promotional, so you won't necessarily ever see straight-line growth even on a year-to-year basis. We've demonstrated over longer periods that we have significantly grown those contribution dollars in the overall nicotine category, and we are definitely seeing strength in pouches and other products. The business has already normalized in January, and we expect to continue to show consistent margin performance when viewed over time, but it can be lumpy quarter-to-quarter.

Corey Tarlowe, Analyst

Okay. Great. And then I have two quick follow-ups. I know we're lapping severe weather from last year. Can you provide any context around the storm impacts this year? And then also any impacts from changes in SNAP as well?

Mindy West, CEO

I want to emphasize what we mentioned for January; it's looking to be a positive month. While we are comparing against last year's winter storms, we are still facing storms this year, with one currently affecting the Carolinas and other areas of our network. Although we were satisfied with January's outcomes, it is one of the reasons we are hesitant to significantly raise our EBITDA guidance, as we are unsure of what the rest of the year will bring, and we anticipate some consequences from the ongoing winter storms. Regarding SNAP, we have some exposure, but it is relatively minor, making up less than 2% of our sales. Changes took effect on January 1 in five of the states we operate in, primarily affecting candy, packaged beverages, and particularly energy drinks. I want to share some preliminary insights; our initial observations indicate a slight headwind in candy and energy drinks. We will keep monitoring the data since this space is still evolving. We do expect some impact in discretionary categories, and we've accounted for a headwind of approximately less than $5 million overall for SNAP in our guidance. Interestingly, our leading item in EBT is Red Bull. While some customers might reduce their purchases, we believe that the majority will continue to buy these products even if they do not qualify for the SNAP benefit. There is some variability in the category, but the overall effect on the business is minor, about $5 million or less.

Operator, Operator

Your final question comes from Brad Thomas with KeyBanc Capital Markets.

Bradley Thomas, Analyst

Mindy, I'll just add my congratulations as well on your first call as CEO. I know last quarter, the main message was around much of the leadership transition, keeping the core strategies of Murphy in place. But just wondering if I could ask directly, if there are specific areas that you think the priorities will change a little bit now that you've taken over?

Mindy West, CEO

That is a great question. Thank you for asking that. What I said in those certain terms, some things are going to stay the same. Our everyday low-price strategy, our continuous improvement mindset, and capital allocation will remain unchanged. When I think about it, it's really more of our culture that is evolving. We're pushing for quicker collaboration and more nimble decision-making. We reorganized the company to create clearer roles and accountability. We've already made some leadership changes to help us work better together, remove some inefficient reporting structures, and increase accountability. People are excited because their work and ideas can have more impact, and that excitement ends up being infectious. We have an incredibly strong platform to improve this business and are 100% dedicated to growing shareholder value. Our five strategic pillars in which we have grown the company since spin are still intact. It's really just a culture shift, which I think is necessary to ensure that we are agile, adaptable, and really unafraid to challenge ourselves and stretch further and try new things. You may see us be, and I hope you will see us, a bit more innovative going forward than in the past. As we face macro conditions pressuring our stores and accelerating competition, I think it's smart to innovate in our business model, reducing reliance on fuel and tobacco where we can, but still preserving strength in both. We need to figure out how to attract and retain new customers, grow trips and spending, and make our store teams' lives easier and our stores more productive. What are those niches of opportunities for value that we can exploit? We'll be looking to innovation to support our core business and drive for more business. We are already looking at it around three main pillars: our portfolio, our customer, and advanced technology. We're going to attack all of those types of opportunities and absolutely believe we have untapped potential in this business to improve, not just our existing stores and serving our existing customers, but the ability to stretch for more with different stores and different customers. I’m excited about the future. I know the team is too, and stay tuned to see what we will deliver on this topic.

Bradley Thomas, Analyst

If I could squeeze in one last follow-up just on the QuickChek brand. I don't think I heard any commentary about how it performed in the quarter. Could you just address that? I mean, how you're thinking about its impact on EBITDA in 2026?

Mindy West, CEO

Yes. Great question. It is continuing to exhibit stronger sales. Margins continued to be pressured. Traffic continues to be pressured. What we're doing there is really simple. We are refocusing on the fundamentals of the business. We are focusing on core areas, which are mainly coffee, breakfast, and sandwiches as our traffic drivers. We are simplifying the menu, rationalizing the assortment based on performance, not legacy, or what we've always done. We're choosing where we win and not trying to be everything for everybody. We're focused on improving margin. We need to balance innovation with cost and margin control because while growth is important, we have to earn money. I can't take growth to the bank; we have to take margin to the bank. So being disciplined around that. Building a better operating model that simplifies operation, reduces complexity, enhances that customer experience because our speed to service is better. Overall, it took recognition that execution and ability to scale are as important as idea generation because ideas which can't be implemented well or executed consistently are actually a bad idea. We have new leadership at QuickChek in that new structure, which will help speed up execution and spark some innovation. I really like where the team is headed, and I believe they're focused on the right thing. I appreciate you asking about that part of our business.

Operator, Operator

There are no further questions at this time. I'll turn the call back over to Murphy's Presenter Panel for any closing remarks.

Mindy West, CEO

Thank you for your time and participation on the call. All great questions. As we look to upcoming calls, I want you to know that we are committed to strengthening our core business while pursuing incremental sources of value that endure across the fuel cycle. We are building from a very solid foundation, and I have solid conviction in this leadership team's capacity to unlock Murphy USA's next level of potential. Thank you again, and I look forward to next quarter's call.

Operator, Operator

This concludes today's call. Thank you for participating. You may now disconnect.