Earnings Call Transcript - MUSA Q4 2023

Operator, Operator

Thank you for standing by. My name is Christine, and I will be your conference operator today. At this time, I would like to welcome everyone to the Murphy USA Fourth Quarter 2023 Earnings Conference Call. I will now turn the floor over to Christian Pikul. You may begin your conference.

Operator, Operator

Thank you, Christine. Good morning, everyone. I appreciate you joining us today. With me are Andrew Clyde, President and Chief Executive Officer; Mindy West, Executive Vice President and Chief Financial Officer; and Donnie Smith, Vice President and Controller. After some opening comments from Andrew, Mindy will provide an overview of the financial results and kick off our guidance conversation. Please keep in mind that some of the comments made during this call, including the Q&A portion, will be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. A variety of factors exist that may cause actual results to differ. For further discussion of risk factors, please see the latest Murphy USA Forms 10-K, 10-Q, 8-K and other recent SEC filings. Murphy USA takes no duty to publicly update or revise any forward-looking statements. During today's call, we may also provide certain performance measures that do not conform to generally accepted accounting principles or GAAP. We have provided schedules to reconcile these non-GAAP measures with the reported results on a GAAP basis as part of our earnings press release, which can be found on the Investors Section of our website. With that, I will turn it over to Andrew.

Andrew Clyde, CEO

Thank you, Christian, and good morning, everyone. We are excited to discuss our fourth quarter 2023 performance, which reaffirms the strength of our strategy and business model as well as our enduring commitment to driving sustainable value for all our stakeholders. When looking at our fourth quarter and full year 2023 results, it's clear to us that Murphy USA is delivering results, and it all revolves around the concept of more. I often share that I believe the Murphy USA and QuickChek brands are serving the largest and fastest-growing customer segment in the U.S.: customers who are struggling to make ends meet, living paycheck to paycheck and who value affordability above all else. When we look at our most loyal customers through the lens of our loyalty data, what do we see? First, we continue to get more from the same customers. When we look at a large panel of customers who've been shopping with us every month since 2019, we see that they are spending 50% more at Murphy USA in 2023 than they were in 2019, about $177 per month. Second, we are getting the same for more customers. New loyalty members that visited us for the first time in 2023 are making the same frequency of trips as the 2019's most loyal cohort, about five transactions per month. But they are spending at higher levels and they are shopping more of the store with 28% of them having bought fuel, tobacco, and non-tobacco each month. In addition, we're getting more from our existing stores. As we continue to build on our history of lowering our fuel breakeven margin requirement and improving our coverage ratio, new initiatives are helping us maintain that trajectory. For example, one element of our digital transformation initiative focuses on upsell suggestions at the QuickChek touchscreens. Early pilots show uptake of suggested sell items have more than doubled. At Murphy, creating personalized offers through machine learning initiatives is resulting in more share of wallet captured from the same customers. Same initiatives and investments allow us to achieve more with less. Last year, we piloted a more sophisticated demand forecast and production planning tool at QuickChek stores. This initiative has resulted in driving a larger basket with better availability of items while also improving labor scheduling accuracy. In other words, doing more with fewer staff hours. The pilot stores have demonstrated a 20% uplift in grab-and-go products, leading to an increase in contribution of 6% net of spoilage due to stronger in-stock positions during periods of peak demand, increasing our speed of service and giving customers more of what they want. The same demand forecast is now fine-tuning our labor scheduling. We're also getting more from our new stores. We added 22 new stores to the Murphy-branded network in 2023. And while supply chain and permitting issues have deferred some of the financial impact of our new store program, most importantly, performance of these new stores has not been compromised. The 74 new Murphy banner stores added over the last three years averaged about 290,000 gallons per store month in 2023, nearly 20% higher than the network average in 2023, delivering more gallons to more customers. From a merchandise perspective, we are seeing total merchandise sales per store month of about $205,000, about 15% higher than the Murphy network average, which is impressive given these stores are still ramping to their full potential. We've also put 13 new QuickChek stores into service over the same three-year period, helping QuickChek generate record results in food and beverage sales and margins in the fourth quarter. Additionally, we are excited to share that QuickChek has received recognition for the number one spot in the CSP survey of the 20 best C-store coffee programs in 2023 and the number two best gas station for food in USA Today. This recognition confirms what we already know: that QuickChek is a world-class food and beverage platform known for its high-quality fresh offer and innovative programs that keep customers coming back for more. In addition to new stores, we are getting more from our legacy network of kiosks when our raise-and-rebuild program converts them into 1,400 square foot stores with an expanded center store offer and higher merchandise contribution. In short, these stores are selling more gallons and more merchandise. The raise-and-rebuild stores from calendar years 2020 through 2022 averaged 307,000 gallons per store month in 2023, about 27% higher than the network average. They averaged 230,000 per month in merchandise sales or about 27% higher than the Murphy network average also. Given our performance against this backdrop and the environment in which we compete that is characterized by flat to negative macro demand, especially in fuel and cigarettes, this begs the question: if we are getting more in the marketplace, what does that mean for everyone else? We believe it means others, especially those who don't have their own unique value proposition, are getting less. We're taking share. Based on what we have all observed over the past few years when certain segments of the competition lose sales and see their costs increase, they are relegated to make it up in the form of higher fuel margins. What does this mean for Murphy USA? It means we also take home more cents per gallon at each store, which in turn funds more organic growth, more investments in distinctive capabilities that will generate even more in the future, allowing us to buy back more shares. This is the virtuous cycle and flywheel that defines Murphy USA. The million-dollar question remains: if you're getting more from other parts of the business in the future, do you still expect to capture more fuel margin? The short answer is yes, and I will cover that in a little bit more detail after Mindy reviews the quarterly results and kickstarts the guidance conversations with some details around our 2024 capital plan.

Mindy West, CFO

Thank you, Andrew. Continuing in the spirit of the more theme, I would like to say good morning to everyone. I'm going to hit a few operational highlights, then move on to financial results, and then I will discuss our 2024 capital plan. Starting with fuel, in 2023, total volumes were up 1.1% versus 2022 with per-store volumes of 242,000 gallons per month, finishing within our guided range of 240,000 to 245,000 gallons. Given the volatility experienced in 2022, I think it's important to think about fuel volume performance on a two-year stack, which shows Murphy USA per-store month volumes are up 5.6% versus about a 7% decline in the OPUS data in our markets. That translates to roughly 12% of market share that we have taken from others. Turning to merchandise, total contribution dollars came in at $803 million, or up 4.7% versus 2022 and in line with our guidance of $795 million to $815 million. Exceptional execution and promotional activity in the tobacco category led to strong share gains, driving a 4.6% increase in total tobacco contribution. Remarkably, we recorded over $2 billion in cigarette sales in 2023, growing our cigarette market share to 20% and growing smokeless to 15% share of the market. Non-tobacco growth accelerated in the fourth quarter with food and beverage sales and margin up 5.4% and 5.7%, respectively, on a per-store month basis. Looking at OpEx, per-store operating expenses, excluding payment fees and rent, averaged $33,200 per month in 2023, right at the midpoint of our guidance range of $32,500 and $34,000 per store month. About one-third of this increase was attributable to employee-related expenses, with two-thirds coming from other areas, particularly pressure in maintenance and loss prevention. However, keep in mind, some of this increase is attributable to our evolving format mix. If we exclude larger-format new stores and raise-and-rebuild activity, we estimate that average per store month operating expense would have been up about 4% versus the 4.9% we reported. Now for some of the standard financial items. Revenue for the fourth quarter and full year 2023 was $5.1 billion and $21.5 billion, respectively, compared to $5.4 billion and $23.4 billion in the year-ago period. EBITDA for the fourth quarter and full year 2023 was $275 million and $1.06 billion, respectively, compared to $230 million and $1.2 billion in the year-ago period. Net income for the quarter was $150 million versus $118 million in 2022, resulting in reported earnings per share of $7 versus $5.21 in the year-ago period. Net income and earnings per share for the full year were $557 million and $25.49, respectively, versus $673 million and $28.10 per share in the year-ago period. Average retail gasoline prices in the fourth quarter were $2.97 per gallon versus $3.19 per gallon in the fourth quarter of 2022. Retail gasoline prices for the full year averaged $3.19 in 2023, $3.63 in 2022. The effective tax rate in the fourth quarter was 23.6% and 24.2% for the full year. For forecasting purposes, our 2024 guidance remains within a range of 24% to 26%. Total debt on the balance sheet as of December 31, 2023, remained at approximately $1.8 billion, of which approximately $15 million is captured in current liabilities, representing 1% per annum amortization of the term loan and the remainder of the reduction in long-term lease obligations as they are paid through operating expense. Our $350 million revolving credit facility remained undrawn at year-end, and these figures result in gross adjusted leverage that we report to our lenders of approximately 1.7x. CapEx for the fourth quarter and full year was $108 million and $344 million, respectively, and within our adjusted guidance range of $325 million to $375 million. Looking ahead into 2024, we expect to accelerate new store growth and raise-and-rebuild activities compared to last year. Coupled with new EBITDA-generative capital projects that are not tied to new stores, including up to 50 of our 2,800 square foot store renovations, we are effectively utilizing operating cash flow to grow the network and grow EBITDA. Our commitment to higher returns in new stores and across the network means we will continue our digital transformation investments to drive in-store sales and margin. As a result, we expect total spending to increase to a range of $400 million to $450 million. Keep in mind, this capital program comprises not just spend on new stores for 2024, but also preconstruction and other spending on future year build classes as we ramp up to a higher level of sustainable store growth in 2025 and beyond as conditions allow. This capital is earmarked for growth projects, which translates to well over $300 million in 2024 and includes between 30 and 35 new stores that have a high probability of opening this year, including up to four new QuickChek stores. It is important to remember that in order to add 30 to 35 new stores this calendar year, the capital plan must reflect a higher level of projects to achieve that guided range after risk-adjusting our build program for potential delays. This means we can potentially put more stores into service in 2024 or get a head start on 2025 new stores, underscoring our ongoing commitment to organic growth as our highest priority in growing the business over the next five years. Additionally, in light of the success of our raise-and-rebuild program results to date, we are looking to increase raise-and-rebuild activity when conditions allow. In 2024, this means we are initially targeting between 30 and 40 raise-and-rebuild opportunities, with the potential to do more depending on scheduling and other factors. Beyond growth, we are earmarking roughly $80 million for maintenance capital, which includes $15 million of IT maintenance capital, a category we have previously identified as corporate and project spend in prior years. So that leaves approximately $50 million for corporate capital needs, ongoing technology projects, and other strategic initiatives underway. Before I turn it back over to Andrew, as mentioned in the earnings release, we repurchased 442,000 shares during the quarter and just over 1 million shares for the full year, resulting in a cash and cash equivalents balance of $118 million at year-end, which is up $61 million from 2022 net of our balanced capital allocation of $344 million of investment and $333 million of share repurchase, once again clearly demonstrating the accretive benefits of our positive free cash flow business. With that, I'd like to turn the call back over to Andrew.

Andrew Clyde, CEO

Thanks, Mindy. Let me now quickly take you through some additional elements of our 2024 guidance. I'll start with a few more details around organic growth. We completed a total of 28 new stores in 2023, including six QuickChek stores, and executed 31 raise-and-rebuilds. As discussed in our third quarter call, while we are disappointed in our ability to put new stores into service, an ongoing issue for many retailers across the country, as Mindy mentioned, in 2024, we are able to complement new store growth by redirecting capital into other revenue-generating areas of the business. In addition to adding between 30 to 35 new stores this year, we are accelerating our raise-and-rebuild activity, targeting between 35 and 40 locations. Further, we are planning on remodeling approximately 50 2,800 square foot stores to install queuing lanes, improving and consolidating our food and beverage offer in the store for easier customer access, adding additional cooler facings, and creating a better customer experience through better lining and cleaner layouts, all of which will help to drive in-store sales, particularly in the food and beverage categories. Raise-and-rebuilds and remodel projects are not store count-additive, but they are EBITDA-additive at rates of return equal to or better than our new store program, which runs between 12% and 15% after tax. Moving on to fuel volume, for the past two years, per-store volumes have remained within the 242,000 to 245,000 gallons per month range. In a normal environment, we expect new stores and raise-and-rebuild activity to offset flat to slightly declining legacy stores, resulting in flat to slightly higher per-store volumes in 2024. This translates to guidance up or down about 1% versus 2023 or a range of 240,000 to 245,000 gallons per month. Looking inside the store, in 2024, we expect to increase our trajectory of merchandise contribution growth. From 2014 to 2019, total annualized contribution growth for merchandise averaged about 6% and improved to 7% since 2020. In 2024, through a variety of investments in store performance, format expansion, enhanced center store promotional activity, continued innovation, and new menu offers at QuickChek, we expect total contribution dollars to range between $860 million and $880 million or about 8% growth at that midpoint. Turning to OpEx, while the inflationary factors that drove 2022 operating expenses have moderated in 2023, labor and service cost inflation have proven sticky and remain in our structural base. Additionally, as we increase our average format size through 2,800 square foot stores coupled with raise-and-rebuild activity, we expect not only higher fuel merchandise contribution but higher operating expenses as well. In fact, just from that growth activity alone, costs would increase about 1% a year. As a result, we expect about 5% to 7% increases in per-store operating expenses, excluding credit card fees and rents, and translates to $35,000 to $35,500 on a per-store month basis. For corporate costs, G&A expense was $241 million, within our guided range of $235 million to $245 million, reflecting our investments in people and technology. These capability-building activities come with significant upfront investments, which will continue into 2024, but they are critical to making the company more competitive in the marketplace and leveraging our advantaged model over the next decade. These investments are as important to us as new store investments and come with much higher returns once these benefits scale across the network, which using Murphy Drive Rewards as an example, can take a few years to reach maximum impact but result in an extremely strong uplift across the network. With this in mind, we are funding this future growth with investment dollars today and expect G&A expense to increase about 8% at the midpoint to fall within a range of $255 million to $265 million, which is roughly half the growth rate in 2023, adjusted for a $25 million charitable donation made in 2022. In closing, as is our custom, we will provide a range of fuel margins representative of our view of the industry's earnings power. For reference, the $0.26 to $0.30 range we guided to last year proved to be conservative, given actual margins of $0.314. Nevertheless, maintaining our view that a $0.02 swing around the midpoint is representative of the historical annual margin volatility of the business prior to 2020, we believe 2023 performance lays the groundwork for a sustainable range of $0.30 to $0.34 per gallon in 2024, subject to upward bias beyond 2024. Given that the first half 2023 all-in margins approximated $0.29 per gallon with little-to-no volatility in prices or competitive behavior and second-half all-in margins approximated $0.335 per gallon with relatively low volatility, we believe using these two periods to characterize the lower end of the range is an appropriate benchmark for future expectations. To achieve the high end of the range of $0.34 per gallon, one would have to assume a higher level of price volatility than last year and/or the potential for an extended fall in prices that would create opportunity for the industry and Murphy USA to experience elevated margins. Using the midpoint of the official guidance metrics discussed, bracketed by $0.30 to $0.34 all-in fuel margins, we would expect these outcomes to generate approximately $1 billion to $1.2 billion of adjusted EBITDA. We don't have a crystal ball, but we do believe we have accurately characterized for the past four years how the market would respond to the shocks we have seen over that period. Just as important is our perspective around how consumers behave during these shocks and how they respond to the Murphy USA value proposition. While past performance is not necessarily indicative of future results, last year's performance in a relatively unremarkable setting gives us confidence that higher margins are not only structural and sustainable, but that the same market and competitive forces resulting in persistently higher than expected margins will continue to influence the economics of the marginal player and result in upward pressure over time. Let me close with a few comments on preliminary January performance. Per-store fuel volumes approximated 99% of prior year levels, impacted by severe winter weather across the southern states and in the Atlantic states, which impacted QuickChek traffic. However, retail-only margins are quite a bit higher than last January, averaging around $0.22 per gallon versus $0.19 per gallon in January of 2023, and we're seeing them trend a bit higher in early February. We are seeing continued momentum in the tobacco category, growing market share across all segments and driving a 6% increase in tobacco contribution dollars in January. While non-tobacco categories not attached to fuel were impacted by customer traffic attributable to weather, food and beverage contribution dollars are showing signs of strength as price increases taken periodically throughout 2023 are showing up in the 2024 margins. Of course, January is only one month, but we are certainly off to a great start with a lot of internal excitement around improvements we are making as we continue to drive the earnings potential of the business higher. Looking ahead into 2024 and beyond, investors should learn to expect more of the same for Murphy USA in the future. I'll now turn the call back to the operator to open us up for some questions.

Operator, Operator

Thank you. Your first question comes from the line of Bobby Griffin from Raymond James. Your line is open.

Robert Griffin, Analyst

Good morning, everybody. Thanks for taking my questions.

Andrew Clyde, CEO

Good morning, Bobby.

Robert Griffin, Analyst

First off, just more of a high-level question on your guys' position as the low-cost operator, and then how we're growing the business towards the larger-format stores. So, as these larger-format stores become a bigger portion of the overall mix of your stores, understanding they obviously, you're going to have more OpEx than your original formats. But are there still ways to maintain kind of the low-cost discipline from a growth perspective of operating expenses as well as on the SG&A side to keep that competitive positioning within the industry?

Andrew Clyde, CEO

Absolutely. Bobby, one of the things that we always look closely at is what's the fuel margin requirement from those stores, and what's the coverage ratio. The reality is if you see deals that cross our desk, et cetera, from time to time, and you look at formats that have experimented with food and beverage in a different way, where they got maybe higher revenue and margins, but they drove up their cost significantly. Frankly, even some of the bigger box chains that have come out onto the market that didn't have the distinctive food and beverage capabilities of QuickChek, or the density of the consumer base that translates into the velocity. We actually found that those other formats, including the bigger ones, require more fuel to cover the breakeven requirement than less. So, that 2,800 square foot store is really at the sweet spot. We haven't tried to jump the chasm or two chasms all the way to where a distinctive QuickChek offer would be. But we're able to innovate within that box, and it just makes us more and more competitive because we are adding more revenue and margin and contribution from the things we're adding with less labor. And so, our breakeven just continues to get lower. From a slightly higher OpEx at the store, the thing we really look at is how much that net expands. We continue to expand that, especially relative to a lot of other players in the industry. I hope that addressed your question.

Robert Griffin, Analyst

Yes. That's very helpful. And I guess, secondly from me and then I'll turn it over. Just you talked a little bit about this in your prepared remarks, but it's a meaningful step-up in the contribution of the gross profit from the merchandise side of the business versus some of the 2023 trends. Can you maybe just unpack the visibility into that? Are there some concrete examples? Or just anything to help us understand, okay, here's the building blocks, and the visibility is solid? Or is it a little bit more of, we're still going to have to see how things flow in just to get our hands wrapped around that, I think at the midpoint of $67 million year-over-year contribution from merchandise?

Andrew Clyde, CEO

Yes. As Mindy highlighted, tobacco sales continue to lead. We continue to take share there. The price, the value, the offer that we're providing just becomes more and more relevant as customers seek out affordability. We're growing premium tobacco products, but the discounted ones have a higher penny profit, and we’re growing those as well. The new noncombustible products have a higher margin, and we're best positioned to lead in that trend towards the lower-risk products. On a two-year stack basis, tobacco sales are incredible for us relative to the industry. Cooler Vault is a great one. We're on a two-year stack. We're up 12% in sales. Food and beverage is up 6.4%. If we're generating $113 million of contribution from food and beverage in 2023, Murphy is generating now $10 million of that, and it's up almost 90%, meaning we turned around a category that was not adding anything to the business. And so, across the categories, we just continue to see innovation growth. I can talk more about the digital transformation efforts and what we're seeing there as well, but that's probably our highest returning investment that we're making across the business right now, and it's going to be highly impactful on the merchandise side.

Robert Griffin, Analyst

Thank you. I appreciate the details, and best of luck here in the first quarter.

Andrew Clyde, CEO

Thank you.

Operator, Operator

Your next question comes from the line of Bonnie Herzog from Goldman Sachs. Your line is open.

Bonnie Herzog, Analyst

Thank you. Good morning, everyone.

Andrew Clyde, CEO

Good morning.

Bonnie Herzog, Analyst

I had a high-level question on your business, Andrew. Based on your expectation for fuel margins and EBITDA, I guess it implies to me that you're increasingly more reliant, or maybe dependent on strong fuel margins at the midpoint. I was just hoping to get a little bit more color on that. And then, in context of that, what are your expectations for total inside store EBITDA growth?

Andrew Clyde, CEO

Yes. When you look at the EBITDA, what would be interesting is if we just held the business constant and projected what the EBITDA would be at $0.16 margins back in 2019. We didn't drive the industry margins to be $0.32; the marginal retailer did. We took that advantage and put a lot of it on the Street to grow share and sustain volumes, which is why our volumes are up, as Mindy talked about, versus the industry. So, what I would encourage you and investors to say hi is input $0.16 per gallon and then look at the incredible growth on the merchandise side of the business since then. If the EBITDA growth is more reliant on fuel, I guess, right? Because the margins just keep going up. So we're not relying on margins like others with a zero breakeven. But versus 2019, if you model the business at $0.16, you'd see that the merchandise side of the business has done incredibly well.

Bonnie Herzog, Analyst

Okay. That's super helpful. Then just my second question would be on your fuel volume guidance. Your guidance implies volumes will decline at the midpoint this year versus last. Just trying to understand that, especially in the context of you being the low-cost provider.

Andrew Clyde, CEO

No. Our expectation is our fuel volumes will be up slightly. The raise-and-rebuilds and the new store activity will more than offset the flat to slightly declining legacy stores. So our expectation is they will be up slightly, and we will continue the same pricing strategies that position us as the bottom of the market, everyday low-price retailer.

Bonnie Herzog, Analyst

All right. Thank you so much.

Andrew Clyde, CEO

Thank you.

Operator, Operator

Your next question comes from the line of John Royall from JPMorgan. Your line is open.

John Royall, Analyst

Hi. Good morning. Thanks for taking my question. My first question is on the capital allocation side. How should we think about share buybacks in '24, given you've got some growth in earnings at the midpoint of the illustrative range, but CapEx is growing a fair amount? How do you feel about the balance sheet today?

Andrew Clyde, CEO

When we present our 3- to 5-year outlook, we always show our expectations for EBITDA to grow through growth initiatives. We're showing an expectation of buying back about 1 million shares a year, which is exactly what we did last year without really impacting the balance sheet. We're going to take advantage of the free cash flow. If we have additional free cash flow in years like 2022, we'll use that to buy back more. If we fall short because of the margin environment, or if capital growth opportunities present themselves, we won't hesitate to tap the balance sheet to make that commitment.

Mindy West, CFO

We're fine with the leverage levels that we have. We have plenty of access to liquidity and additional capital if we need it. We plan to make good on our commitment to buy 1 million shares a year. We think that our existing operating cash flows can more than fund our ambitious CapEx budget and still leave extra.

John Royall, Analyst

Great. That's helpful. Thank you. Maybe if you could talk a little bit about the tick-down in unit merchandise margins from 3Q to 4Q. Is that just mix from the tobacco business being strong and the non-tobacco business being down? What are your expectations that you have baked into the '24 guide with that 8% growth? Does any of that come from margin growth?

Andrew Clyde, CEO

There’s always going to be this challenge when you’re growing tobacco faster than your competitors. As we’ve said before, we don’t take unit margin to the bank; we take contribution margin dollars to the bank. So there could be some mix within some of the other center of the store categories, promotional activity, etc. As we think about 2024, we expect to see more of the same. We're going to get full year benefit of price increases at QuickChek on food and beverage. I do think we'll see some improvement this year on that front. We've made significant investments in our G&A in terms of digital transformation efforts, and those investments will be highly impactful on merchandise contributions.

John Royall, Analyst

Thank you.

Operator, Operator

Your next question comes from the line of Ben Bienvenu from Stephens. Your line is open.

Benjamin Bienvenu, Analyst

Hi, good morning, everybody.

Andrew Clyde, CEO

Good morning.

Benjamin Bienvenu, Analyst

So my first question is on the fuel side of the equation. There's been this notion historically that, in order to get margin, you have to give up gallons. So, your guidance of gallons on an APSM basis, minus 1% to plus 1% to flat to slightly up at the midpoint, while also having very strong margins is potentially in contention with one another. What are you seeing with your retail fuel price differential that potentially allows you to be more competitive and take market share?

Andrew Clyde, CEO

When you think about our volume and margin, you really got to break those two apart and then break each of those volume and margin components into pieces. If we have flat macro demand, plus or minus 1%, that's the first indication of how our stores are going to do. We're going to have a massive recession or economic growth, or something that drives that up. The second factor is where do we price? We're going to price everyday low price. Our differential to the competition is going to be the biggest determinant of that. With the higher structural margins we've seen, we've been able to put an extra $0.01 or so on the street, ensuring we offset any competitive pressures. That allows us to get both volume and margin.

Benjamin Bienvenu, Analyst

That makes a lot of sense. It's very helpful. Shifting gears to the tobacco side of the business, how analogous is what's happening there to what's happening in fuel? Because I look at that business, industry volumes have declined materially. You’ve seen APSM sales and contribution expand meaningfully. Is that a similar market structure such that the breakeven within the tobacco business is being driven higher? Is that something you see persisting in share gains on that side of the business?

Andrew Clyde, CEO

It is. If you look at our bulk cigarettes, cartons, the percentage has gone up significantly since 2019. We're growing premium tobacco products, but the discounted ones have a higher penny profit, and we're growing those as well. Our share of smokeless has increased significantly as well, and we're well-positioned to lead in lower-risk products. With this structural dynamic playing out in tobacco, we see share gains continuing as we apply similar strategies in both fuel and tobacco.

Operator, Operator

Your next question comes from the line of Anthony Bonadio from Wells Fargo. Your line is open.

Anthony Bonadio, Analyst

Hi, good morning, guys. I just wanted to dig in a little bit on unit growth or NTI growth.

Andrew Clyde, CEO

We expressed our disappointment there. It's just been a variety of issues, some of which are permitting, some are labor issues with general contractors. We've had stores where we've expected utilities to hook up but experienced longer waits. Many retailers across the country are experiencing similar challenges. Our confidence lies in the fact that we're building up the pipeline faster, loading more projects into the queue to ensure more can be completed within the calendar year.

Anthony Bonadio, Analyst

Okay. Got it. And then just on PS&W RINs, I know you guys have talked about that like $0.025 to $0.03 per gallon range. But this is now the third straight year that you guys have come in ahead of that. Should we be thinking about that any differently now in the model?

Mindy West, CFO

The direction and magnitude of price swings primarily dictate what the fluctuation is from quarter to quarter. I would say to model something $0.02 to $0.03 per gallon in the future, maybe a little higher but I would not predict that we're going to earn outsized product supply without consistent rising prices.

Operator, Operator

Thank you. There are no further questions at this time. Andrew Clyde, I turn the call back to you.

Andrew Clyde, CEO

Great. Well, thank you, everyone, for listening in. We're really excited about the 2023 results the team delivered. We've got even more excitement about what lies ahead, and we hope more of the same is good for all our Murphy USA investors. Thank you.

Operator, Operator

This does conclude today's conference call. You may now disconnect.