Tammy Taylor – IR Andrew Clyde – President, CEO Mindy West – CFO, EVP, Treasurer.

Matthew Boss – JPMorgan Benjamin Brownlow – Raymond James John Lawrence – Stephens Damian Witkowski – Gabelli.

Good day, ladies and gentlemen, and welcome to the Murphy USA Third 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) Please note today's conference is being recorded.

I would now like to hand the conference over to Tammy Taylor. Please go ahead..

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 help actual results to differ. For further discussion of Risk Factors, please see Murphy USA's Form 10-K 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 Website. With that I will turn the call over to Andrew..

Thank you, Tammy and good morning everyone. Murphy USA completed the third quarter of 2014 with net income of $63 million or $1.36 per diluted share and adjusted EBITDA of $129 million. Retail fuel margins averaged $0.175 per gallon and that is the second highest third quarter margin in the last five years and retail fuel volume per site grew by 2.7%.

Total merchandise gross margin dollars increased 5.1%, and were up nearly 1% on an average per store month basis, led by non-tobacco gross margin dollar growth per site of 3.7%. 16 new stores were added in the quarter with another six completed after quarter end and another 22 currently under construction.

The Hereford ethanol plant contributed $6 million in operating income for the quarter furthering its performance record. Cash and cash equivalents totaled over $294 million at the end of the quarter.

We announced a $250 million share repurchase program in October that we plan to complete before December 31, 2015, continuing our commitment of strategic capital allocation and returning value to shareholders.

As evidenced by our performance this year, solid execution of our strategy provides a steady stream of cash flow allowing us to both achieve our organic growth plans and reward our long-term shareholders.

I will now turn over the call to Mindy to review our financial results before diving a little deeper into the operations and then providing an update of where we think we will end the year against some of our annual goals..

Thanks, Andrew and good morning everyone. Murphy USA reported income from continuing operations of $62.7 million or $1.36 per diluted share for the third quarter of 2014 compared to $36 million or $0.77 per diluted share for the third quarter of 2013.

Adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA was $128.7 million, up $53.2 million from the prior year’s quarter. Net income in our marketing segment for the third quarter of 2014 increased $21.7 million over the same period in 2013 to $62.6 million compared to $40.9 million.

Total retail fuel volumes increased 7% with 1.04 billion gallons sold in the 2014 quarter compared to 0.97 billion gallons in the comparable 2013 quarter. Retail fuel margins before credit card expenses were $0.175 per gallon in the 20 14 quarter compared to $0.148 in the 2013 period, an increase of $0.027 per gallon.

Total product supply and wholesale margin dollars, excluding renewable identification numbers, otherwise known as RIN, was a negative 13.3 million in the 2014 period compared to a negative 14.5 million in the same period of 2013.

Also impacting operating income for the three months ended September 30, 2014 was income generated by the sale of those RINs and that was 25.2 million compared to 31.8 million in the prior year period.

After tax income in the corporate and other assets section include our ethanol production facility in Hereford, Texas and those improved in the recently completed quarter to a gain of 0.1 million compared to a loss of 4.9 million in the second quarter of 2013.

This increase was due primarily to improvement in ethanol earnings from the Hereford, Texas facility as operating income in this quarter was 6 million versus a loss of almost 1 million in the same quarter last year.

Partially offsetting the improved Hereford results was the higher interest expense of $3.9 million due to the issuance of our 500 million senior notes and the funding of our $150 million term loan under our credit facility. These borrowings did not exist for the full prior period.

Our long-term debt at September 30 totaled approximately $500 million in senior unsecured notes. Our net long-term debt position was $197.9 million at quarter end which includes our cash balance of $294.3 million.

Our asset based loan meanwhile remains capped at the $450 million limit subject to periodic borrowing base re-calculation which currently limits us to $356 million. At the present time that facility remains undrawn as it has since the spin.

During the quarter we did amend the ABL credit agreement extending the maturity date of that facility to September 2 of 2019 and also relaxed certain of our covenant restrictions. And as Andrew mentioned, in October, our board authorized a $250 million share repurchase program which is expected to be completed by December 31, 2015.

Capital expenditures for continuing operations for the quarter ended September 30, 2014 were $31.6 million compared to $33.4 million in 2013. Of those capital expenditures, in the current quarter, $26.7 million were for retail growth and $2.3 million were spent on retail maintenance items.

The remaining balance of the capital expenditures was in our product supply, ethanol, and corporate areas.

We currently expect capital expenditures for the full year of 2014 to total approximately $130 million $150 million and $114 million to $134 million is expected to be spent for the retail marketing business and approximately $16 million will be spent for other corporate assets and that would also include Hereford.

Now that concludes an overview of our financial results. So I’ll now turn it back to Andrew who will discuss our operational performance..

Thanks, Mindy. Retail fuel performance for the quarter outpaced the same quarter in previous years. As Mindy noted, total volume grew 7% to 1.04 billion gallons and per site volume rose 2.7% to 281,000 gallons per site month for the quarter.

In 2014, the Walmart 15 cent/10 cent fuel discount program ran until early September providing additional uplift for the majority of the third quarter as opposed to being in effect for only one week of the same quarter last year.

As noted on the second quarter call, wholesale prices began falling sharply in July and then continued throughout the quarter leading to improved margin and volume comps versus prior Q3 periods.

Retail fuel unit margins were tapped $0.175 per gallon for the quarter compared to $0.148 last year and retail fuel gross margin dollars were up $38 million versus Q3 last year. In the small falling price environment, products supply and wholesale gross margin was negative $13 million partially offsetting retail fuel contribution.

This quarter was slightly better than the negative $14.5 million gross margin in Q3 last year. When product prices fall, timing differences can result in the cost of product exceeding the amount of the transfer price recorded when the product is moved to our retail or wholesale value chains where it is ultimately sold.

This results in the recognition of a reduction in the gross margin within product supply. When product prices rise in the future, this impact can be offset in the opposite direction. In addition, we sold $52 million RINs at $0.48 per RIN on average for the quarter.

Exceptional merchandise performance led to our third successive quarter of per site gross margin dollar improvement. Total and average per store month merchandise margin dollars increased by 5.1% and 1% respectively quarter over quarter.

Despite a 3.9% decline in cigarette gross margin dollars per site, total margin dollars per site for the overall tobacco category declined only 0.8% quarter over quarter as e-cigarette and vapor products contributed a 50% margin dollar increase on a per store month basis. Non-tobacco merchandise category showed solid quarter over quarter growth.

Sales per store were up 5.2% and gross margin dollars per store were up 3.7%. The success of our promotions and our enhanced 1200 square foot stores led to the following category level results.

Packaged beverage sales and gross margin dollars per site were up 2.2% and 5.4% respectively for the quarter, dispensed beverage sales per site were up 6% with gross margins dollars up 17%. Beer and wine sales per site were up 3.5% with gross margin dollars up 13.5%.

Salty snack sales per site were up 10% with the 4.3% increase in gross margin dollars as they were once again a featured promotion. Our teams also remain diligent on keeping costs low. Excluding credit card fees per site retail operating cost increased 1.1% for the quarter driven by accelerated spending for repairs and general maintenance.

However, year-to-date operating costs were down 0.3% on a per site basis well below inflation. SG&A costs were significantly lower in the total for the current quarter as last year included $14.3 million of one-time nonrecurring and spin-related costs. Organic growth ramped up in the third quarter and progress continues as Q4 begins.

As mentioned in the opening remarks, we added 16 new sites this quarter and opened 6 sites since quarter end. In addition, we have 22 sites currently under construction.

Our team has worked diligently to finish the year strong leading to around 40 new store openings in the second half of the year in time to help Walmart shoppers save additional money during the holiday shopping season as we deliver our everyday low-price fuel offer. We remain excited about Hereford's improving performance.

In August, we had plant downtime to five days when we completed several yield and production improvement projects. The plant is currently operating at a sustained 95 million gallons per year rate and September yields averaged 2.83 gallons per bushel.

That stellar performance as yields in Q3 of 2013 were 2.62 gallons per bushel and previous run rates were around 85 million gallons per year. In December, we will initiate a $5 million capital project for a corn oil extraction process that should be completed and online in Q2 of 2015 and we expect a 12- to 16-month payback.

We continue to build on the great track record established earlier this year while enhancing the value of the plant. Before closing I would like to provide an update on some year-end expectations. Total retail gallons sold should increase around 4% year over year within the guidance of 2.5% to 7.5%.

Gallons per site month should approach 269,000 compared to under 268500 [ph] in 2013. The 2014 retail fuel margin is expected to average $0.13 thanks to the very strong start to Q4, so at the high-end of our $0.12 to $0.13 per gallon guidance.

Similar to Q3, the sharp falloff in wholesale prices we have seen in October could have an offsetting negative impact on the product supply gross margin in Q4.

Total merchandise sales should end the year near the higher end of our range of $2 billion to $2.25 billion and total merchandise gross margin dollars should show impressive growth of 6% well above the guidance of 1% to 3%.

The combination of a consistent promotional calendar and the rollout of a new 1200 square foot stores has been instrumental in providing an expected annual uplift of close to 2% in merchandise margin dollars per site. Our earlier guidance had anticipated only achieving a positive run rate by year-end as we managed through the cigarette headwinds.

So we are very proud of this outcome. We expect to add very close to 16 new sites this year in the middle of our 50- to 70-site guidance, 41 of these sites were the larger 1200 square foot format.

While we did not commence any raise in rebuild projects this year, we completed an analysis to prioritize further raise rebuild upgrades and refresh activities for the entire network which will be a major goal for us in 2015.

We did accelerate some additional capital improvement projects like super cooler additions and security system upgrades where we expect to reap the benefits next year. In closing, we feel very good about the quarter as we continue to execute against our strategy, deliver strong financial results and meet our shareholder commitments.

We celebrated our first anniversary this quarter as a standalone company. This was the major milestone for Murphy USA and for our 9300 employees. So let me close by thanking each of them for their commitment to achieving these outstanding results and their support in serving our customers and their fellow employees.

So operator, we will now open the line for questions..

(Operator Instructions) our first question comes from the line of Matthew Boss from JPMorgan..

Hi, good morning, guys. Great quarter.

So as gas has crossed to $3 threshold in a number of states now, I mean can you talk about the impact you’ve seen kind of immediately any impact on in-store merchandise spending and then if you could just talk about thoughts on fuel volumes if these prices were to halt just about as we to think about gas prices at this level?.

Sure, Matt. I think you see more of the impact when it crosses the $4 level going up where people really pulled back when you get down to below the $3 level. We certainly haven’t seen a change due to that as it’s too early to see any change in the merchandise. So at this point we’re not changing our expectations based on that.

I would expect the consumer to have a little bit more money in their pocketbook, but I’m not sure they’re driving. Practices are going to fundamentally changed. You typically see more of that. When they get patched well above $4 and it really starts taking money out of their pocket for other important items..

Great. And then as we look ahead, your spin-off restrictions were all off in May of 2015, if I’m not mistaken.

Now what if any strategic options would this opened up for the company as we look ahead? Anything that you’re restricted from the changes as we think ahead the next May?.

It really does, Matt, as we always talk about our first point of our core strategy is around organic growth and so we’re not part of the M&A activity in the sector in terms of consolidation any midstream assets.

We barred ourselves at this point would be on the margin the share repurchase that we now slow within, the parameter set forth by the spin restrictions and so we’ve already announced that and that’s in place for 2015. So, Mindy, unless you have anything to add, I will see those restrictions really changing anything fundamental..

No. I think we have always viewed the restrictions placed on us from the spin really not inhibiting anything that we wanted to do. We were more inhibited by the cabinets contained in our credit agreement and as we told you that we were planning to do that in last quarter’s call, we did successfully execute that amendment since then.

That to us was the most restricted portion that was kind of inhibiting the sides of the share purchase, for example, that we would want to announce, but now that passes and we have announced this new share repurchase. We don’t really consider limitations being partition [ph] us because of the spin..

Great. Nice quarter..

Thank you, Matt..

Thank you..

Thank you. And our next question comes from the line of Ben Brownlow from Raymond James..

Hi. Thanks for taking the question. It sounds like that the main trends that you’re seeing are continuing to remain pretty positive.

Can you quantify what’s the Walmart promotion? How much that lifted the sense for sales on fuel merchandise?.

Yeah, Ben. You got two things that were really going on in Q3. We had the Walmart program that was only in place for seven days in 2013, but you also had this very steep drop-off in wholesale prices starting in July. So I think those two factor combined add up to the close to 3% improvement on same store volumes.

It’s difficult given the ups and downs in prices and competitive [indiscernible] to attribute the precise amount of that to the Walmart program or to the downward price of wholesale typically when those margins leave..

So can you give any color on the last three weeks of-- ?.

Fall-off in wholesale prices in October as you know we had a real significant fall-off. I think as others have promoted October retail margins were strong and that’s the type of the environment where we picked up volume. So it was a good October so far on both volume and margin counts..

Great.

And switching over to the super coolers and the refrigeration enhancements, can you give us an update on the number of sites that’s ordered kind of 200 square foot stores? What’s the potential there in the number of sites that currently have these enhancements?.

Sure. If you look back at our analysts day presentation, we actually have listed all by size of format and you’ll see a lot of 112 square foot sites and smaller 150 square foot sites and we really didn’t start to quote 208 format until maybe 2007 or 2008.

And so as we’re looking through our raise in rebuild program but also our refresh program, we see opportunities, especially at our older sites to make improvements, to refresh the sites, to give them a kind of a new looking field, to continue to do the super cooler additions and we think all of those things will have an impact on the quality of the offer that we have out there to the consumer..

And the majority of the sites over there, you’ve been updated with the refrigeration enhancements or is that primarily a 2015— ?.

No. We’ve done a lot of the super coolers and we accelerated some of those into 2014, but we still have a large number of super cooler additions to do in 2015 also..

Great. Thank you..

Thank you. And our next question comes from the line of John Lawrence from Stephens..

Good morning..

Good morning, John..

Yeah.

Andrew, would you go just a little further as far as looking at gas prices are down and that basket of when somebody fills up are you seeing maybe a less frequency of coming maybe more dollars going in the tank and what’s the basket look like per trip? Any differences with that merchandise profile would look like or attachment rates to the fuel purchase?.

John, I think since prices have come down especially in October, we haven’t looked at that in great detail. We do know that when, for example, we run our promotions buy 3 get $0.10 off our average fill rate goes up by a couple of dollars. So when consumers get more benefits in terms of lower prices, or discounts, etc., they do tend to put more in.

We have a lot of cash purchases at our store and so for buying three packs of cigarettes and they’re putting the change on pump 6. There is more gallons that you can get with the change for that type of purchase or someone spending $20.

But in terms of the frequency of visits and so forth, it’s just too early to tell and then to see those have reduced trips and therefore store sales and basket size and so forth.

And I think we’ve mentioned before we are doing some work on our retail merchandise system at sites that could give us much better insights into basket information to be able to have better insights on that..

Some of the collaboration with candy, drink manufacturers, etc.

continues and some of those program—we’ll see more programs going into ’15?.

Absolutely. We had a great conference at MAX [ph] a few weeks ago. Our partners were very pleased with the uplift they’re receiving from those programs and we haven’t completed it, we’re close to completing our 2015 calendar. So we expect to have a full calendar of those.

Of course, now that will be the first year we’ve had a full calendar going up against a full calendar in 2014. So it will be interesting to see how the comps compare next year and we’ll talk more about that in our February call when we give 2015 guidance..

Yeah.

On last question from me, when you look at the changes at Walmart and what they have said regarding neighborhood market growth et cetera, some of those data on the success you have for gallon growth, any commentary with sort of the new line-up, new management team as far as how you’re adding to sort of their value add being on their watch, etc..

Sure. So I think like any new team, they’re going to step back and analyze what’s important and what’s going to move the needle. So I think from the Analyst Day discussions we’ve gotten the feedback on given the focus is on the super center. That’s the needle-moving activity.

Their direction on neighborhood markets has been to put gas in front of those while they’re building those which makes a lot of sense and given that those sites don’t – by definition don’t have the same traffic as a super center, it makes sense for them to build out the gasoline on that themselves.

I think our role has been squarely centered around the super center.

We believe we can add on future sites significant uplift to the super centers and it provides the ability for an independent operator like us to generate standalone returns and so they can get the uplift without investing the capital but as I said – John, you know they are analyzing their business and looking to deal with the various competitive pressures I have..

Our next question comes from the line of Damian Witkowski from Gabelli & Company..

Hi. Good morning. Question is on cigarettes.

Are they declining faster than you would have expected?.

Really not, Damian. I mean we see really two trends that have taken place such as the national decline and adult consumer smoking cigarettes 4% to 5%.

When you are the low price volume leader in a category and you own that customer segment, if you have new entrance coming, typically they’re going to come in at the low price segment not the high price segment.

So with the dollar stores getting into it with MLP and some of the other tobacco programs that encouraged people lower prices, we knew and expected that as the volume leader that we would have incremental share above the national average. So the declines that we have seen have all been within our forecast and what we planned around..

Okay. And then if you think about CVS has gone out of the business and that’s a billion half in annual sales and split over 150,000 plus stores nationwide should have some benefit.

People have speculated that Walgreens is next and this probably is sort of a similar size of annual sales in cigarettes, but if Walmart is on record saying that they wouldn’t but let’s say they eventually do, I mean do you know what kind of an impact that could have in terms of if you can buy cigarettes in Walmart, obviously you’re next to it? Do you know how big of an impact that could possibly have?.

Andrew Clyde:.

:.

And then just lastly on fuel, in terms of competition are you seeing anything different? I mean as costs come down, are people behaving rationally or are they trying to gain share?.

We haven’t noticed anything different in the competitive environment. It appears rationale to everything that we can see.

I mean it remains very competitive and you continue to see advantage formats like ours, but some of the big box C stores and others continue to build sites and that’s really—the competitive dynamic you have is when another advantage competitor who can price low opens up sites next to you and that’s always going to have a much bigger impact than some pricing behaviour and given that you’ve got a $125,000 sites C stores that sell gasoline and most of those are independently owned and operated.

So it’s very fragmented environment out there. It’s not a very concentrated industry..

Okay. Thanks and congrats..

Thanks..

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back to Andrew Clyde for any closing comments..

Great. Well, thank you for joining today’s call. We look forward to speaking to you again on our Q4 call in February. I do want you to know we anticipate scheduling that call in the first week of February which is a couple of weeks earlier than our Q4 call last year. So, thanks again and have a great day..

Thank you. Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may all disconnect. Everyone have a good day..