Murphy USA - Q2 2023

Transcript

Operator (participant)

Good morning. Welcome to the Murphy USA second quarter 2023 earnings conference call. My name is Brianna, and I will be your conference operator today. Please note that this call is being recorded. All lines have been placed on listen-only mode at this time. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, please press star followed by one on your telephone keypad. To withdraw your question, again, press star one. I will now turn the call over to Christian Pikul, Vice President of Investor Relations. Please go ahead.

Christian Pikul (VP of Investor Relations)

Yeah, thanks, Brianna. Good morning, everyone. Thank you for joining us all 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 then 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 relevant 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'll turn the call over to Andrew.

Andrew Clyde (President and CEO)

Thank you, Christian. Good morning, and welcome to everyone joining us today. We are excited to discuss our exceptional second quarter performance, which reaffirms the strength of our strategy and business model and our enduring commitment to driving sustainable value for all our stakeholders. Murphy USA reported another impressive quarter of financial results in Q2, underpinned by continued strength across all major categories. Beginning with fuel, we achieved nearly flat APSM volumes in Q2, including positive volumes in May and June, as we held market share gains achieved last year and continued to outperform the OPIS volume survey in our geographies. We built on merchandise sales and margin momentum, led by total volume and market share gains in tobacco, and sales and contribution growth in non-tobacco categories.

Tobacco share grew across all subcategories as we continued to promote and provide affordability to our customers, while our non-tobacco category saw broad-based strength, led by energy sales up 21% and units up over 13%. Food and beverage across the enterprise also accelerated in Q2, with sales and margins up 6% and 3%, respectively. Despite some of the traffic challenges that continued to impact the Northeast, our QuickChek stores posted record food and beverage sales in Q2, with record margin months in May and June. On the cost side, our already low-cost model saw per-store operating expense growth of less than 4% in Q2 as we continued to leverage our scale, reduce overtime, and lap targeted wage increases from the prior year. Notably, as inflation eases, associate engagement remains high as together we focus on our mission to help customers affordably meet their nondiscretionary needs.

If I take a step back and consider the relatively benign external operating environment of the second quarter with nothing extraordinary taking place, then think about the high bar we are lapping from the prior year period, I view our results as even more exceptional. Turning specifically to fuel margins, the past three years can be characterized by exogenous events, including pandemic-driven demand destruction, geopolitical instability, severe volatility, steeply rising prices, and precipitous price falloffs. Each and every quarter was distinct in its own way. The one constant has been significantly higher fuel margins as the industry supply curve steepened due to cost and traffic headwinds for marginal retailers. Some investors and even analysts have been reticent to believe that higher margins are sustainable, and they wanted to see the results in a more normal period.

Well, following three years of macro uncertainty and one-time events, there was absolutely nothing remarkable about the environment in Q2. In fact, the only thing you may find remarkable about the quarter is that we are once again reporting all-in fuel margins on the high end of our range at $0.295 per gallon. In recent months, more investors and analysts have asked me, "Are we really still debating higher fuel margins?" My answer, of course, is no, we are not. There is no internal debate at Murphy USA. The answer to us appears quite clear. Looking ahead, while we do not know the market dynamics that will define the rest of Q3, we do not expect a quarter as remarkable as the third quarter of 2022.

During Q3 2022, we achieved significant share gains, growing total gallons over 13% at all-in margins of $0.38 per gallon, while peers reported flat or declining volumes. We have stated previously, these exceptional prior-year gains and high margins are not repeatable in a normal quarter, but were instead the result of a prolonged period of rapidly falling prices that we only witness every six, eight years. I don't particularly like talking about two-year stacks, we know that Q3 will be a difficult comparison and want to set expectations accordingly. A hypothetical, flat same-store gallons in Q3 this year would result in an industry-leading two-year stack of 9%, while declines as high as 4% would still likely lead peers with a two-year stack of 5%.

Internally, we are focused on sustaining last year's share gains while continuing to drive traffic to our stores through our loyalty program, in-store promotions, and overall pricing strategy. While fully maintaining Q3 share gains would be an ambitious goal, where we would need some help from the macro environment, I do believe that any two-year stack for fuel volumes greater than 5% would demonstrate strong execution against our long-term strategy. Turning to merchandise, as I mentioned at the beginning of this call, we are really pleased with the second quarter performance and seeing that momentum continue into the second half of the year. I believe the strong results speak for themselves, so I want to spend a little bit more time today talking about the exciting aspects of the QuickChek integration and how synergies and other benefits are manifesting across the enterprise.

We are in the early stages of recognizing significant benefits from product and menu innovation, as well as enhanced promotional and marketing activities to help improve store performance, particularly in the food and beverage categories. The combined learnings of both companies are coalescing into sustainable and material performance drivers of the business. So I want to share some examples on this call. Starting with branded products and promotions, we are creating new opportunities to engage with our customers outside of fuel and tobacco. We think this is a significant building block upon which we can implement further improvements to in-store traffic and profitability. As an example, we saw strong sales from a limited time, made-to-order watermelon smoothie at QuickChek, which was subsequently reimagined and introduced as a limited time offer, Sour Patch Kids branded frozen slushie product at Murphy USA stores.

Similarly, edible cookie dough and brownie bite cups, first introduced in the QuickChek open coolers, were quickly followed up at Murphy stores. Having successfully increased the level of promotional awareness of QC's two for $5 breakfast sandwiches, where we grew both sales and margins by 11% in the quarter, we have introduced similar two for promotions for Murphy Grab & Go items across multiple categories and day parts. We expect to accelerate the use of promotions and limited time offers across the enterprise in the second half of 2023, giving customers even more reason to come inside our stores. Turning to innovation, the QuickChek format is the perfect test-and-learn environment to identify high-potential products that have strong overlap with Murphy USA customers. The QuickChek team has been leading these innovation efforts.

For instance, we developed products with well-known national brands, including a new and exclusive sugar-free frozen energy drink with PRIME, and partnered with Red Bull on both iced and exclusive to QC, frozen flavored infusions, creating a new traffic-driving and basket-building category in store at QC. In addition to the introduction of Nitro Coffee at QC, these innovations are expected to lead to new dispensed beverage options at Murphy-branded stores. We also continue to innovate in our growing core categories, where the made-to-order menu at QC is being realigned with consumer insights and fresh product preferences. This will lead to some exciting new sandwiches, signature sandwiches, to be introduced in the second half of 2023. Maintaining a differentiated offer is vital, not only to customer engagement, but to encourage customer retention.

We need to give customers more reason to come into our stores and even more reasons to want to come back. As we incubate and unleash this innovative mindset across the enterprise, we are increasingly excited about the future opportunities to impact store performance. Turning to marketing and other customer-facing improvements, with the right products and the right amount of innovation, clearly communicating and presenting our improved and then distinctive offer to customers is becoming increasingly important for both QuickChek and Murphy USA. From a visual marketing perspective, through the insights learned from our in-store experience campaign, we recently kicked off a series of retrofits on existing 2,800 sq ft stores, featuring a new layout based on learnings from QuickChek. Selling space is optimized, allowing for easier traffic flow.

Queuing lanes have been added that promote impulse sales and reduce congestion around the register, while at the same time, we improve lighting and signage. This layout is specifically designed around driving food and beverage sales at Murphy stores, enabling access to more desirable assortment of high-quality grab and go, grab and reheat and go, and self-serve dispensed beverages that are more accessible, visually appealing, and relevant to our customers. With the right assets in the right places, selling the right products, managed by the right people, we are in a unique position as a company to fully realize benefits and more intentionally drive food and beverage sales through targeted marketing strategies that go beyond our most effective marketing tool of everyday low prices.

We are in the early stages of further leveraging our digital assets to unlock significant value inside the store through machine learning test, and we are more and more excited about the potential of the combined business. I'm now going to hand the call over to Mindy to briefly review the financial results, and then we will wrap up and open up the call to Q&A.

Mindy West (EVP and CFO)

Thanks, Andrew. Good morning, everyone. Revenue for the second quarter of 2023 was $5.6 billion versus $6.8 billion in the year ago period. Adjusted EBITDA was $257 million versus $317 million in the second quarter of 2022. Net income for the second quarter was $132.8 million, or $6.02 per share, versus $183.3 million, or $7.53 per share in the prior period. Average retail gasoline prices were $3.21 per gallon versus $4.21 per gallon in the year ago period.

Total debt on the balance sheet as of June the 30th was approximately $1.8 billion, of which approximately $15 million is captured in current liabilities, representing 1% per annum amortization of our term loan and the remainder of reduction in long-term lease obligations as they are paid through operating expense. Our $350 million revolving credit facility had a zero outstanding balance at quarter end and is currently undrawn. These figures result in gross adjusted leverage, which we report to our lenders of approximately 1.7x. Finally, cash and cash equivalents totaled $93 million as of June the 30th, up about $30 million since year-end, net of $142 million of capital spend and $108 million of share repurchase, clearly demonstrating the accretive benefits of our positive free cash flow business.

With that, I will hand it back over to Andrew.

Andrew Clyde (President and CEO)

Thanks, Mindy. In keeping with recent tradition, I'd like to close with some insights around preliminary July performance. As in any single month comparison, remember, performance is partially dictated by the price environment we encounter. In 2022, we witnessed steeply falling prices, which are very conducive to elevated margins, supporting our ability to create price separation versus competitors and take share. This July, prices were actually up around $0.50 per gallon, which historically suggests a more challenging volume and margin setup. However, despite that move in prices, I'm pleased to say that retail-only margins averaged around $0.25 per gallon in July, moving north of $0.30 towards the end of the month and into the first few days of August. That is before the additional benefits we would expect to report from PS&W in a rising price environment.

Per store volumes are approximately 96% of prior year and 104% of 2021, demonstrating sustained market share gains over the two-year period. While it is somewhat shocking to see our internal daily reports highlighting that margins on many days during July were only 50% of the same day a year ago, we are very comfortable with the persistent structural equilibrium in the industry and the margins we are realizing. As managers and owners of the business who are truly invested for the long term, while the exceptional 2022 results present a challenging comp, we are encouraged by the higher earnings power and cash flow generation of the business in a highly stable environment, and the significant upside potential for outsides earnings and cash flow when volatility returns. With that, operator, we can open up the lines for questions.

Operator (participant)

Thank you. At this time, I would like to remind everyone, in order to ask a question, please press Star, then the number one on your telephone keypad. Our first question comes from Anthony Bonadio with Wells Fargo. Your line is now open.

Anthony Bonadio (Executive Director)

Yeah. Hey, good morning, guys. Thanks for taking our questions. I know we're still a couple quarters away from 2024 guidance, but as I look at the 2027 targets you've given, that seems to imply something like 7%-8% compound EBITDA growth from that $900 million midpoint you talked about this year. Is that sort of the right way to think about the base case growth algo into next year? Anything you can add as we think about possible benefit from strategic investments and other puts and takes would be helpful as well.

Andrew Clyde (President and CEO)

Yeah, that's great. Anthony, we really break down that bridge in 3 steps. We have new stores and raze and rebuilds, and a cadence for those, and with a run rate expectation of 50+ stores, 25-30+ raze and rebuilds, there's incremental EBITDA growth at higher per store comps, whether it's fuel volume, merch sales, et cetera, and that's the single largest component of that growth. We do expect this industry supply curve break even equilibrium to continue to see fuel margins go up year-over-year. We've built in, in that algorithm, you know, small increases that we would expect to capture going forward.

Then the third component are the specific campaigns that we've launched for the business, whether it's around our in-store experience, whether it's around the digital transformation, the food and beverage innovation that we've talked about, the machine learning tests we're doing around promotion, the reimagined 2,800 sq ft store, and the retrofits we're doing. All of those things come together to complete the walk towards that $1.2 billion goal.

Anthony Bonadio (Executive Director)

Got it. That's really helpful. Then just quickly on volumes, APSM gallons were down, but clearly a lot less than some of us were modeling, and clearly improved from April. I guess, how should we think about the path of gallons from here now that we've lapped last year's price peak? Then can you talk about what you're seeing in terms of share retention? You seem to be hanging on to a lot of last year's share gains. Any way you can frame that in more detail would, would certainly be helpful.

Andrew Clyde (President and CEO)

Sure. You know, as we, as, as we noted, Q3, certainly the latter part of Q2, was just an exceptional environment last year to gain market share, right? You've got, you know, margins that were north of $0.50 per gallon as prices come down. We're just in a unique position to separate in a very, very high price environment. You know, one of the things around share gains that we've mentioned, and it's worth iterating, is our customers view fuel, tobacco, and many of the items they buy from us as nondiscretionary purchases. I would say with the value brand QuickChek represents, their outstanding food and beverage offer is also a nondiscretionary, you know, set of purchases.

When you see higher prices at other retailers, whether it's high or low price environments, and look, we're still in a relatively high price environment, at $80 a barrel crude prices. We're not back down to below $2 a gallon. Consumers remain pressured, and we continue to add consumers, whether it's in our fuel category or tobacco category. If you take away sort of the once in every six, eight year events, like we saw in Q3 of 2022, we saw in 2014, we saw in 2008, when crude oil prices fall sharply, as long as prices remain elevated and consumers remain pressured, our everyday low price offer is going to win, not just across fuel gallons, but across other categories as well.

Of course, those categories, reinforce each other.

Anthony Bonadio (Executive Director)

Thanks so much, guys.

Operator (participant)

Our next question comes from Ben Bienvenu with Stephens. Your line is now open.

Ben Bienvenu (Food and Agribusiness Research Analyst)

Hey, thanks. Good morning, everybody.

Andrew Clyde (President and CEO)

Morning, Ben.

Ben Bienvenu (Food and Agribusiness Research Analyst)

I want to drill in a bit, if we could, on the station and other operating expenses. Andrew, you noted in the quarter, you know, growth, ex credit card fees, up 4%. That's certainly a, a trend of moderation. It sounds like we should expect continued moderation going forward, but maybe help us think about where the continued opportunities are there and what kind of the slope of that trend line might look like.

Andrew Clyde (President and CEO)

Yeah, certainly, we've talked over the last, you know, two, three years about some of the challenges that we faced, also some of the one-time things we did to support our associates, who make all the difference in the world. You know, that, that was the main reason for updating guidance over the last 3 years in Q2, was to call out exceptional things that we were seeing or intentionally doing around operating expenses. We didn't call out anything or update anything this year in Q2 on OpEx, because we expect to stay within that, you know, guidance for, for the, for the full year. We're lapping some of the wage increases, staffing's improving.

You know, there are still challenges, you know, out there, to, to say the least, but, you know, we feel, you know, comfortable that some of those pressures are indeed moderating. As you could expect, you know, Q3 absolute, OpEx is higher because of the driver seats and greater transactions, et, et cetera, but on a, on a relative basis, we would expect to, you know, see these trends continue.

Ben Bienvenu (Food and Agribusiness Research Analyst)

Okay, great. My second question is on merchandise, and in particular, around merchandise margins. I know total merchandise margins were down year-over-year, but that, that really seems to be a function of mix, with tobacco continuing to grow, at a faster rate than, than certainly we were expecting. Maybe if you could talk about some of the opportunities and the glide path for margin expansion within each specific merchandise bucket versus the total, because I know, you know, the, the top line growth has a bearing on the total margin.

Andrew Clyde (President and CEO)

Sure. As you, as you rightly point out, you know, strong tobacco performance and significant share gains versus industry declines drive that total unit margin, you know, down. Within tobacco, you know, we continue to see improvement across all the categories. As we think about the, the more innovative, lower-risk products, those tend to come at much higher margins as well. There's improvement with those categories, and certainly with our leading, you know, market share position, we are best able to help with the transition towards those products at higher margins. On the non-tobacco side, you know, if you start thinking about packaged beverage, energy drink performance is really, really strong. As we noted, up 13% in units, up 21% in sales for the quarter.

You know, again, at attractive margins relative to some of the historical packaged beverage items. With the, you know, reset of our stores, as we think about the retrofits of the 2,800s, as we think about the queuing lanes and the impulse items, there's a lot of high-margin items in that space that we would expect to see improve. You know, importantly, you know, food and beverage, not only at QuickChek and Murphy, posted really strong results.

You know, I think the offer that we are moving towards on the Murphy side, where we've got a better positioned, you know, better set up for condiments, et cetera, for grab and go, grab and reheat and go, our dispensed beverage, our bean to cup coffee, all the self-serve items there versus the made to order or made to stock items at QC, we're really seeing that performance turn around, and that's a source of higher margins as well. I think, Ben, across the board, you know, we're gonna continue to see sales-... gains, market share gains, and the intentionality behind the efforts, you know, should start leading to merchandise margin gains.

If the tobacco team gets in a competition with the non-tobacco team, and we see the same mix issue, as long as total margin dollars are going up, I'm not gonna get in, in the middle of that one.

Ben Bienvenu (Food and Agribusiness Research Analyst)

Yep. Okay, understood. Very good. Thanks for taking my question.

Andrew Clyde (President and CEO)

You bet.

Operator (participant)

Your next question comes from Bobby Griffin with Raymond James. Your line is open.

Bobby Griffin (Managing Director of Equity Research)

Hey, good morning, everybody. Congrats on a, a good quarter and another strong market share performance. Andrew, I guess I, I just wanted to kind of maybe circle back there, on the merchandise side of things. It, it does seem like that it's starting to kind of accelerate, especially the cross learnings between the two concepts. Is there any further capabilities that you guys need to build out, between the two concepts now with QuickChek? Or is it really kind of now plug and play, where you can move very fast and at a, at a faster speed when you see something working in one area and move it to the other side of things?

Andrew Clyde (President and CEO)

Yeah, it's a good question. I mean, we're, we're in the early stages of, of that. I mean, I was at the Dallas-Fort Worth store that has the 2,800 retrofit, and we had Jack Hammers going a week ago Sunday, and we had the new offer in place, you know, this past Sunday. The store looks great. It's visually more appealing. The grab-and-go dispense beverage items are so much better highlighted, better positioned on the back wall. The queuing lane looks fantastic. The merchandise looks great. We've got stores in two other regions that we've started that pilot on. At the same time, we're looking at a new concept for a 2,800 store. We call it our Store of Tomorrow.

You know, that'll be in 2024, but we've done the work to identify the what needs to change, how it needs to be positioned, the items that need to be in there. A lot of the learning that I mentioned on the call, they're simple things, but having limited time offered frozen slushies at Murphy and that whole LTO concept, the marketing behind that, digitally and otherwise, are all capabilities that we're building off of. You know, the digital transformation work we've talked about, that's not only enhancing, you know, the Murphy Drive Rewards and, kind of redesigning the QuickChek loyalty program, is also taking advantage of the fact that we've, you know, digitized our business in terms of the insights from all of our transactions.

Now, how do we digitally optimize promotions, identify unique customer DNA strands, et cetera? The machine learning tests that we're doing around a variety of promotions is another area that we're still in the early stages, but have built the data foundations, the analytical tools, the learning capabilities inside the organization to do. There are just more and more categories, subcategories, products that we can point that to. The other thing I would say is just, just the new stores and how they're comping and the raise and rebuilds when they come back on, have a tremendous impact on the performance of the merchandise categories as well.

I think if you go back to Anthony's question, the biggest part of our EBITDA growth from now to 2027, 2028 of $1.2 billion is from innovation and growth, right? Because we are growing and improving with such a strong, you know, cost base and business model to start with, we do expect to keep more of the industry margin that gets passed through in that time period, because the marginal players in the industry are unable to make these same types of investments because they lack the scale, and the team, and the capabilities to be able to do that. I really do think of these things as all coming together in a very serendipitous way over the next few years to deliver that kind of EBITDA growth.

Bobby Griffin (Managing Director of Equity Research)

Thank you. That's helpful, and that was actually part of my second-- part of the question was gonna be on new store productivity, but it seems like, to take the context from your response, that the new bigger stores' productivity, in the first 12 and 24 months is ramping up well?

Andrew Clyde (President and CEO)

It absolutely is. We, we look at the ramp after three months, and the 12th month, 24, 36 month periods all look very good. When you look at the build classes that have completed that 24 to 36-month ramp, they're all performing well above the same, the same format. It's a tribute to the better real estate locations that we've identified for, for those stores. Some of our new QuickChek stores are already in the top five of the best QuickChek stores in the network, and so we see the similar type opportunities there.

Bobby Griffin (Managing Director of Equity Research)

Thank you. I appreciate the details. Best of luck here on finishing out the rest of the year.

Andrew Clyde (President and CEO)

Thanks, Bobby.

Operator (participant)

Again, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. Your next question comes from Bonnie Herzog with Goldman Sachs. Your line is now open.

Bonnie Herzog (Managing Director)

All right, thank you. Hi, Andrew.

Andrew Clyde (President and CEO)

Good morning.

Bonnie Herzog (Managing Director)

Good morning. I was hoping for a little bit more color on a comment you made regarding some of the promotions you're doing in tobacco.

I, you know, I'm just trying to think through that and just kind of looking at margins, which might have been a little bit pressured and wondering if that's played a role there. Maybe you could talk through sort of your strategy with, you know, balancing profitability within your tobacco merchandise with, you know, the share gains that you've been realizing.

Andrew Clyde (President and CEO)

Sure. Well, look, the first thing I would say is let's just look at the results relative to the industry. You know, total volume was up almost 2%. You know, I think the industry declines have recently reported, it's been down 8%.

Bonnie Herzog (Managing Director)

Yeah.

Andrew Clyde (President and CEO)

Guess what? That was the exact same thing we saw last year in Q2. On a relative basis, we're up 4%, where the industry is down 20%.

Bonnie Herzog (Managing Director)

Mm-hmm.

Andrew Clyde (President and CEO)

It, it's a lot like fuel. We're... You know, you noted we were down 2%, you know, on a four-year stack, but if you look at that same OPIS data, the industry's down almost 19% over that period. Our goal is to continue to grow share, grow volume, and do it profitably. In the environment where others are focusing less on these categories, whether it's fuel or tobacco categories, it presents an opportunity for us to take share and win. The margin rate could be a function of a number of things, like the mix between-

Bonnie Herzog (Managing Director)

Mm.

Andrew Clyde (President and CEO)

... cigarettes, smokeless, other tobacco products, where we are achieving record market share performance and continuing to grow that. There could be specific promotions in the quarter that if it's introducing a new nicotine pouch, for example, it may be designed in such a way where margin is, you know, accelerated, and then when you have that next year comp against that, it looks different. And certainly, just the mix between cigarette gains, smokeless gains, and other-

Bonnie Herzog (Managing Director)

Mm.

Andrew Clyde (President and CEO)

... tobacco gains can impact the overall margin rate. What I would say is, our goal is to continue to invest and grow in the category, participate in its transition, do that in a profitable way, taking share along the way. As the everyday low price retailer, what we're not gonna be doing is saying, "Well, let's go try to get another, 1% or 2% margin rate and then lose that everyday low price positioning." It's really no different in fuel either, a very similar, highly elastic category, where if you're at the bottom of the market, you've got to be the everyday low price. We can't afford to price up one or two pennies because of the volume impact that would have.

Bonnie Herzog (Managing Director)

Okay, that definitely makes sense. Thanks for that color. Then, I guess my second question, you know, hoping you could just, you know, talk a little bit about your capital allocation priorities. You know, I think you've previously mentioned a 50/50 split between share repurchases and, you know, reinvestment back into your business. You know, in the quarter, you, you definitely bought back your stock, and you've maybe stepped it up a bit. Just wanted to check in with you on, you know, how we should think about, you know, the, you know, outlook, if you will, between your, you know, buybacks and reinvestments. Then definitely wanted to hear your thoughts on, you know, the current M&A environment and your interest, you know, your potential interest in future M&A. Thank you.

Andrew Clyde (President and CEO)

Yeah, our algorithm hasn't changed. You know, a lot of people will look at last year and, you know, I would remind folks of our comment that if we generated excess free cash flow from highly elevated margins, we would direct that towards share repurchases, our primary vehicle for returning capital to shareholders. You know, I would say we've-- you know, we're maintaining that, you know, broadly 50/50, you know, allocation, and you would expect to see that over any kind of 12-24 month period. Really nothing has changed there. Look, if crude oil prices go from $80 to $100 to $120 a barrel and then fall sharply, and we get a once in every 6-8 year event-

Bonnie Herzog (Managing Director)

Mm-hmm.

Andrew Clyde (President and CEO)

... you know, every 2 years.

Bonnie Herzog (Managing Director)

Yeah.

Andrew Clyde (President and CEO)

... you know, we'll have the same answer. We'll direct the excess free cash flow to share repurchase. You know, in, in terms of M&A, you know, certainly with the QuickChek acquisition, we see a lot more deal flow than we did before. You know, I would say there's a lot of, you know, chains out there that are, you know, selling at peak margins, but they're not everyday low price retailers. They're formats that are old. You know, we look at things like the age of tanks and the need to replace them after 25 years. You know, a, a chain that's highly concentrated in a market, you wouldn't be able to move those stores to our everyday low price model. We're highly conscious, Bonnie, of-

Bonnie Herzog (Managing Director)

Mm.

Andrew Clyde (President and CEO)

looking at things that would have a fit, right? From a consumer value proposition standpoint, is the entire enterprise gonna be focused on the mission of delivering value? You know, having a high price and a low price retailer under the same roof with different mindsets around who the customer is and how you deliver value, would be challenging. So there's just not very many, you know, retailers out there that are in a position, to sell that kind of meet that criteria. In fact, you know, those that share that mindset are some of the best-run private, retailers.

Bonnie Herzog (Managing Director)

Mm.

Andrew Clyde (President and CEO)

They're, they're, they're growing, and they're great competitors and certainly, respect those, organizations, and I don't think they're selling anytime soon.

Bonnie Herzog (Managing Director)

Right. Makes sense. Thanks so much.

Andrew Clyde (President and CEO)

You're welcome.

Operator (participant)

There are no further questions at this time. With that, I will turn the call back to Andrew Clyde for closing remarks.

Andrew Clyde (President and CEO)

Great. Well, thanks, everyone, for their questions today. I think as we noted last year, and we've noted throughout this year, you know, we're heading into a period of a difficult comparison. I would just encourage folks to take the three to five-year view of where this business is positioned to go, the earnings and free cash flow generation that is going to create, and recognize the initiatives that we continue to demonstrate proof points around that will take us there. Again, thanks for joining today and your continued interest in Murphy USA.

Operator (participant)

This will conclude the conference call. Thank You for joining us today. You may now disconnect.