Tammy Taylor - Senior Manager, IR Andrew Clyde - CEO, President, Director and Member of Executive Committee Mindy West - CFO, EVP and Treasurer.

Benjamin Brownlow - Raymond James & Associates Damian Witkowski - G. Research, Inc. Brian Hanson - Wells Fargo John Lawrence - Stephens.

Good day, ladies and gentlemen, and welcome to the Murphy USA First Quarter Earnings Conference Call. [Operator Instructions] As a remainder, this conference is being recorded. I would now like to introduce your host for today's conference Tammy Taylor, Senior Manager of Investor Relations, ma’am 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 Donald 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 will open the call for 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, 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..

Thanks, Tammy, and good morning, everyone. We started 2015 with a solid first quarter as momentum on several fronts carried over from 2014 into the New Year more than offsetting expected headwinds.

Retail fuel margins benefited from record January performance as the major wholesale price decline in December created a healthy environment early in the quarter before crude and product prices began to expected run up.

Product supply and wholesale contribution was challenged and then oversupplied unconstrained rising price market, however wine sales at higher prices more than offset the impact as the EPA push the RFS announcement later into 2015. Merchandise sales and margin continued our positive trends as non-tobacco margin dollars offset tobacco declines.

Ongoing cost continued to track nicely with expectations while we invested in a number of initiatives for the long run. The production and yield improvements at Hereford led the plant operating records offsetting a weak market crush spread environment while we completed new investments to enhance the plant for the future.

While side growth was seasonally light as expected due to our constructions schedule we made excellent progress filling the pipeline for the second half of the year. So overall a really solid quarter on execution in bottom line results as we hit EPS consensuses and beat last year's quarter. Mindy go through the financial results now in more detail..

Thank you Andrew and good morning. Murphy USA reported net income of $23.9 million or $0.50 per diluted share for the first quarter of 2015, compared to $9.6 million or $0.21 per diluted share for the first quarter of 2014.

Income from continuing operations was $22.9 million or $0.50per diluted share as compared to $8.8 million and $0.19 in the same quarter of 2014.

The higher results and continuing operations for the current quarter were primarily driven by higher retail fuel margins and volumes, higher rent sales proceeds and lower product supply and wholesale contribution. The first quarter of 2014 contained an after tax benefit of $10.9 million from the LIFO decrement in that period.

There was no income from discontinued operations in the quarter while the 2014 quarter contained the final adjustments to working capital for the sale of our Hankinson plant which related a gain of $0.8 million or $0.02 per diluted share net of tax.

Adjusted earnings before interest, taxes, depreciation and amortization or EBITDA was $62.7 million compared to $43.2 million in the prior quarter.

Our marketing segment comprise of retail marketing and product supply and wholesale contributed net income for the first quarter of $24.8 million up from $13.8 million in the same quarter in 2014 primarily due to higher retail fuel margin.

Average retail fuel margins for the first quarter of this year including taxes were $2.10 per gallon versus $3.23 per gallon in the same period of 2014.

After tax net income for the corporate and other asset segment including our ethanol production facility in corporate taxes was a negative $1.8 million compared to a negative $4.9 million in the first quarter of 2014.

The Hereford ethanol plant generated an operating loss for the first quarter of this year of $0.6 million compared to a net gain of $1.2 million in the first quarter of 2014. The lower results at Hereford in the current quarter further results of lower crush spreads caused by lower ethanol prices partially offset by significantly higher yield.

Selling general and administrative expenses in the current quarter were $31.5 million compared to $28.1 million in the same period 2014. The increase is primarily due to higher professional service fees related to ongoing projects.

We completed $39 million this quarter of the previously announced $250 million share repurchase program which brings our [indiscernible] program inception to approximately $41 million.

At quarter end we had $287.7 million of cash and cash equivalent and our long term debt totaled approximately $488.9 million resulting from the senior and secured note. Our net long term deposition was $205.2 million.

Our asset base loan remains tacked at $450 million limit subject to periodic borrowing determinations which currently limits as $239.3 million at the present time that facility continues to be undrawn.

For the quarter we incurred $32.5 million in capital expenditures of which $22.4 million was spent for retail growth, $8.4 for retail maintenance item and the remaining balance was in our product supply in ethanol and corporate areas. Last year in the first quarter we spent $23.7 million. That concludes an overview of financial results.

I will now turn it back to Andrew. He will discuss operational performance..

Thanks Mindy. Fuel performance outperformed Q1 of 2014 on several fronts despite a volatile market within the quarter. Retail volume was up 5.8% overall and up 1% on an average per-site month basis. Retail margins were up $3.2 per gallon to $0.10 as record January margin - to blow from rising prices in February and March.

Product supply and wholesale contribution fell in part due to rise in price environment and weaker agricultural demand for diesel but mostly due to repeating the inventory liquidation that led to $17.8 million LIFO benefit last year as we have sustained operations at lower target inventory levels.

RIN proceeds more than made up for the product supply shortfall as we collected $20 million more in Q1 2015 as prices averaged $0.77 per RIN. Fuel prices have continued to creep up in April and early May in line with typical seasonal patterns as you surely noted crude broke through the $60 per barrel mark this morning.

Refineries are still - nice crack spread running at high utilization rates and inventories remain high and there have been few logistics constraints or issues to date but there have been a number of pipeline maintenance projects recently announced.

So some of the conditions are building for this scenario of the sell-off for the end of Q2 that we have seen in many prior years and that would create the kind of volatility of our business model benefits from.

Meanwhile we do see some bottom line benefits from lower fuel prices as consumers are trading up the higher margin net grade in premium fuels, we also enjoy the lower credit card fees and fuel surcharges on both fuel and merchandise distribution from lower prices.

Merchandise also put up solid numbers for the quarter, total merchandise sales were up 4.3% overall and down only 0.5% on an average per site basis as tobacco products fell only 2.4% for the quarter versus the quarter-over-quarter range of 3.5% to 8% declines we saw last year as we are announcing the full impact of price increases implemented last year.

Margin dollars increased 4.6% overall and were flat on an average per site basis reflecting in part the timing and certain promotions in rebates which we will make up to achieve our expected per site margin dollar gains.

Turning to cost station operating expense was essentially flat overall as lower credit card fees offset cost associated with new stores excluding credit card fees station OpEx on an average per site basis was flat.

As Mindy noted SG&A was up slightly due to project cost but these initiatives are shining the light on a number of improvement areas to make our business stronger. A real bright spot this quarter was our Hereford ethanol plant.

Well, it lost half a million dollars due to weak market crush spreads, it set records for production and yield, as production increased 30% and yields improved to 2.82 gallons per bushel. We completed the corn oil and starch extraction investments on time and budget in early test to in-line with or better than expectations.

We just completed the one year anniversary of staff retention and motivation program and plan staff experiences the zero voluntary attrition in the last 12 months that team has shown us what’s the operating potential of the plant really is.

In the crush spread greatly improved since quarter end and new revenue and yield improvement streams online we can start to consider the timing for realizing the full value for this noncore but well performing asset. On store growth we added five new 1,200 square feet stores in the quarter and opened another 3 cents.

We currently have 16 sites under construction, we expect to complete the majority of the store refresh activities in Q2 and we’ll deliver most of our new site growth in Q3 and Q4 as this typical due to our bill calendar with Wal-Mart where construction essentially hauls prior to the Thanksgiving holiday.

As Mindy noted, we balanced our store growth investments with another $39 million in share repurchases and expect to continue with that program throughout the remainder of the year. In summary, we are very pleased with the first quarter results but even more pleased with our execution.

We knew 2015 was going to be an interested year after the roller coaster ride in Q4 last year and there are still a lot of run time left in 2015 to see how the global _ crude and product markets play out.

So we will stay focused on what we can control; growing size, executing operations, investing strategically for the long term and rewarding our shareholders. And with that let me thank our team for their ongoing commitment to serving their customers and their fellow staff. And at this point operator we would like to open up the call for questions..

Thank you. [Operator Instructions] Our first question comes from Ben Brownlow with Raymond James. Your line is now open..

Hey good morning. I think you commented in your a little bit earlier about the growth in the non-tobacco margin dollars but I think if you can give a little bit more color on that.

It was up little over 3% which is a healthy growth rate relative to the industry but it was a little bit of deceleration that you saw in 2014 is that more just for comparison or just give a little color on your outlook there?.

Sure. I think our outlook is strong for the rest of the year. We have one category in particular that had rebase that fell in Q1 last year that will come into a later quarter of this year otherwise we felt the categories has all performed very well in line with expectations.

So it’s more of a timing issue we fully expect to make up all of that in the quarters based on that..

Okay and then on the credit card fees you have detailed and kind of laid out that the OpEx was flat on a per square basis excluding credit card feeds but do you have the total kind of quarterly benefit on OpEx from credit card fees year-over-year?.

No we typically haven't provided the credit card fee breakdown separate line item..

Okay and just one last one from me on the new shore construction are all the 16 will they be opened up in the - before the end of the second quarter?.

Most of those will be in Q2. Some of those are expected to open in Q3 just based on their start time..

Great. Thank you guys..

Our next question comes from Damian Witkowski. Your line is now open..

Hi, good morning.

The product supply in wholesale segment Andrew do you think you can still make that 40 to 60 million guidance that you gave us while back as an average for on annual basis or is 2015 a an off year?.

No, I mean I would expect us to continue to do that.

You can go back through every quarter since we have spun off and have been providing the results you see a lot of movement quarter to quarter and so we have been experiencing a rising price market more recently but the key point to make is not that its rising environment as much as it’s a long environment without a lot of constraint and so we do expect to see some maintenance projects come online that will tighten the market we also expect to see as you get through sort of May period, there is plenty of fuel and inventories or some of driving season to see a fall of in that.

So I would never change outlook based on any one quarter in the year even if we blew out the first quarter as you have seen in the past I mean any one quarter can move that number up or down pretty significantly..

Okay and then if you look at 1% rise and fuel seems from sells not that it’s a bad result but if you look at fuel pricing on a per gallon basis being down almost 35% year-over-year you probably could expect more and you have been delivering obviously higher number before this is there anything in particular in the first quarter from a competitive perspective or macro perspective in your market that sort of dumping this number down?.

Not so, I would say overall, the major fuel demand forecasting entities project flat to declining fuel demand. I think, these numbers are coming down 1% so being up 1% you might have a quarter in which demand grew but over the long run you are taking share at that level.

When we have had higher comps is typically been a falling market environment where we are able to put a little more price on the street and make that margin price trade off certainly January was the good margin. There was a good volume, but we started seeing a run up in February and March. So we are actually pleased with the 1% growth overall.

There is nothing from a macro standpoint, nothing certainly from a competitive standpoint either that we see concerning. .

Okay and then on RINS, you said $54 million the good price, $38 million a year ago but you have been running out of $54 million I think in the fourth quarter and now in the first quarter of this year is that number sustainable or are you just, I am not sure where your total annual up is I thought it was about 150 so you are running ahead of it?.

Yes, we are running a little bit ahead partly because our proprietary blending operations were a little bit higher than before so we generated some more RINS.

I think ultimately sustainability is going to be the function of RIN prices which are function of supply and demand set by the RFS mandate for which we have no answer inside so we will get some early proposals, I guess in June based on the most recent announcement and hopefully we will all have a little bit more insight after that..

Okay. Thank you..

Our next question comes from Brian Hanson with Wells Fargo. Your line is now open..

Thank you.

I was wondering if you could delve a little bit more into what you are seeing on the merchandise side and what’s your outlook maybe for one inflation on package goods and two inflation on tobacco whether you are anticipating any additional price increases from the tobacco companies this year?.

I think I want to talk to them about their schedule for price increases but you have got categories like cigarettes and carbonated soft drinks, in particular certain candy products that are flat to declining and we’ve seen pretty much consistent pricing increases that are maintaining sales that are more constant level and starting they have a rhythm in which they do that and the retailers anticipate that but we don’t know until they are firmly announced so I think you need the categories and which were seeing unit declines I would hypothesize and expect to continue to see price increases and we monitor both unit declines as well as the sales get to get sense of what’s the what the traffic looks like.

I think it was important for us is the continued innovation in packaged beverages and snacks and other tobacco products now allow us to offset the unit decline and certainly the larger 1,200 square feet stores allow us to sell more units independent and what’s the prices are doing..

Second question is when you look at the fuel price decline, some of your peers are reporting a little bit better elasticity as the consumer takes the savings and buys merchandise I was just wondering if you could, maybe talk about what’s your insights are on what the consumer is doing with the excess dollars or at least the new stores?.

Yes, so look first thing I would so is segment the consumers maybe in the two groups we talk about the lower to middle class consumer to our customers, its Wal-Mart customers and to what extent have they benefited relative to the middle income and higher income bracket consumers.

Our view is that lower income consumers pretty hard press still these days as we haven’t seen the [indiscernible] and wages and in income and like so I think that’s kind of point one and two is your consumer.

I think two is you got to look at the store format we run typically the smaller kiosk etcetera and so in terms of upgrading products we are seeing that both on fuel and certain tobacco and other products to more premium products but with the limited formats you don't see as much switching dining occasions and buying prepared food at our stores because we don't offer that versus some of the bigger box stores.

We have looked at this pretty thoroughly and when you take out number of the factors that are now there is not a whole lot left that we can point to there and say hey there is this gasoline wind fall and that we are seeing at our site conversely when prices do increase which they will do we are not expecting to see a fall off as those dollars are taken away from consumer so I think over the long term we are still pretty comfortable and we are hopeful that the overall consumer environment for the low income consumer will continue to get better..

And then the last question. I was wondering if you could segment for the opening this year between Super Wal-Mart and Wal-Mart never had markets and maybe give us a little bit insight into that relative performance of locations - locations on a relative basis. Thanks..

Right. So we are not opening any Murphy USA stores in front of neighborhood market.

We have around 30 that we opened into prior years but all of our future growth with Wal-Mart is in front of super center and that's our strategy within our expressed doors that we build adjacent to Wal-Mart but they don't have a curve out or out lot to give us we are doing those in front of supercenters certainly.

In terms of performance of our neighborhood markets relative to our supercenters they don't generate the same level of traffic, they don't generate the results the same level of fuel sales and I think we shared some of that in our Analyst Day presentation our view is that supercenter creates a level of traffic that is necessary for standalone retailer like us to be profitable and generate good returns but the neighborhood market would be much more challenging for standalone operator..

Thank you for your time..

Thanks..

Our next question comes from [indiscernible] with JP Morgan. Your line is now open..

Good morning guys. This is [indiscernible] for Matt.

As you guys begin to ramp your store growth over the next few years can we expect to see higher than your longer term 50 basis points and annual merchandised margin expansion and then on tobacco the climb there have been a little more - how much of this do you think is the consumer having more money on their pockets versus you take the share from others or I mean is there anything else causing it?.

Yes so I think on the first question around on margins, we still have a large, large base of kiosk sites and while we are making improvements on those with the super coolers and the refreshes there is still going to be predominately tobacco and such a big, big base from which you are trying to move with the new store.

So let’s say for right now kind of more in line with what we talked about before.

Remind me your second question?.

On the back of decline?.

Yes, so we saw price increases there that has been passed through. We think some shift in the competitive environment around MLP that has been helpful and so I think certainly first quarter last year we had something like 8% quarter-on-quarter decline.

We are fourth quarter last year were 3.5% and so we are starting to see that negative trend decelerate little bit. I think there are just a number of factors in there but some of it is price and margin versus units. We are continuing to see units decline but they have slowed also..

Got it.

And do you still expect to complete your $250 million share authorization by this year end?.

Left the time we had given ourselves and as we said that's our current plan to do that.

We are still having to do under the 10 B 51 plan until our spin restrictions are lifted in September, the only thing that we see that would get in the way of that would be accelerated growth opportunities for which we would need to use the cash but right now we are got a balance sheet very well positioned to be able to complete that.

Those are stated here..

Got it. Thank you guys..

Our next question comes from John Lawrence with Stephens. Your line is now open..

Thank you. Good morning..

Morning John..

Yes Andrew would - all your question would you just take and go through this gross margin just a little bit more and talk about sort of the breakdown of when you are talking about the rebates and I guess sequentially cigarette gross margin is down a little bit sort of talk about those back and forth and sort of what do you think is going on with the consumer with that because it looks like cigarette gross margin held down a margin a little bit?.

Yes, I think margin, unit margins overall were flat quarter-on-quarter at $0.14 and so the tobacco gross margin dollar decline just over 2% was it was actually positive change.

Beverages beer, wine liquor general merchandise, all are main categories for positives on the candy category there was some timing issues, alternative snacks were all positive so we felt very good about the overall performance the merchandise categories..

And when you mentioned those rebates what if you true up the rebates what how much of differences in material?.

By the end of the year we expect to ride in line with our guidance so just timing issues..

Okay. Great. Thank you..

And then John we also run different promotions different times of year and sequence shows little bit differently so I think at the end of the day it’s just all about the overall calendar and by year end they expect to be all that front..

And remind us on the expenses that you are making some investments remind us what’s some of that investments ending is that might have be exactly going apples to apples against the comparison..

John I will take that. This is Mindy. We had several million dollars in expenses that we expect over the course of the year some of which have already get in the first quarter this pertain to our [indiscernible] project that we have talked about before that's the 16th projects that we are going to complete over three year time frame.

Since we already have 7 projects in progress we have already incurred a few million dollars worth of those fees but we do feel expect at least that this time to be within our guidance range for SG&A of 120 to 125 we maybe at the higher end of that since we are actually bringing some of those [indiscernible] projects forward in the calendar from run rate, we are going to have that but the [indiscernible] project is expected to be about 15 million of annual benefit but it’s not without cost.

So the cost for the entire project over the three year life would be between $25 million and $30 million..

25 and 30 and is there any way to break out how much of that project will spend the first quarter?.

It's probably couple of million dollars in the first quarter..

Great. Thank you so much. I appreciate..

And John some of that also includes system upgrades that we would be doing anyway in foundation projects and that’s just capital spend or operating SG&A spend that we would need to be doing as part of our business regardless..

[Operator Instructions] Our next question comes from Chip Saye with AWH Capital. Your line is now open..

Hello guys it’s Austin Hopper thanks for taking my question you talked about this little bit but you mentioned that RINs were up due to a delayed EPA ruling, just kind of remind us the dynamics of that. Thank you..

The RIN prices or the EPA rolling?.

No, delay in the EPA rolling and how it’s kind of impacting RINs and how it can play out. Thank you..

So, I think ultimately this is just expectations on what the volume mandate is going to be so if you got refiners that are obligated parties that have to meet those obligations and we are sitting here in 2015 and we should be expecting our 2016 guidance and we’ve yet to receive the 2014 or 2015 guidance.

So it’s like many other things than our industry and others were operating in a world of regulatory uncertainty which frankly isn’t helpful.

And so if supply of RINs generated by those that demand in the demand programs by those who have the obligation is not clear ultimately based on what’s on mandate level is going to be there going to be periods where the market thinks of RIN supply is either long or short and that effectively drives that the prices so we are price taker in that environment and we generate the RINs from our blending and that’s kind of the basic fundamentals of it.

The timing of the proposal in June is kind of what we are expecting it’s not going to be the rules, it’s going to be time for people to respond to those and so it still not clear to us exactly when we are going to have regulatory certainty in this area so we expect to continue to see price volatility as people take different for views on what’s the supply demand outlook for RINs is going to be..

Great, thanks..

Thank you. I’m showing no further questions I would like to turn the call back to Andrew Clyde for closing remarks..

Well thank you everyone for attending and we look forward to joining again next quarter. Thank you very much..

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