Murphy USA's Q3 2025 Earnings Call: Contradictions Emerge on Volume Trends, Fuel Margin Sustainability, and Shareholder Returns

Guidance:

• Full-year fuel volumes updated to 235,000–237,000 gallons per store per month.
• Merchandise contribution tightened to $870M–$875M for full year 2025.
• Monthly per-store operating expense narrowed to $36,200–$36,600.
• SG&A guidance lowered to $230M–$240M (ex. restructuring charge).
• All-in effective tax rate tightened to 23.5%–24.5%.
• Adjusted EBITDA expected to be roughly $1.0B at a $0.30 fuel margin placeholder.
• Board authorized $2B repurchase program; dividend pool to grow ~10% annually.

Business Commentary:

* Leadership Transition and Capital Allocation: - Murphy USA announced the transition of Mindy West to the role of President and CEO, with her taking over as CEO on January 1, 2026. - The company renewed its commitment to a 50-50 capital allocation strategy with a new $2 billion share repurchase program and a 10% annual increase in the dividend. - The leadership transition and capital allocation strategy aim to provide continuity and ensure long-term investor returns.

• Operational Performance Amidst Fuel Margin Challenges:
• Murphy USA's third-quarter EBITDA was $285 million, maintaining the same level as the previous year, despite a $0.02 decline in fuel margins.

• This was due to improvements in the business model and core category capabilities, which offset the impact of lower fuel margins.

• Merchandise and Promotional Activity:

• Total margin contribution dollars from merchandise were up $24.4 million or 11.2% in Q3, with nicotine categories up over 20%.

• This growth was attributed to strong promotional activity and enhanced promotional execution capabilities, supported by factors like the $1.9 billion Lotto jackpot.

• Fuel Volume and Margin Dynamics:

• Average per-store month fuel volumes were down 1.8% in Q3 and down 0.7% on a 2-year stack.
• Despite this, all-in margins remained strong at $0.307, suggesting a structural component that supports future upside potential once the environment normalizes.

Sentiment Analysis:

Overall Tone: Positive

• Management emphasized "continuity; resilience; and momentum," noting they "generated the same EBITDA as Q3 a year ago despite $0.02 lower fuel margins." Merchandise contribution rose $24.4M (11.2%) and guidance was tightened (merch $870–$875M). Board actions (new $2B repurchase, dividend increase) and statements of confidence in store growth (45+ openings in 2025; 50+ in 2026) support a constructive tone.

Q&A:

• Question from Edward Kelly (Wells Fargo Securities, LLC): Andrew, congrats on your retirement. Any color on the cadence in terms of fuel margins so far in the quarter and what you're seeing in the last week? And on investment to drive volume — what is that telling you about plans to put money on the Street to drive better volumes in this environment?
  Response: October saw a brief margin spike that normalized; all-in fuel margins are ~ $0.30 and low absolute prices/low volatility suppress price sensitivity and volumes — they will invest site-by-site when volatility returns to capture margin and volume.

• Question from Edward Kelly (Wells Fargo Securities, LLC): On the ZYN promo in the quarter — can you talk about execution, traffic benefit, and the potential for additional similar promos/events?
  Response: Execution showcased their promotional capabilities; ZYN drove material margins and traffic uplift among existing nicotine customers, and management expects continued manufacturer-funded promotions given Murphy's outsized promotional ROI.

• Question from Bonnie Herzog (Goldman Sachs Group, Inc.): Should we assume most of the merchandise guidance raise was driven by the ZYN promotion in September, or were there other drivers? Also, on capital allocation: you're increasing dividends and authorizing repurchases — should we expect more cash return versus reinvestment/growth?
  Response: ZYN contributed materially but the merchandise beat was broader (center-store strength across packaged beverages, general merch, candy); capital allocation remains 50-50 — growth (50+ stores) and shareholder returns both prioritized, with flexibility to leverage the balance sheet short-term while targeting <=2.5x leverage long-term.

• Question from Irene Nattel (RBC Capital Markets): On the halo effect from the ZYN promo — can you dissect transactions of promoted customers versus non-users; how much was halo vs base customer behavior? And what level of EBITDA/free cash flow underpins the $2B repurchase while keeping leverage around 2.5x?
  Response: ZYN uptake was largely from customers already buying nicotine, so incremental-trip impact was small and center-of-store momentum is largely independent; on repurchases, they plan multi-year execution (5-year authorization), can transiently exceed 2.5x leverage, and expect new-store cadence and returns plus conservative covenants to support the program.

• Question from Pooran Sharma (Stephens Inc.): Mindy, how have your prior roles prepared you to take on the CEO role next year?
  Response: Her CFO, fuels, and COO experiences provided financial discipline, commercial/fuels expertise, and direct customer/operations knowledge, rounding her skill set to lead as CEO.

• Question from Pooran Sharma (Stephens Inc.): On costs — you reported reductions in store OpEx and SG&A; how much further cost opportunity exists for 2026–2027 and magnitude?
  Response: The recent restructuring was a one-time SG&A reset; ongoing opportunities exist via automation, workflow consolidation and store productivity initiatives, but future savings will be incremental rather than a single large step.

• Question from Robert Griffin (Raymond James): Given the 12% CAGR in nicotine promotional dollars and the category's evolution (alternate nicotine), how will changes in category composition affect promo dollars and margin capture over the next five years?
  Response: They view category evolution as an opportunity: owning the nicotine customer, strong loyalty/data and execution make Murphy an effective partner to move customers to lower-risk/higher-margin noncombustible products, supporting continued promotional investment and margin upside.

• Question from Robert Griffin (Raymond James): Regarding the ~$0.02 invested to drive volume — is regaining that purely a function of margins normalizing (volatility) or also competition dynamics in key markets that could behave differently?
  Response: It's both: higher overall price/volatility restores price sensitivity and can recover cents; competitive local intrusion can pressure margins short-term but is transient — structural margin uplift versus prior troughs makes current trade-offs less severe.

• Question from Jacob Aiken-Phillips (Melius Research LLC): On fuel — during the early-October run-up were you putting a couple of cents back on the Street and what drove the October increase? Also thoughts on Q4 volumes given updated guidance implying positive trends?
  Response: A brief refinery outage tightened supply causing the October run-up; they captured margin and volume during that window but cannot confidently extrapolate sustained Q4 improvements yet.

• Question from Jacob Aiken-Phillips (Melius Research LLC): On CapEx for next year — with plans to accelerate to 50+ new stores, more R&Rs and remodels, how should we think about elevated CapEx versus repurchases?
  Response: 2026 CapEx guidance is pending; management will finalize plans and expects bonus depreciation to offset incremental capital needs for growth; they view allocation over a 3–5 year horizon and will remain opportunistic on buybacks while funding reinvestment.

Contradiction Point 1

Volume Trends and Market Share

It involves the company's reported trends in volume and market share, which are key indicators for investors and analysts to understand the company's performance and competitive positioning.

Can you explain current fuel margin trends and their quarter-over-quarter cadence? How is Murphy USA managing volume elasticity? - Edward Kelly (Wells Fargo Securities, LLC, Research Division)

2025Q3: Fuel margins remained strong at $0.30 all-in, despite low volatility. Volume was flat throughout the quarter, which was unusual. - Mindy West(COO)

What caused the declining trends during the quarter and how did your market share change? Why didn't retail margin growth offset declining volumes, leading to higher breakeven? - Anthony Bonadio (Wells Fargo Securities, LLC, Research Division)

2025Q2: Our margins are improving, and we are more aggressive with street pricing to hold volume. Anthony, we did outpace OPIS volumes in the full quarter. - R. Andrew Clyde(CEO)

Contradiction Point 2

Fuel Margin Sustainability

It involves expectations and sustainability of fuel margins, which are crucial for the company's financial performance and profitability.

Will the $0.02 margin be sustainable with changing market conditions? - Robert Griffin (Raymond James & Associates, Inc.)

2025Q3: The current margin structure includes $0.03 to $0.04 of structural uplift, supporting better volume recovery when margins normalize. The current environment masks potential for higher fuel contributions in a normalized environment. - Andrew Clyde(CEO)

Can you explain how you can maintain EBITDA if fuel margins remain flat and what other strategies you have to offset this? - Bonnie Herzog (Goldman Sachs)

2025Q1: Retail margins are expected to structurally grow from pre-COVID levels. While product supply margins fluctuate, structural factors remain favorable, and operational efficiencies and new store growth will add to EBITDA. - Andrew Clyde(CEO), Galagher Jeff(CFO)

Contradiction Point 3

Promotional Strategy and Traffic Impact

It involves the company's promotional strategy and its impact on traffic, which directly affects in-store sales and customer engagement.

Can you analyze the ZYN promo-driven transactions and how they impacted in-store growth? - Irene Nattel (RBC Capital Markets, Research Division)

2025Q3: The ZYN offer was mostly taken by customers already purchasing nicotine products, so it didn't drive incremental trips. While there might be some secondary impact, the main growth in center of store is driven by ongoing initiatives. - Mindy West(COO)

How would you describe in-store sales momentum and how will it evolve this year? What impact do recent fuel price fluctuations have? - Corey Tarlowe (Jefferies)

2025Q1: In-store momentum is strong due to investments in QuickCheck, improved digital capabilities, and targeted promotions. - Andrew Clyde(CEO)

Contradiction Point 4

Fuel Margin and Market Conditions

There appears to be a contradiction in the expectations for fuel margins and market conditions, which could impact the company's financial performance and investor expectations.

Can you provide an update on current margin trends and fuel margin quarterly trends? How is Murphy USA addressing elasticity to drive volumes, considering recent trends? - Edward Kelly(Wells Fargo Securities, LLC, Research Division)

2025Q3: Fuel margins remained strong at $0.30 all-in, despite low volatility. Volume was flat throughout the quarter, which was unusual. - Mindy West(COO)

What factors caused the significant decline in gallons from October to November/December, and what gives confidence in achieving gallon growth in 2025 despite the 2023 APSM gallon decline and soft January trends? - Anthony Bonadio(Wells Fargo)

2024Q4: Fourth quarter was tough due to winter storms and holidays. Price volatility was low, impacting pricing strategy. - Mindy West(COO)

Contradiction Point 5

Shareholder Returns and Capital Allocation

There seems to be a discrepancy in the approach and commitment to shareholder returns and capital allocation, which could potentially impact investor relations and confidence in the company's strategy.

How should we assess the increase in shareholder returns compared to business growth? - Bonnie Herzog(Goldman Sachs Group, Inc., Research Division)

2025Q3: Murphy USA is committed to a balanced 50-50 capital allocation, emphasizing long-term shareholder returns and reinvestment in growth. The increased dividend and share repurchase programs aim to provide additional returns to long-term investors, while maintaining a conservative balance sheet. - Andrew Clyde(CEO)

First, regarding your buyback program: Will you maintain the ~1 million shares/year pace by increasing balance sheet leverage, especially considering potential business headwinds in 2025? - John Royall(JPMorgan)

2024Q4: We're committed to the 50-50 balanced capital allocation approach. We have levered up from time to time as the earnings power of the business has grown. Our leverage rate is well below 2x. This business is built to win in all cycles. - Andrew Clyde(CEO)