Tammy L. Taylor – Senior Manager Investor Relations and Corporate Communications Andrew Clyde – President and Chief Executive Officer Mindy West – Executive Vice President and Chief Financial Officer Donnie Smith – Vice President and Controller.

Matthew R. Boss – JPMorgan Securities LLC Damian Witkowski – Gabelli & Co. Carla M. Casella – JPMorgan Securities LLC Ben Brownlow – Raymond James & Associates, Inc. John R. Lawrence – Stephens Inc Neal Shah – Valtura Capital Partners Eric A Britt – Bank of America Merrill Lynch.

Good day, ladies and gentlemen, and welcome to the Murphy USA First Quarter 2014 Earnings Conference Call. At this time all participants are in a listen-only mode later we’ll conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

And I introduce your host for today's conference, Tammy Taylor, Senior Manager, Investor Relations and Corporate Communications. You may begin..

Good morning everyone and thank you for 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 a few opening remarks from Andrew, Mindy will provide an overview of the financial results.

Andrew will then give an operational update and we’ll open up the call to questions. 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.

As such, no assurances can be given that these events will occur or that the projections will be attained. A variety of factors exist that may cause actual results to differ. For further discussion of Risk Factors, see Murphy USA’s 10-K, Form 10 and other 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 Investor Section of our Web site.

With that I will turn the call over to Andrew..

Thanks Tammy and good morning everyone. We started 2014 firing on all cylinders and the results for Q1 demonstrate ongoing improvements to our core business as we continue to execute our strategy. Store count grew as we added 11 new stores for the quarter with another six completed since quarter end and 13 currently under construction.

Merchandise mix improved as non-tobacco merchandise sales increased 5.3% and gross margins increased 10% on an average per store month basis quarter-on-quarter. Operations ran leaner, with site operating expenses down 1.9%, SG&A down $4.1 million, and product inventory levels reached at 200,000 barrels lower for our year-end target.

Product supply and wholesale contributed to a typically tight Q1 retail margin environment adding $32 million in margin dollars and $18 million from RIN sales. Our balance sheet strengthened as we ended the quarter with almost $370 million in cash and cash equivalents.

And we elected to payoff the remaining $55 million balance on our $150 million term loan at the quarter end. As noted on our fourth quarter call the fourth and first quarters of the year typically the weaker quarters of the year for retail fuel volume and margins.

Looking at historical trends in the price environment, we were pleased with results this year. Retail fuel volume per site this quarter was up slightly over the same quarter last year on average per site month basis, beside a less favorable wholesale price environment this year.

Retail fuel margins reverted back towards the mean this year compared to last year, it was record setting Q1 margins where wholesale prices started a steep decline in the middle of February that continued throughout the quarter end.

Total merchandise margin dollars grew quarter on quarter as we realized both higher tobacco margin dollars and higher non-tobacco margin dollars.

The improvements reflect the mix of more effective promotions at our merchandising and pricing execution, and the impact of new offers in our larger format stores, like dispensed beverages, which were up over 83% on an average per store month basis.

Our ongoing efforts at our Hereford ethanol plant showed positive results as we generated positive earnings this quarter versus a loss last year and exited the quarter with sustained higher yield in production levels in a very favorable crush spread environment.

Taking all together, we had a solid first quarter on a net income EBITDA in earnings per share basis. From continuing operations we earned $0.19 per share for the quarter largely in line with analysts’ estimates. I’ll now turn things over to Mindy to review our financial results and then I’ll provide a deeper dive into our operational performance. .

Thank you, Andrew, and good morning to everyone. Murphy USA reported net income of $9.6 million for $0.21 per diluted share for the first quarter of 2014, compared to $22 million or $0.47 per diluted share for the first quarter of 2013.

Income from continuing operations was $8.8 million or $0.19 per diluted share as compared to $20.6 million and $0.44 in the same quarter of 2013. The lower results were primarily driven by lower retail fuel margins, partially offset by improved results from the Hereford ethanol plant and higher merchandise gross margin dollars in the current period.

The current quarter also includes an after-tax benefit of $10.9 million from a LIFO adjustment in the period, while the first quarter of 2013 had no comparable adjustments.

Income from discontinued operations in the quarter contains the final adjustments to working capital from the sale of the Hankinson ethanol plant, resulting in an after-tax gain of $48 million or $0.02 per diluted share.

Adjusted earnings before interest taxes depreciation and amortization for EBITDA with $43.2 million compared to $53.1 million in the prior quarter.

Turning to the segments our marketing segment, which is comprised of retail marketing and product supply and wholesale, contributed net income for the first quarter of $13.8 million down from $23.4 million the same period in 2013. Primarily due to lower fuel margins partially offset by higher merchandise margins.

Retail fuel volumes sold on an average per store month basis were 251,200 gallons in the 2014 period compared to 250,952 gallons in the 2013 period, an increase of 0.1%. Retail fuel margins before credit card expenses were $0.068 per gallon in the 2014 quarter compared to $0.11 per gallon in the 2013 period, a decrease of $0.042 per gallon.

Margins were impacted during the period by a flat to rising wholesale price environment which pressured gross margin and volumes compared to a sharp decline in the prior year’s quarter. Total product supply and wholesale margin dollars excluding RINs were $32.5 million in the 2014 period compared to $24.3 million in the same period of 2013.

The 2014 amount includes a benefit of $17.8 million again related to a LIFO decrement due to the liquidation of inventories that are not expected to be restored by year-end. Also impacting operating income for the three months ended March 31, 2014, was income generated by the sale of RINs of $17.6 million compared to $13.3 million in the 2013 period.

For the current quarter, merchandise revenues were $502.7 million compared to $515.5 million for the 2013 period or a decrease of $12.8 million. Merchandise margins for the quarter ended March 31, 2014 averaged 14% compared to 12.9% for the same period in 2013, an increase of 1.1% in margin.

Non-tobacco products showed continued increases in both margin dollars and percentage of total sales as certain promotions with candy and beverages among other categories showed favorable results in the current year period.

After-tax income for the corporate and other asset segment which now includes our ethanol production facility in corporate sector declined in the recently completed quarter to a loss of $4.9 million compared to a loss of $2.8 million in the first quarter of 2013.

This decrease was due primarily to interest expense accrued on our debt facilities which were not outstanding in the first quarter of last year. Offsetting a portion of this interest expense was improvement in the Hereford, Texas ethanol facility that our net income of $1.2 million compared to a loss of $3.7 million in the first quarter of 2013.

The improvement in the current quarter was due to significantly higher crush spread. At quarter end, we had $369 million of cash and cash equivalent after paying down of voluntary $15 million on our term loan.

Our long-term debt at March 31 totaled approximately $555 million comprised of the remaining balance of the $55 million on the term loans plus the senior unsecured notes. Our asset base lending while remained capped at $450 million subject to periodic borrowing base to terminations which currently limit us to $328 million.

At the present time that facility continues to be undrawn. Our net long term debt position was $177 million at quarter end.

For the quarter, we incurred $23.7 million in capital expenditures of which $19.5 million was spent for retail growth, $3.5 million for retail maintenance items and the remaining amount for product supply and wholesale, ethanol and corporate.

Last year in the same period, we spent $68 million in the first quarter including $58.7 million for retail growth, of which the largest share was for down payment on property for new stations with Walmart and $4.4 million for retail sustaining capital. That concludes an overview of our financial results. So I will now turn it back to Andrew.

He will discuss our operational performance..

Thanks Mindy. Retail fuel performance was solid in the context of typical first-quarter performance. We sold 910 million retail gallons this quarter, an increase of 3.4% compared to 880 million gallons last year, and per-site volume was slightly up.

As discussed, this was achieved in a weaker wholesale price environment this year and there was no enhanced Walmart $0.10, $0.15 discount program in either Q1. This would suggest to us that the overall consumer environment is getting a little better.

We are on the retail margin of $0.068 per gallon on average this year compared to $0.11 per gallon last year. Looking back 10 years Q1, 2013 was the highest margin ever for the first while this year’s margin was about $0.005 below the 10-year median and in line with our internal quarterly plans, so no surprises on our end.

While wholesale prices remain lower on average than last year, we did see prices begin to fall off as we exited April and entered May, which is consistent with most prior years. Our biggest concern at this point would have been a continuation of the flat price environment at this point in Q2.

So while we are cautiously optimistic about the price environment for Q2, it’s still too early to draw any conclusions. Product supply and wholesale contributed $33 million in the quarter. Wholesale margins were elevated, especially on diesel, due to strong demand. Logistics were tight with pipelines under allocation for extended periods.

So we benefited from having line space. Wholesale gasoline margins picked up towards the end of the quarter as ethanol supply was short due to rail logistics issues. As discussed, we reduced our year-end inventory targets by 200,000 barrels which require taking the LIFO benefit adjustment.

Without the LIFO adjustment, the contribution from product supply and wholesale would have been $15 million, down $9 million from Q1 2013 on the same basis.

While our inventory levels will fluctuate throughout the year, we plan to run our supply chain leaner quarter-on-quarter to sustain the cash savings generated from liquidating higher inventories in Q1. RIN prices were relatively steady and averaged approximately $0.12 higher than the same period last year.

We sold $38 million RINs at an average price of $0.47 per RIN. Turning to merchandize, we were pleased to see both tobacco and non-tobacco gross margin dollar growth in Q1, despite the industry headwinds in certain categories.

Total sales were $503 million for the quarter, down 2.5% from $515 million in Q1 of 2013.This reflects a decline in tobacco sales with $21.4 million also in part by increases in non-tobacco sales totaling $8.6 million. The mix of tobacco sales to non-tobacco sales has shifted from 81% to 79%.

More importantly, though total merchandize gross margin increased by $3.6 million and $70.3 million in Q1 this year. Tobacco unit margins were higher at 10.9% versus 10.2%. Tobacco margin dollars totaled just over $43 million this quarter, up slightly compared to $42.7 million in the prior year.

Better pricing, promotions and merchandized execution contribute to the improvement in tobacco margin dollars. Non-tobacco margin categories showed continued increases in both margin dollars and sales as key promotions showed favorable results in the quarter. Total sales were up 8.8% to $107 million and total gross margin increased to $27.2 million.

On a per site month basis, average non-tobacco sales were up 5.3% for the quarter and gross margin dollars were up 13.6% for the quarter. Every non-tobacco category showed strong per site sales improvement in growth and gross margin dollars. A few categories really stood out.

Beverage sales per site month increased 3.3% quarter-on-quarter with gross margin dollars expanding 6.1% as we continued our buy three get $0.10 off fuel promotions. Beer, wine, and liquor sales per site grew 6% with a 23.6% increase in per site gross margin.

Candy sales and gross margin dollars increased 3.6% and 18.9% respectively, as candy featured prominently in our Circle of Stars contest. We remain confident that continued efforts and performance like this throughout 2014 will allow us to be in a position to achieve our goal of achieving sustainable total gross margin dollar growth in 2015.

We remain diligent on site operating and overhead costs. Total site operating cost averaged $29,000 per site month in the first quarter of 2014 compared to almost $30,000 per site month in 1Q of 2013. Excluding credit card expenses, all other site operating costs per site were down 1.9% quarter-on-quarter.

SG&A costs totaled $28 million this quarter compared to over $32 million a year-ago. Organic growth from new stores continues as mentioned in the highlights at the beginning of call, we have added 11 new locations in the first quarter, bringing our total site count to 12,014 stores.

We have opened six new stores since quarter-end with another 13 under construction and expect to add another 18 sites in Q3, provided all the permits, third-party approvals, and other factors come together as planned. This will keep us on track to meet or exceed our guidance to 50 to 70 new stores this year.

In summary, we are very pleased with our first-quarter results and the momentum carried over from the spin in last year. Our business continues to grow and get stronger in a fiercely competitive marketplace.

Throughout and since the spin, we have highlighted how our strengths and strategy make us more resilient to fuel margin volatility and how that translates into steady growth and returns to shareholders, even in tougher margin periods. This quarter's results demonstrate that resilience and our commitment to executing the strategy.

I would like to end by thanking our team for their outstanding contributions this quarter.

To over 8,000 associates, field managers and support staff who kept our sites up and running this winter and delivered our value proposition to our consumers and to our home office and corporate staff who have moved past the spin to now to now tackle the next wave of opportunities to improve our business.

We appreciate all that you do each and every day to make Murphy USA the retailer of choice for our customers. This concludes our prepared remarks. At this point we would like to open up the discussion for questions..

(Operator Instructions) Our first question comes from Matthew Boss of JPMorgan. Your line is open..

Hey good morning, guys.

Can you speak to the rationale for paying down the term loan here, and the process and the timeline we should think about the potential for return to capital to shareholders via maybe a buyback or a dividend?.

Sure, Matt. So, when we spoke at the dinner before the Analyst Meeting, Mindy went over a number of the restrictions that we have on our indentures and credit agreements. We had $55 billion remaining on the term loan that would be a prerequisite for ever amending or changing any of those.

We generated significant free cash flow in Q1 as with our outlook for the year. Getting the first quarter behind us, being resilient in that first quarter, having plenty of available cash for growth, we viewing this a good time to do that.

In terms of timing for shareholder distributions, as we also discussed at Analyst Day, our Board has been in discussions since before the spin on that. And given that is a board-level decision, you can be certain that we will pick that up in our next Board meeting..

That’s great. And then, with consolidation in the space, a lot is also made about some of these strategic alternatives that are talked about.

Can you talk about mindset around potential REIT or MLP structure? Is that anything that is in consideration today?.

Again as we talked about at Analyst Day, I think, the more overarching question is how do we leverage our very strong balance sheet to the benefit of our shareholders and what's the best way to do it? I think the most fundamental challenge with the REIT for us, given that we have a strategy to be low cost to beat inflation every year, is to not set up ourselves to have long-term lease agreements that have built-in inflation that would be contrary to maintaining the lowest possible cash breakeven cost, which would support our low price position.

With respect to MLPs, some of the retailers that have pursued those strategies, frankly, have a different business than we do. They have a dealer wholesale business where they can drop down supply agreements. We have a non-contractual wholesale business that does not have those type of contracts on a ratable basis. They had industrial businesses.

We are getting out of our ethanol businesses, so we do not believe either of those are the right approach. That said, we do have a strong balance sheet and, as we said, our Board is in ongoing discussions about how best to leverage that for the benefit of our shareholders..

Great, and then last question. You commented in the release on near-term opportunities to accelerate organic growth.

Can you just elaborate on this? And would there be any reason not to accelerate the Walmart pipeline if you could today?.

Absolutely. Those basically allude to accelerating where we can sites in front of Walmart. We are very active in the process of gaining internal and third-party approvals to build out the carve-out sites.

And so we are pushing that as aggressively as we can to get more sites open in front of Walmart as it benefits both us and Walmart for that customer base..

Great. Best of luck, guys. .

Thank you..

Thank you. Our next question comes from Damian Witkowski of Gabelli & Company. Your line is open..

Hi, good morning.

So it sounds like you are comfortable with the $0.12 to $0.13 fuel margin rates for the full year, despite a much lower year-over-year first-quarter performance?.

That is correct. I think we probably hinted in some prior calls that Q1 last year would be a tough comp from a margin standpoint. I think four out of the five prior years you saw a steep drop in wholesale prices in May.

Last year was unusual because we saw a big run-up through the middle of February and a sharp fall off from middle of February to the end of the quarter. So we have the highest March on record and we had the highest Q1 in the last 10 years and as we mentioned before, this Q1 was only $0.005 below the 10 year median..

Okay..

So, we’re seeing more normal patterns now in the wholesale market as we exited April and entered May, so no concerns for the rest of the year at this point..

Now that you've paid off the term loan completely, do the senior notes have any restrictions on you being able to buy back your own shares? Remind me again, can you actually – as there are no restrictions from the senior notes, are there any restrictions from the private letter ruling that would prohibit you from buying back your shares?.

Damian, there's restrictions on all of those and so you have to craft anything that you do very carefully to get around all the restrictions.

So with regard to the tax agreement, in order to conduct a share repurchase, as you mentioned, we would have to ensure that it is an open market purchase, that is less than 20% of the outstanding shares, and that it was done for a legitimate business reason..

In order to pay over and above that amount, we have to meet a series of three other covenants and we’re currently in a process now of finalizing those calculations to see how much ability we would if they need to pay over the $25 million basket. .

Okay..

So to answer your question, yes, there are restrictions. There are restrictions in all those agreements and so we have to be very thoughtful as we proceed here..

Okay. And then in terms of RINs for – can you just give us an update? You did in the first quarter – on the last call. Have you been selling thus far this quarter and how many? Obviously, you're going up against a fairly tough comp from a year-ago.

Yes, certainly our Q1 comp this year is better than last year. As we get into second and third quarter it's going to be tighter. For April we sold 18 million RINs at $0.43..

Okay..

And so that gives you a sense of where the market – we've seen it kind of between the mid 30s and mid 50s year-to-date..

Okay.

Then just quickly, finally, in terms of additional opportunities, organic opportunities with Walmart, realistically how many stores per year could you open with the current infrastructure? I mean we are targeting 50 to 70 right now; I mean could you do as many as 100 if need be?.

We did well in excess of 100 in the earlier days when we were working very closely with Walmart and when the super centers were being built, the carved out location for the gasoline was being planted at the same time. That just simply facilitated a much quicker process.

And so the carveout process for an existing site is just more intensive but we had a pipeline of approved sites – approved by the local municipalities, all the permits in place. There is nothing that prevents us from building 100 to 125 or more, as we've done in the past.

Our third-party partners that do the modular buildings and other construction partners could gear up to do that, so it's really about the pipeline on the front end that we’ve been working so hard to build up..

Thanks..

Thank you. Our next question comes from Carla Casella of JPMorgan. Your line is open..

Hi. I’m wondering if you have any guidance to how we should look at RINs for second quarter and for the balance of the year.

And also what is your ability to kind of manage the timing of the RIN income?.

Sure. In terms of guidance, Carla, we continue to plan conservatively around that. We’re all awaiting some better sense of where the regulations are going to go. So we don’t want to get out in front of our headlights on that.

And we’ll just continue to do, as we’ve done since the spin, which is we have excess cash flow generated from RINs, find effective ways to give that back to our shareholders in the form of debt repayments or otherwise.

In terms of the timing, we won’t get into specific timing in terms of how we trade the RINs, but we do try to keep it fairly balanced. So what we generate in a month or quarter we’re typically looking to sell about that amount. So we’re not building up a big inventory.

So you’re not having to guess, hey, are we going to sell more this quarter or less this quarter? We want to be more ratable in our approach over a period of time like a quarter. We’ll certainly generate more in the summer when demand is up and we’re blending more.

We would also generate more if we are doing more proprietary supply barrels versus contract barrels..

Okay, great. Thanks a lot..

Thank you. Our next question comes from Ben Brownlow of Raymond James. Your line is open..

Thanks for taking the question.

On the SG&A, can you give us color on the drop there year-over-year? And are you still comfortable with that guidance given the trends that you’re seeing in the first quarter?.

I’ll take that question, Ben. As far as SG&A goes, we spun in August of last year. So what you saw for the first quarter last year was allocations from our parent. And we have had lower employee benefit charges for this current quarter than we had allocated to us this time last year. So that is the reason for the decrement this year versus last year.

But to answer your question about the guidance, what we have guided to previously was roughly $130 million for the full year.

I think that given some of the things that we can already see that we may have over accrued for within our budget that we’re comfortable that we will likely not hit $130 million, but we could be somewhere between $5 million and $10 million below that target as we’ve just been a little bit more efficient than what we gave ourselves credit for when we were formulating our budget.

But still too early to pinpoint an exact number yet, but for modeling purposes anywhere from $5 million to $10 million lower than the $130 million that we posted previously..

Great. That’s really helpful. And looking at the non-cigarette sales growth, that has obviously been extremely impressive. How sustainable is that growth? When do you lap the elevated promotions that you’ve been running? Just give us a little bit better idea on the sales growth, and as well as the gross margin outlook on some of those items..

Sure. So the beverage promotions that we ran last year, this will be the first full year of repeating those and we obviously didn’t run those every month last year, even every month in the second half of the year when we started. And those continue to get better and improve as we’re doing them every month.

Part of it is our consumer is getting kind of trained and educated that there is always a great value proposition at a Murphy USA store, so they look for that. One of the things that we’re doing now currently is having a promotion that blends a beverage with a snack.

So you will have Frito-Lay products and Pepsi products buy any three get $0.10 for, buy any six get $0.20 off promotion. So as we continue to enhance the breadth and quality of those promotions, we still believe there is room to go in those promotions.

One of the other things that we are doing a better job of is designing our Circle of Stars contest promotions and so the economics on those we expect to be better as well. And so it may not show up so much in sales as it will show up in gross margin dollars from those.

And I think, as we mentioned, areas like coffee, dispensed beverages et cetera, as we have more of our 1,200 square-foot stores in operation and we continue to enhance those offers and the talent and capabilities within our organization to drive those categories. We’re seeing improvement in those as well.

And so as we continue to go from the smaller kiosks to the larger, we’ll see improvement. We are also enhancing the refrigeration units at our 208 and smaller kiosks, and so the new refrigerators outside hold considerably more than the old ones and so you have better merchandizing, larger mix, fewer stock outs, et cetera.

And so that all plays into it. So I think we just have the benefit of starting small and so that we’re able to continue to grow, but we still see a lot of room in front of us in these areas..

Great. Thanks again. And just one last one for me.

On the LIFO benefit, that 200,000 barrel reduction, is that more of a function of the demand outlook or is there some improvements in inventory management there?.

No, we take the opportunity in the first quarter of every year to examine our prior year targets for inventories at the end of the year to see if we think that it’s appropriate for the current year.

So when we looked at the 2013 target this year and determined to set it 200,000 barrels lower, it was appropriate to remove, for example, the ethanol from the Hankinson plant that we sold last December. We also built in some room for retail sites. We built sites last year. We expect to build this year. So we left in some linked for that.

But then we have also been able to wring some working capital out of our system by just operating more efficiently. So things like taking delivery of certain products at our terminals versus the pipeline origination point, which eliminate some batches in transit, things like not having a barge under contract in the Tampa area, for example..

I would like to point out, though, that this is a target that we expect to hit by the end of year.

So we will certainly have seasonal variations within our inventory levels as you will see us build hurricane stocks and additional links for the main driving season, which typically declines in the third quarter, as we try to meet our LIFO target for the end of the year..

So, just building on that, we are actually lower than that target now. We will be above that target during the summer driving season and then this is a target we aim to hit at the end of the year..

Great, thank you again..

You’re welcome..

Thank you. Our next question comes from John Lawrence of Stephens. Your line is open..

Thank you. Good morning, everyone..

Good morning, John..

Just to follow on Ben's question on the LIFO. So, Andrew, this is one of those – basically just one of those flexibility issues you've talked about since day one as far as different methodologies and different ways to go about managing the business. And it's really not a one-time issue; it's just part of the process of running the business..

I would say, we are always looking for ways to run the supply chain most efficient. As Mindy said, there are certain pipeline systems were like Colonial, where we will have product in the pipeline and that pipeline filled, our share of that, makes up a large portion of our working capital.

There may be other pipeline systems where we can actually take the product at the terminal point and eliminate the need for fill. We’ve managed the Tampa terminal differently this year versus how we did a year ago.

And so working capital has a cost and to the extent we can reduce that and generate cash from and then sustain that cash, we are going to do that and redeploy that and redeploy that cash back into our business in growth areas..

The overall merchandise volume is down a little bit. What would your comment be there? I mean, you went through some of the categories that were really positive, but.

It's cigarettes. We said that tobacco sales overall were down $21 million, that's largely cigarette sales. Smokeless, we almost achieved our single-highest smokeless day last month in one of our contests. And that category continues to do well and generated gross margin dollar growth this quarter.

So, if the continued headwinds that we see in cigarettes, I think what we were pleased with is through merchandising promotions, pricing execution, tobacco gross margin actually grew this quarter versus having kind of a predicted decline.

So if we can continue to minimize the headwinds from that while continuing to beef up the non-tobacco categories, we're going to be in really good shape to hit that inflection point we talked about in our guidance, where gross margin dollars overall will start growing..

Yes.

And you might have mentioned it and I apologize, but if you talk about just the bucket of the new stores, the expanded model stores, did you give us maybe what a gross margin would be just on those bucket of stores?.

In terms of our.

Merchandise margin..

Merchandise margin, so if you look at page 17 of the ….

Yes..

Analyst Day that – the 12,000 format stores, the average gross profit that we’ve seen so far in 2013 that was 14.7% compared to 12.2% for the 208 formats in 2013 most resizable from 2010 to 2012. So that’s a good 2.5% percentage points higher, still has a strong cigarette tobacco components to it.

But those stores are really the ones that have the up side from dispensed beverage, coffee other items..

Yes, but there is no – I guess the question of no real update on the Q1 2014 of just that bucket of stores?.

No. .

Thanks a lot, I appreciate it..

Thank you, John..

Thank you. Our next question comes from Neal Shah of Valtura Capital Partners. Your line is open..

Hi, good morning everyone. Congrats on the quarter, you guys have generated a lot of free cash flow. I just had a couple of questions.

On the real estate, can you please clarify how much it cost to build the small format stores, as well as the large format stores, in terms of dollars of CapEx per location?.

Sure, so on the again in the analyst day presentation gave the actual CapEx for the larger format stores was just a little over $2 million that had a lower average land cost, and then our current average land cost it can be somewhere between $400,000 and $600,000. So we have been using about $2.2 million for the larger format stores on average.

Historically, we were spending about $1.6 million in total CapEx for the 208 square foot format stores. Again about $1.2 million in capital about $400,000 in land on those..

Okay.

And how many stores in aggregate do you own versus lease? Can you just give us that breakdown?.

So of 1,214 stores it’s 90% owned, 10% lease approximately. We can give you a precise number on that, but vast majority of those are owned..

Okay.

And last question on real estate before turning to another topic, when you decide to spend future growth capital do you guys internally evaluate spending that cash on new stores versus – and comparing it to what your company is trading at in the public markets and potentially doing the trade-off of should we buy back shares versus building new stores?.

Absolutely, and so we will ultimately look at the returns on capital and then returns to shareholder. I think when you’ve an advantage business model and you have this kind of organic growth and you can generate the level of returns and free cash flow you want to build early in the cycle, especially given fiercely competitive nature of this business.

But we evaluate that and look at our growth opportunities built over commitments our partners Walmart, to continue to build out in front of those stores and drive that value for our shared consumer also..

Yes, I guess the reason for that particular question is, given you guys own 1,100 stores, give or take, and it's costing between $1.6 million to $2 million per location, it seems like the cost to replicate the network is around, somewhere around $1.8 billion to $2 billion. And that's around what your company is valued at right now in the market.

So I'm just trying to think through, if you're not getting credit for the stores, isn't it better to use cash to buy back stock as opposed to building new stores?.

.

:.

Okay, okay, and just – thank you, I appreciate that answer. And then on that ethanol plant, I had a quick question on the Hereford sale process. It seems like in the past few months – and we are not energy experts, but we've noticed that ethanol facilities have become significantly more valuable given low corn prices and high oil prices.

And I think the few stocks that are public; Pacific Ethanol is up 150% year-to-date, BioFuel Energy is up 300% year-to-date and I think Greenlight Capital, which is a respected value investment firm, is trying to buy that company outright.

A quick back of the envelope math on Pacific Ethanol’s market value implies $2 per gallon for ethanol capacity, which would imply your plant, is worth somewhere around $180 million to $200 million.

I guess can you give us an update in light of that market environment? Are you accelerating a sales process on Hereford and what would be the potential value of those ethanol operations, as well as timing of the sale? And what would you do with the proceeds? Would you potentially return those to shareholders?.

Andrew Clyde:.

But the Delta-T, the Lurgi, the less attractive technologies, their comps are in the $0.40 to $0.60 range. The recent comp – company buying a coal plant and starting it up in that range. And so our Hereford plant is not Hankinson in that same regard, so we’ve got to use the right comps for the different types of plants.

The biggest challenge we have had in the sales process, because we started with both Hankinson and Hereford for sale, was we didn’t have the track record on Hereford because of the outages that we had due to some weather and bird-related issues blowing out a transformer last year.

And so buyers could not get comfortable with sustainable production yields and so that’s the efforts that we have been under for the last few months. We completed the planned turnaround in March on schedule.

The production and yields coming out of that were right in line with our expectations and the timing was fantastic because of the crush spread environment when we started the plant back up. So we’re generating net income on the plant now. We’ve had buyers that have inquired and started discussions.

We haven’t started the formal process yet because we believe having that track record is important. That plant also benefits from access to the low carbon index market in California, because of its energy consumption on the plant.

There are some other upside opportunities around the wet cake market in Hereford, which is one of the largest cattle feedstock markets in the country getting better. The current headwind for the plant is rail logistics because it is not an inside-the-corn plant. It’s a destination plant for corn.

And with all the Bakken crude and other rail logistics issues, we’re having to pay more to get corn to that plant. So we think the plant has more inherent value than what comps would say, but we have made a decision to exit that business..

Okay. Okay, thanks. And then a final question on RINs. Just quickly, I think, you said on the Q4 earnings call that you had budgeted $0.05 to $0.10 for RINs for the year of 2014.

And I think, because your company is followed by consumer retail sector analysts, not everyone is necessarily familiar with RINs so these comments have naturally led people to model exactly what you said. But given that we are almost halfway through the year, RINs are averaging well north of $0.40.

It has a material impact on your earnings and free cash flow and from the energy experts that we've spoken to it seems like the expectation is for higher RIN prices for the balance of the year.

In addition to that, it seems like the EPA administrator, Gina McCarthy, recently gave comments at a National Association of State Departments of Agriculture meeting saying that she has heard their feedback loud and clear. The final rule will encapsulate something that shows the EPA has listened to the agriculture comments.

So I guess why are or why did you give the guidance for the $0.05 to $0.10? Do you think it is potentially confusing the market in terms of what people should expect around RINs prices? Or could you update that given where we are so far?.

Sure, so if we made $0.40 for the quarter, we have hit sort of the $0.10 for the year on that basis.

The key point we made on the call was for our cash flow planning purposes, we only built in $0.05 to $0.10 because we wanted to develop a plan that could grow upwards of 70 sites, at our free cash flow and $0.05 to $0.10 we can clearly do that, if we are generating more than that, it's additional net income, EBITDA, free cash flow that we can file back into business or payoff debt or return to shareholders in a responsible way as we've done.

So we just haven't gotten out there and given guidance on something that is subject to regulations and pending any day and it could disappear. I think the key point, we want to continue to make is, we have an advanced retail business model. It will do very well, whether we have RINs at $0.40 or $0.00.

And then to the extent there's upside on that, people with better foresight than us can forecast that into the earnings. We just don't want to get out in front of ourselves guiding $0.40 range for the year, when it will flip of a switch it could go away.

We will continue to do like we did in this call and let you know what we have done kind of quarter-to-date, so there is no surprises..

Okay, great. Thank you very much..

Thank you. .

Thank you. Our next question comes from Eric Britt of Merrill Lynch. Your line is open..

Yes, hey, thanks a lot for the call here. I had a question on your non-cash operating working capital. It looks like this quarter is better than the past couple of years combined.

So I was wondering if you could provide some possible clarity; do you think you can keep generating cash that way? And also, if you thought about breaking it out a little more in the cash flow statement so we can just get a better read on how we equate to that number?.

So, mostly improvement in working capital for the quarter is due to our inventory liquation, we ended the last year with some unintended links in our system which we probably sold down. As we entered the first quarter and we were able to essentially generate roughly $100 million from doing that.

So the primary difference in working capital is strictly the inventory levels. The receivables and payables will adjust just basically due to what day was the last quarter of the month on of the week versus the prior quarter and different things like that.

So that's always going to bounce around a little bit, but the primary difference for this quarter was just due to the liquidation of inventories from year-end. As Andrew mentioned, we are already well below our target level that we fixed that to achieve at year end this year.

So, that just proves out the fact that we really liquidated the inventories pretty hard in the first quarter..

So that might stay flat in the next three quarters, would you say?.

Mindy West:.

So the LIFO target, as we mentioned, is just a target that we expect to hit at the end of the year, but we will have seasonal fluctuations within the course of the year..

You should consider this as a sustainable working capital reduction benefit, and so any quarter-on-quarter comparison, we would expect to be running leaner inventories in the same quarter a year ago because of some of the operational improvements and changes that we’ve made.

So as Mindy said, we will build up for the driving season, the hurricane season. But if we’re taking product to destination versus having extra pipeline field if we don’t have the barges in Tampa versus receiving product a different way, we will just have a sustainably lower number quarter-on-quarter when you make that comparison..

Do you think you will break that out at some point in the future just to put the inventory in the cash flow?.

Actually we will have that broken out in the 10-Q, which we expect to file either today or tomorrow. So there is some additional detail within one of the notes in the Q..

how many Walmarts throughout the country have gas stations that are not Murphy's? And what percent, would you say, of Walmarts is that?.

So, it’s a small percent. There are some Walmarts that have a Sam’s Club in proximity where it has a Sam’s Club gas. There will be Walmarts that just have Sam's Club branded gas. Some of the new neighborhood markets that Walmart has built or it’s building that will have Walmart branded gas, it’s a few number.

We have 30 Murphy USA in front of neighborhood markets as well. They have their one Walmart on the go convenience store that they announced a few months ago, is kind of a one-off. So there are some, most of them are at the Sam’s Club’s locations versus the Walmart stores.

So a vast majority of gas sold in front a Walmart Supercenter of a Neighborhood market would be a Murphy USA or Murphy Express gasoline front..

There will be no Murphy's – they don't use – there will be no Walmart gas station that's run by Murphy's? I guess is another question building on that. Does that make sense, that question, as far as ….

We do not operate for them the Walmart branded gas stations, that's correct. Those are all….

They are getting into the gas station business on their own or is somebody else doing that?.

So, they have – they operate through Sam’s Club on their own and they operated gas on some Neighborhood Markets on their own and their convenience and frankly it shows their commitment to gasoline as a traffic driver for that consumer base..

How do you view that as competition for your growth with Walmart?.

So, the first thing I would say is to just to repeat what I said, overall it’s a positive because it shows the commitment and the importance of gasoline on the super centers where we have focused and continue to focus those patients.

It makes sense to have 208 or 1,200 square-foot kiosk in front of those to help develop competitive economics to support the low-price gasoline offer. And so that is where we have primarily focused.

If you took a 10,000 square foot Walmart Express story, it's unlikely one would want to put 1,200 square feet of additional C-store selling space out in front of that. But it would – can very much support a lightly attended gasoline model.

So that model would be different than ours from an operations standpoint, but there is still ways we can partner and collaborate with Walmart on those type of locations. So if gas is important to have in front of those stores, those stores are typically not located on top of a Supercenter, so it's really not competition in that same sense..

Last question, have you considered sort of branding Walmart Murphy's-run gas stations?.

In terms of rebranding now, we really haven't.

When we do consumer research, it's interesting because we have to put now Walmart gas and Murphy USA in about 40% to 50% consumers believe we are – it’s Walmart gas and what we really care about is having the lowest everyday price on gasoline and other items that are complementary to the Supercenter out in front of the store.

That's what drives the economics and then our low cost operations, sizes, speed dispensers, uptime, upselling, et cetera – what ultimately form the capability that allow us to drive supernormal volumes through these very efficient sites.

If the consumer speak, hey I can get low price gasoline in front of Walmart, that's what matters at the end the day, and then doing in a way that achieves superior economics..

Okay, thanks..

(Operator Instructions) I’m not showing any further questions in queue. I would like to turn the call back over to management for any further remarks..

Well, we thank you all for joining today’s call. As we said, we are very pleased with the first quarter. We are excited also to host our first annual shareholder meeting tomorrow in El Dorado, Arkansas. So we thank all of you for your continued interest in Murphy USA. Thank you. .

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a great day..