Christian Pikul - Director, Investor Relations Andrew Clyde - President and Chief Executive Officer Mindy West - Executive Vice President and Chief Financial Officer Donnie Smith - Vice President and Controller.

Ben Bienvenu - Stephens Inc. Chris Mandeville - Jefferies & Co. Bonnie Herzog - Wells Fargo Securities Carla Casella - JPMorgan Chase & Co Andrew Burd - JP Morgan Ben Brownlow - Raymond James & Associates, Inc..

Good day, ladies and gentlemen, and welcome to the Murphy USA Second Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today's program is being recorded.

I would now like to introduce your host for today's program Christian Pikul, Director of Investor Relations. Please go ahead..

Hey, thank you, Jonathan. Good morning, everyone and thanks 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 some opening comments from Andrew, Mindy will provide an overview of the financial results. And after some closing comments, we will open up the call to Q&A.

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 the latest Murphy USA Forms 10-K, 10-Q, 8-K and other recent SEC filings. Murphy USA takes no duty to publicly update or revise any forward-looking statements.

During today's call, we may also provide certain performance measures that do not conform to Generally Accepted Accounting Principles, or GAAP. We have provided schedules to reconcile these non-GAAP measures with the reported results on a GAAP basis as part of our earnings release, which can be found on the Investors section of our website.

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

Thanks Christian. Good morning and welcome to Murphy USA's second quarter 2017 conference call. I'm very pleased with our second quarter performance as the business performed well against the backdrop of robust retail margins.

Additionally, the product Supply and Wholesale business showed sequential improvement from the first quarter as we noted on our previous earnings call. Total EBITDA for the quarter was $129.1 million, up from $108.6 million in Q2 a year-ago and up sharply from this Q1 results of $30.3 million.

As shown in the tables on our earnings release total fuel contribution in the second quarter was $18.01 per gallon which includes both the Retail business and Product Supply and Wholesale results net of RINs. This compares to $16.08 per gallon in the year-ago quarter.

We are always reminding investors to take a balanced long-term view of our fuel results on a combined basis. All-in margins for the first half of 2017 or $14.02 per gallon towards the low end of our initial guided range of $0.14 to $0.16 per gallon, but above the midpoint of our revised guidance of $0.125 to $0.15 per gallon issued in April.

We hope this mean reversion behavior that has been evident throughout our history as a public company remains at the forefront of conversations regarding total fuel contribution on a go forward basis.

PS&W contribution this quarter was $0.150 per gallon versus $5.09 per gallon in the year-ago quarter and did show meaningful improvement from a zero contribution in the first quarter. There are three primary components that comprise PS&W results.

The first are transferred to retail margin which captures the spot to low rack supply differential remained under pressure in Q2. While retail margins have held up nicely in a range bound but sufficiently volatile environment for crude, the wholesale market continues to face oversupplied conditions which limit margin capture opportunities for us.

The ARBs have been close there have been no major refinery upsets, no pipeline constraints and limited supply disruptions which create opportunities for our business model where our proprietary supply positions become advantage in constrained volatile market conditions.

The second component of the timing and inventory variances which were negative as prices into the quarter lower. However, this was more than offset by higher retail margins which of course were also beneficiary of falling prices. This negative impact approximated about $0.01 per gallon in Q2.

The third component RIN prices have returned to a more stable equilibrium level versus the Q1 lows, prices a period of largely baked in the various EPA announcements that occurred during the quarter and since quarter end.

In keeping with prior discussions around our earnings I would like to review other parts of the business following the framework of our simple formula for creating shareholder value. With respect to organic growth we open five new stores in the quarter bringing our year-to-date total to 10 new stores.

Additionally, we opened three stores in July and we remain on track to open between 45 and 50 new locations this year. Of the 17 high performing sites that were taken down in Q1 for raise and rebuild 12 of those have reopened late in the second quarter with the remaining five expected to be up and running by mid-August.

The three remaining side slated for raise and rebuild will go down in the third quarter and should be open by year-end. Of the approximately 240 3-door super coolers we plan to stall this year, a 138 have been completed with the remaining schedule for completion by year-end.

Looking next to fuel contribution for the retail business per store volumes on an average per store month basis average 253,000 gallons a 2% decline from 258,000 thousand gallons in the prior year period.

There is a small impact from the stores we have down for raise and rebuild in the second quarter, but that's not counteract some of the negative volume trends we are seeing in some areas of our network. There are a few comments we can make around the state of the industry in our results in particular.

First, given what was a weak first quarter for the industry as a whole as margin opportunities presented themselves in the second quarter with falling product prices we saw less aggressive pricing across the board to create separation versus other periods of strong margin and sure there appeared to be a bias towards margin versus share capture.

Against macro demand has improved modestly from the first quarter but this does not appear to be growing at rates seen in prior years. When macro demand for gasoline a stable the mass simply tells you that industry newbuilds will take market share from each other and less advantaged participants.

Third, I would also note that some of the large changing the tactics and behaviors of some competitors. Some are being more aggressive with the assets in the hands of more economically stable new owners. Fourth, in the southeast where we saw the greatest market penetration from like kind high volume low priced competitors.

Our volume loss was most noticeable particularly in some of the highest performing markets that would be the most attractive to competitor new entry and newbuilds. Last, we've also seen an impact our Southwest markets from shifts in immigration trends and reported lower economic activity including lower minute since from individuals in the U.S.

to Mexico as reported by third-parties. These trends highlight the competitive intensity in the sector and accordingly Murphy USA focus on improving its competitiveness in our fuel breakeven margin requirement metric and remaining very disciplined with our capital allocation priorities.

So let's move on and look at the fuel breakeven metric starting with merchandise margins. Total merchandise margins in the quarter were a record 16.1%, up 40 basis points from 15.7% a year-ago.

Total margin contribution on a per store month basis increase slightly to 23,366 per store up from 23,187 per store a year-ago driven by same-store margin growth of 2.6%. Non-tobacco sales were up 4.8% on an average per store month basis driving a 2.3% increase in per store margins.

Tobacco margins were up 2.6% on a same-store sales basis but down 0.3% on an average per store month basis. As a reminder of the difference in the same-store versus average per store month metrics for Murphy USA highlight the two most impactful changes with the 1200 square foot format.

New stores given their enhanced offer start with a higher mix and non-tobacco sales than established kiosk and ramp up even further over time. However, tobacco sales which have essentially the same offer across formats start off lower than well-established kiosks the catch up in 12 to 18 months.

Fuel breakeven margins of $1.24 per gallon continue to improve down from $1.45 per gallon in the year-ago quarter as we continue to make progress on operating expenses to store level efficiency. Operating expenses before credit card fees fell by 2.4% on a per store basis during the quarter.

We do expect these comps to get a little more difficult as we start to cycle the benefits of our labor model in 2016 which largely took place in the second half. However, we still have areas to focus on at the store level which are very meaningful opportunities to continue to drive cost and our breakeven requirement down lower.

So with that, I'll turn things over to Mindy..

Thank you, Andrew. Hi, everyone. Revenue for the second quarter totaled $3.2 billion, an increase from $3 billion in the year-ago period largely attributable to higher product prices, total volumes into a lesser extent higher merchandise sales. Average retail prices for gasoline was $2.14 a gallon versus $2.03 a gallon and quarter two of 2016.

Adjusted earnings before interest taxes depreciation and amortization or EBITDA as previously released was $129.1 million versus $108.6 million a year-ago. The effective tax rate for the quarter was 38.2% which is largely in line with the year-ago rate of 37.5%.

Total debt on the balance sheet, as of June 30 was $884 million and was broken out as follows. Long-term debt of $869 million consisting of $491 million in carrying value of 6% notes due 2023, $295 million in carrying value of [5.58%] senior notes due in 2027 and $82 million remaining on our $200 million term loan.

We are also carrying $15 million of expected amortization under that term loan and current liabilities on the balance sheet.

In conjunction with our $300 million bond issuance we did repay a required $50 million on that balance and then elected to do an additional $13 million to get us below the 2.5 times leverage ratio and order for us to continue share repurchases in the second quarter.

These repayments will reduce amortization going forward to $4.7 million per quarter from what was previously $10 million per quarter.

Tell ever the amount depicted on the June 30 balance sheet as the current maturity reflects only three quarters of amortization as a portion of the elective $13 million repayment was characterized as prepayment of amortization for the third quarter. The outstanding balance on the term is $97 million including the current portion.

Our ABL facility remains in place with $450 million cap and subject to periodic borrowing base determinations currently limiting us to approximately $208 million as of June 30 and at the present time that facility is undrawn. Cash and cash equivalents total $197.1 million resulted in net debt of approximately $672 million.

During the quarter we repurchased 726,000 common shares for approximately $49 million at an average price of $67 and $0.50 per share under the previously announced program of up to $500 million to be completed by the end of 2017.

Approximately $110 million remains under this authorization and common shares outstanding at the end of that period were 36.1 million shares. Capital expenditures for the quarter was $75 million including approximately $51 million for retail growth, $12.5 million for maintenance capital and the remainder for other corporate expenditures.

And that concludes the financial update. And I will now turn it back over to Andrew..

Thank you, Mindy. In closing, I just want to reiterate the sequential improvement over the first quarter results. As I've often stated in the past it was very important to look at our results over a period of time to fully appreciate our integrated in Advantage business model.

Well, some of you may is focused like the sky was falling in the first quarter the market is always changing and here we are halfway through the year with fuel margins that are within the range of our initial guidance.

However, the competitive pressure I spoke of on the first quarter call and some of the industry behavior around margin capture into Q2 has moderated somewhat in Q3 has raise in crude prices have pressured product margins while compressed price differentials impact volume.

On a positive note a rapid run up in prices at the beginning of the third quarter creates the opportunity for falling prices potentially later on. That is the cycle of volatility we live in the most importantly our business model is designed to thrive upon that volatility.

Our business will continue to face competitive than market structure challenges, but we're always working to address those challenges.

And if leaders of this organization we remain dedicated to continuously improving the long run earnings potential of this business and properly allocating capital to the highest returning projects whether it be organic growth, shareholder distributions or investing internally to maximize efficiency. With that, we will open up the call to Q&A..

Certainly. [Operator Instructions] Our first question comes from the line of Ben Bienvenu from Stephens Inc. Your question please..

Yes. Thanks. Good morning. Congratulations on the quarter. I wanted to ask a bit about the merchandise and gallon trends that you're seeing, headline results sequentially improved and you've got substantially easing comparisons in the back half.

Assuming the same to your stacks from 2Q, it looks like you guys can get in the positive comp territory on both merchandise and gallons in the back half? And I just want to check whether that's an unreasonable assumption or not..

Ben, a lot of it's going to be determined on certainly the fuel transactions which is a function of the environment we're living in. Certainly Q3 was kind of flat to running up last year versus typical downward pressures what we've seen this year so far. In July starting really with the last week of June is a pretty significant run up in prices.

And so if that stay flat versus falling while we might have a relatively easy comp in historical terms in terms of Q3 last year. It just may not play out that well. So I think one, you've got to just look at what is the price structure in the marketplace and how would that translate to volume and transactions associated with that.

The reason rebuild stores are coming back up which is positive and we're seeing nice improvement there as we go from four to six dispensers to six to eight to 10 dispensers, diesel at pump, proper store versus an undersized kiosk, so that will be some improvement on the fuel side there to speak.

We continue to see some of the weaker stores from the 2015, 2016 build class in the Midwest, the tail of the Wal-Mart 200 ramping up continuously, but still below those regional averages there.

On the merchandise side, we continue to see competitive pressure on cigarettes and certainly the traffic associated with fuel impacts that as well as people have those combined businesses.

So we've got a lot of initiatives in place to try to drive those, but some of that will be around market structure Ben, how it translates into fuel volume capture and then some of the competitive intensity around that as well..

Understood. Shifting to the fuel side of the business. On the wholesale, the PS&W business, we saw sequential improvement in Q2 despite falling gasoline prices.

Could you comment at all about quarter to date in 3Q, it looks like the data has sustained improvement or at least even sequentially slightly improved, and I would imagine rising prices is perhaps help that transfer pricing dynamic?.

Yes. So what I would say is transfer retail that spot to low improved Q2 versus Q1, RINS got more, I would say kind of in equilibrium, you didn't see a lot of change when the COB released the numbers which suggested a lot of that was built in. So there's a more stable equilibrium there.

We have seen some improvement in RIN prices, but we've also seen an increase in crack spread so that supply cost has gone up in concert with that as what you would expect. So colonial remains unallocated, stub lines from Atlanta to Nashville that they remain allocated and have been. We've seen a little tightening, but it's not dramatic I would say.

We are still in an oversupply environment, we still have excess inventories. There are a lot of exports leaving the country and at some point in time that will have an effect on inventory. It may also have impact on RIN generation and the obligations there as well. So I'd say it's too early to call anything from Q3.

It looks and feels a lot more like Q2 than Q1 now. I will say that the rising or falling price environment that impacts the timing in inventory variances.

A lot of that will be a function of kind of what actually happens in the last month of the quarter versus what happens in the last month of the quarter versus what happens in the first month of the quarter as that that's just something that constantly gives and takes over time..

Got it. And then just one last one for me, the merchandise margin really strong against a difficult compare.

What's driving that and what the continued opportunity there?.

Yes, we've just gotten a lot smarter around one some of our center of store opportunities around taking cost increases showing that in pricing, optimizing our mix, we just did a reset on our kiosks non-tobacco, non-beverage items, which was long overdue and the store managers I spoke with in the days after that were really excited about the new mix of products.

So a lot of it is the new team kicking in, new leadership, new processes, around center of store, we just did a beverage reset as well.

So a lot of that is what I would describe more kind of continuous improvement opportunities around basics, more effective promotions and promotional activity working better in concert - with our vendors than we had in the past..

Great, thanks. Best of luck..

Thank you. Our next question comes from the line of Chris Mandeville from Jefferies. Your question, please..

Hey, good morning.

Andrew, just kind of two higher level questions or maybe long-term, how do you feel about the Company and I guess maybe even industries ability to adapt to what could potentially be an accelerating shift away from combustible cigarettes following last week announcement out of the FDA? And when we think about your current exposure to a category, which is kind of roughly 75% of your in-store merchandise sales right now coming from cigarettes, how should we think about merchandise over the next five or 10 years or so?.

Donnie?.

So a few comments on that one, this is not something that's going to happen overnight, from a timing standpoint, doing this with the real science understanding the unintended consequences of any regulations. This is something that's not going to happen in the short-term. This needs to play out in a thoughtful way and I feel confident that will happen.

The second thing is that the announcement clearly showed this risk continuum that exist and so as you think about the new products in the innovation that have been developed either here in the U.S. around the vapor products or if you think about the heat-not-burn products and non-U.S. markets that are coming in.

Those play into that risk continuum and so if you think about our position with adult consumers and the share we have with the major tobacco manufacturers, we are well positioned to participate in the new products, their introduction and work in the context of the regulations as they get developed and modified over time.

But there is nothing that we saw in the announcement that gives us concern in our discussions with the manufacturers as well. This is something that will play out over time in a thoughtful way and the innovative products that come out as a result of that were probably better than anyone positioned to take advantage of that..

Okay, and then my second question being and as we think about your already impressive breakeven margin and the goal of lowering that further this year.

I think you mentioned in kind of your introduction that there's some levers to which he think you could further pull, but could maybe elaborate a little bit more so on really some of those identify the levers and thinking longer term.

Do you think that the key drivers to lower break in margin to the shift over time? Is it more on the OpEx side or generating incremental gross margin dollars or how do you think about that longer term?.

Sure. So what I would say is it's going to continue to be a balanced mix of margin improvement and operating expense improvement. What I would say the difference is the levers that we pulled in the past were big group force levers like the core mark deal and the store labor model. Right those had significant impact and they applied to all stores.

The next wave of opportunity is probably just as big, but it involves more precise execution of all the things we talked about on the OpEx side and some of the things I just mentioned around center of the store and beverages.

On the merchandise store getting every store to build to deliver to the plan and grants to execute the labor model the scheduling all the practices in a consistent way managing strength all of those things is what will get us to the next level.

There are some other initiatives around the interaction between the stores, maintenance, the support center, the vendors et cetera that also bring opportunities to bear, but frankly those will show up in merchandise margin as well as operating cost super cooler like the one I saw in Mount Pleasant Texas on Sunday had been down for two weeks.

Because of inefficiencies in the dispatch process and getting technicians out there. We sent three type mission to address an issue and that the cooler was down for two to three weeks with cans exploding and in the cooler.

So it was a real simple example of it will impact the margin line and the cost line and there's lots of just detailed execution which is what a retail business is about. So I feel like we've pulled a lot of the big levers.

Now it's time to deliver at the detail level and we've got the right team in place through the leadership that we've brought in both at the regional VP level and with the existing and new division directors and district managers to establish that..

Okay. And then maybe just one last one if I could I know we just heard from you guys about two months ago, but is there any update in terms of timing of a pilot or at least the rollout of rewards program and or your goal for greater engagement with perspective as well as current customers..

Yes, so we are in the midst of designing that both from a technology standpoint we've selected but loan announce pilot markets for that there's a lot of work that's going into that program. So I think the key thing to remember is you're an everyday low price retailer and your - consumer comes to you for a low price.

You're not going to be able to do what the majority of loyalty programs have done in the space which is let's raise prices to all the customers and then discount to those who are participating in loyalty.

And the reason others are able to get away with that is most of their customers are coming to the in the first place we're just simple locational convenience or if it's one of the top major brands maybe because of their premium products.

So there are effectively doing this as price discrimination in their programs are designed around price discrimination or they actually have a like consistent network of stores fountain programs et cetera where they have you know 50%,60% margin items and so giving away you know one out of a very seven has the economics.

We are designing something fundamentally different to attract in - with customers who already see us and similar competitors for low prices. And that requires sort of a careful fall a way of going about and doing that and is going to leverage a different set of technologies than sort of the Me2 programs that are out there today.

So more to come on that but we've committed to not implement a Me2 late model but rather something that adds to the already loyalty and stickiness we have as an everyday low price retailer..

All right good stuff. Thank you and best of luck in Q3..

Thank you..

Thank you. Our next question comes from the line of Bonnie Herzog from Wells Fargo. Your question please..

Thank you.

Hi, how are you?.

Good Bonnie..

Good I have a question on your guidance you sort of touch on this a bit that I guess I'm trying to understand why you're maintaining your guidance for the full-year and light of you know the easier comps that were discussed improving trends in your PS&W business and then what appears to be stronger RINs.

So I guess I'm getting the sense that you're guidance and you actually lowered it a little bit earlier this year is now maybe two conservative.

Is that fair?.

I think the assumptions in there, the easier comps, all we know about Q2 to date is we've had a runoff in prices which are bad for retail margins and they're bad for retail volume, so until we see a significant fall off they just stay flat, it would probably be a worse comp if you think about Q3 last year which was largely flat to somewhat rising versus what we've seen so far in the marketplace with a steep run up in crude prices - that assertion right there.

While RIN prices have gone up, we would say they're in equilibrium like they were in equilibrium in Q3 last year meaning that price is now embedded in the supply price at the refinery gate and you see crack spreads for refineries as well.

So the key is that supply the low rack, differential net of the RINS, I would say the RIN part of that is in the equilibrium, the supply cost to low rack is still under pressure. And so what will determine that for the third and fourth quarter is whether or not that eases up or not.

We've been camping against more favorable environments in Q1 and Q2 of 2016 versus 2017 on that front. So I think those characteristics kind of highlight sort of that measured conservatism that we put into the revised guidance.

I would say until you saw inventories drawn down, colonial allocated, ARBs open, some major refinery downtime maybe one or two disruptions in the system. I would be hesitant to say, we would come in that $0.15 to $0.16 range which would have been the differential in the guidance high points..

Okay. That's helpful. And then I have a question about just traffic and the consumer. I guess I'd be interested in hearing what you've been seeing in terms of the traffic and any of the consumer behavior and maybe how that translating into in-store purchases.

It seems as though traffic has been pretty fast, in fact [indiscernible] CEO just called out weak channel growth as a drag on their business for their current or their second quarter.

So just wanted to hear from you what you are seeing and if you're seeing this what you think some of the reasons for this could be?.

I think we're actually seeing that on a number of fronts. The actual fuel demand data that you get from the tax receipts is five months old and so you don't have perfect insight to that.

The vehicle mile traveled that gets four months old, so I don't put a lot of weight into the EIA Data, but the trends we're seeing are there are still growth, but it's nowhere near the growth rates that we were seeing in 2015 and 2016 right. And so that's impacting traffic.

You're seeing - I say in the Southwest, I met with one of the Mexican consulates the other day and spoke specifically about traffic from that demographic group, not coming over for major shopping activity in December and January, the patterns that have been seen in prior years.

We're seeing less migrant workers coming over which is impacting farmers and their ability to get the labor they need. We were seeing fewer remittances back to Mexico. So there's been a number of things kind of reported in the news on that front..

Yes..

As we've corroborated from people that are much closer to that and so we're able to kind of correlate some of that to specific market areas where we seeing some lower comps on that front.

And then what I would say is as you have more flat demand and yet you continue to see new store builds, those new stores are just going to be competing for the same demand and so if there are in urban areas that are growing that's great, but then that reflects - that's reflecting population moves from other areas.

And so I think this is where whether it's growing past a certain point, M&A activity et cetera.

There is a world of flattish demand out there that really informs how we think about capital allocation market choices focus on continuous improvement for organic earnings growth through our fuel breakeven maturation and then how we think about that in terms of shareholder distribution. So we're seeing it.

We've identified a lot of macro trends that affect everybody. I think we understand where the competition impacts or happening, and I mentioned in the southeast look some of the most attractive markets where you're going to expect new bills to come in a new competitive entry to take place.

But there are some other markets where frankly that kind of question why you would see the level of kind of new build competitive activity given shrinking populations and a like..

Yes, there's a lot going on in a lot of different.

I guess headwinds, so it's interesting and if I could ask one last quick question if I may on your Visa promo that I think you've been running all summer, just trying to get a sense on maybe the specific impact of that promo so far and if you think maybe there's an opportunity to potentially generate positive content in your field volumes in Q3, especially given the relatively easy lap..

Yes, I'll let Mindy take that one because she oversees our payment systems..

Yes, thanks for the question Bonnie. The Murphy Visa limited time offer of the summer has been very well received and we've effectively doubled our cardholder base within the last 12 months or so because of that. But keep in mind it is still a very small share on a total sales basis.

So the percentage of customer of sales being on that particular card is about half a percent. But that has grown dramatically because this time last year that would have been about 0.1%. So while the growth is dramatic. It's growing from a very small base.

But it is our intention to continue to build out this program and then when we're also able to tie that car program in with our loyalty program, we think that we can really gain some traction and gain even more cardholders..

I think what it tells me Bonnie is there is still a very large group of customers out there who shop based on price and are continuing to look for even more value as evidence by getting an additional $0.15 off through this program and so there is nothing about sort of the consumer segment - segments that we target in those demographics that suggest.

They're not going to continue to want every day low price with additional value, and promotions on top of that. And so I think we're getting smarter and better about understanding what they're looking for how do we deliver that in an efficient and economical way..

The other thing it does I think it also demonstrates our ability to be able to influence customer behavior through these limited time offers and that certainly does bode well for the introduction of our loyalty program..

Okay, thank you..

Thank you. Our next question comes from the line of Carla Casella from JPMorgan. Your question, please..

Hi, I just wanted to update on the Walmart number of the patients that you have in the Walmart lots and then if you're seeing any change in their strategy of built on their own site basis?.

Yes, so I think Mindy has got the numbers handy in terms of just the absolute numbers if you want to go through those, maybe then I can update you on what we've seen from a kind of a competitive standpoint..

Right, Carla to say the number of locations that are branded USA, which are the ones that we would have gotten a lot from Walmart at the end of the quarter was 1,154 as total number of locations of 1,411..

Yes, and so there's been I think we've noticed between a half dozen in a dozen locations Walmart has built on supercenters where we had a Murphy Express store within say a half mile of that supercenters. So that head to head competition in terms of what they've built relative to where we are remains relatively lie.

They focused I believe there are new builds and a lot of the states that we are not in. There are two pilots that they've been public about once a pickup point.

With the storage area of the drive through out in the forecourt with the convenience store attached to in the fueling lanes in front of that they have two pilots of that type and then they've got a couple of larger format stores that are a pilot.

I will note that their pickup points have been growing very dramatically, but in the side of the building approach and so I think the last number I saw was close to 500 and growing on that side.

And so they're definitely committed to doing that and rolling that out very rapidly, but it's largely in the format of being at the side of the building which from a labor standpoint from a safety and handling of perishable items that et cetera probably solves a lot of logistics issues.

I'd also say that you know as we continue to do our refresh program we'll finish kind of 900 accelerated refreshes by the end of this year that makes our stores look better deliver a better off for the same with the raise and rebuild.

While certainly not at the scale of their refreshed programs and their efforts I think you see too high volume retailers investing a lot in their core businesses to make it better and given that we share the same customers and we believe what we're doing and helps them and certainly what they're doing helps us in retaining that customer versus letting them go to a different grocery store mass merchant for their items..

Okay. Great thanks..

Thank you. [Operator Instructions] Our next question comes from the line of Andrew Burd from JPMorgan. Your question please..

Hi, good morning, nice quarter. On the new stores for this year and I'm sorry if I missed it but are you reiterating the 45 to 50 new site count for 2017.

And then maybe if you could comment on that on that guidance in the cadence of news store openings through the end of the year and also in the second quarter where a lot were the stores brought online kind of ratably throughout the quarter was no lumpiness at one end or the other. Thanks..

Yes, our guidance of 45 to 50s in tacked on that front and that's kind of what we've notionally projected out into the future as well as that kind of range complemented with the raise and rebuilds given the smaller number of stores that we open in the quarter.

I don't know how lumpy it was I think it was pretty ratable we've got well over 20 stores under construction right now and so you know you'll be seeing in Q3 number of stores opening literally every week throughout the quarter. So we try to do is write a will as possible from that stand standpoint..

Great. Thanks and second question is on colonial.

How does management at Murphy approach the decision whether to retain a historic ship or status or maybe another way to ask is for how long those lines space need to be uneconomic before the trends can beat the clay or permanent and then what would prompt you to revisit the colonial strategy?.

Got it. So I think there are two fundamental that we've articulated that are kind of - at the heart of how we think about this why do we have a proprietary supply capability. That is well not unique versus other retailers is done at the scale that we do. It's about ratable, secure low cost supply.

And if you're doing the kind of volumes that we're doing you know across 1400 stores in the market with a significant present a long colonial. You got a couple of options you can ship it yourself. Right or you can have a contract with someone else who shipping it and you can buy at the rack.

The issue is of a backhoe bust open the pipeline causes an explosion and it goes on allocation. Are you going to have ratable secure supply.

And if you look at the folks that bought at the wholesale rack without a contract last October, they not only ran out of product they ran out of plastic bags us to put over their nozzles to tell the customer they were out of fuel.

So ratable secure supply is critical to our business and to our customer value proposition whether it's a hurricane whether it's a blizzard regardless what the issue is we're usually the last store down in the first store back open in our customers' eyes. Right and that may include first responders that we take care of.

From a low cost standpoint the second fundamental is you've got to look at the net cost and so while line spaces out a negative. If you incorporate the value of the RINs the advantage rates et cetera that we have. We can still land product net of RIN's at or below the Opus low.

And so if we had a contract are you going to build a buy better than the Opus low wholesale rack. And so if you look at this quarter while the supply margin was negative net a RIN's we still made a $0.150 and then there was about $0.01 a timing differences so that would have been $0.250.

So again I would challenge the assertion that colonial for us is an economic. Right when you net a RIN's and all of the other factors together it's still contributing the overall proprietary supply business is still contributing to our business.

And look there's some regional areas where others may be contributing more of that $0.150 to $0.25 if you factor in the timing differences in colonial maybe attributing less. But even if it was earning between $0.00 and $0.01 you would still go back to the questioner of how could you achieve ratable secure a supply on a consistently economic basis.

And I think a retailer of our scale and scope high volume, low price value proposition would be challenge to do so.

So is key to our business it contributed positively to the quarter and year-to-date how we optimize around it in terms of our wholesale position, the price where we sell our discretionary wholesale position, other line trades are things we do or things we don't comment on but there are opportunities to manage around that.

I would say that if you look at our business versus say someone like NGL right who has a significant colonial position that they acquired from trends Montane. They're in the wholesale marketing position all they have is the spot to rack margin when it comes to refined products.

So we have this entire retail large and on top of that so when you wrap all of that together it's inner goal to our business. It's inner goal to the resilience of our business to weather the type of disruptions that can really have a big impact on customers. And to date in especially this quarter its economic..

Great thanks. So that makes sense.

So it seems like that we can look at your use of colonial and others use of colonial because others might not have the structural short along colonials pipeline route that you do that kind of fair to say?.

That's absolutely fair to say. Our structural short in a flattish demand long refined product environment is one of the most valuable assets out there in the eyes of anyone who's manufacturing refined product. And we're going to be manufacturing refined product for a long time..

Thank you very much..

Thank you. Our next question comes from the line of Ben Brownlow from Raymond James. Your question please..

Thanks for taking the question. I just want to touch on G&A in the quarter down around 3%.

Can you just talk kind of year-to-date how that's trending versus your internal expectations and as we think about the second half what's the timing of some of the spending initiatives that are going move that around or just tell us how should we think about the sequential movement in G&A?.

I'll take that one Ben. As you probably remember we were on the high end of G&A in the first quarter at 38.2% and that was caused really by $4 million or so costs that are unique to the first quarter and then also some timing of some other charges. Second quarter G&A trend below first quarter as we would've expected at 31.3%.

So what I would tell you is we do still have a line of sight and finishing within our 2017 guidance within the range of $135 to $140 million. Probably that's running towards the higher end of that range than the lower end and so would expect the rest of the year's numbers to be around 35-ish per quarter..

It's very helpful..

The other thing I would say there is I'm really proud of our IT team and our finance and accounting teams who have been going through frankly a lot of changes.

We've brought over technological debt at the spend we've been working hard to address that we've brought on new CIO and leadership in that area and the team's been working really hard and what we're finding is that contracts for a variety of services are being renegotiated it better rates that's helping offset some of the cost of new personnel that are coming on board.

As we're implementing the systems we're finding that some of our back office accounting and other transaction support activities can be done faster and quicker and so we're focusing on more value added work and so when there's natural attrition in the organization.

We are able to do more for less because of the technology and so we're really starting to see the benefits of that and that allowed allows us and then continue invest in further upgrades whether it's cyber security, infrastructure security or customer appreciation program, retiring old assets.

And so these things have been working very, very hard on that and done a great job..

Okay. Thank you for the color. All the other questions were answered. Thank you..

Thank you. Our next question comes from the line of [indiscernible]. Your question please..

Hey guys, good morning, and thanks for taking the question. Just one quick one here. I know the class of 2015 had a lot of Midwest openings and we're talking the past of those were a bit slower ramp.

Any update on how the stores are doing and if they're getting closer to company at averages and it could that be helpful for the back half of the year? Thanks..

Good.

So the Midwest performs below the Company average anything about a company average in the - 260 plus or minus range the Midwest performs or in the $210, $220 type range and so you know even if they got up to the Midwest average we'd be happy as we've noted before they were performing below the Midwest average they continue to perform below the Midwest average but they are ramping up year-over-year.

So we're seeing improvement in those versus last year but it's still you know well below and I think that's just kind of gets into some of the enthusiasm we had in our Plan B strategy is that we know that portfolio of available stores out there the universe includes stores and markets in geographies that are less attractive for a number of reasons and so we remain encouraged by the - especially in the southwest and southeast that are going to have a higher volume.

So happy they're improving but they're still below the Midwest average which performs below the network average..

It's great to hear. Thanks for the time and nice quarter..

Thank you..

Thank you. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Andrew Clyde for any further remarks..

Right. Well, thank you all for the call great questions today. I appreciate your interest in Murphy USA and just a heartfelt thanks to all our team associates out there that are working hard to deliver these results Thank you and have a great day..

Thank you. Ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day..