Christian Pikul - Director of Investor Relations Andrew Clyde - President and Chief Executive Officer Mindy West - Executive Vice President and Chief Financial Officer

Ben Bienvenu - Stephens Ben Brownlow - Raymond James Bonnie Herzog - Wells Fargo Chris Mandeville - Jefferies Ryan Domyancic - William Blair

Hi, great. Thanks, Kelly.

Good morning, everyone. Thanks for joining us today.

With me as usual are Mr. 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’ll discuss our 2018 guidance and then 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 any 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 press release, which can be found on the investors section of our website. With that, I will turn the call over to Andrew.

Thank you, Christian. Good morning, and welcome to Murphy USA's fourth quarter 2017 conference call.

I assume you have all read through our press release regarding our fourth quarter and full year 2017 results, so I will keep my comments and remarks brief in addressing the quarter and full-year performance. I want to make sure we have ample time to discuss 2018 guidance and take as much Q&A as time will allow.

There are four main takeaways I do want to start with. First, our business model remains very resilient.

I’m very pleased with the resilience of the business and how it’s demonstrated over the past year overcoming a difficult first quarter that caused us to revise our guidance and then persevering through severe events that impacted our stores, our employees, and the communities we serve. As shown in our year-end results, we delivered 2017 EBITDA of $406 million, delivering results within not only our revised guidance range of $340 million to $410 million, but also within our original guided range of $400 million to $450 million.

To get there we got help from our fuel business to our buyers towards margin capture around the disruptions, as well as strong second half and Q4 results from our merchandise categories. Further, while under pressure in the first quarter of 2017 showing $0.00 per gallon margin contribution, the product supply and wholesale activities prove the ability to continue generating between $0.02 to $0.03 per gallon annually to our total fuel contribution margin in-line with our long-term guidance.

This business will always be subject to headwinds and regulatory uncertainty, which is why we have built a strategy operating model and balance sheet that can perform in a variety of market environments. In 2017, we once again prove that resilience.

Second, we continue to find ways to add value to the business. Total merchandise contribution was up $17 million in 2017 as we began to recognize the benefits of our year-long initiatives around optimizing value from our promotional offers and supporting key categories to drive better results.

Notably, this improvement in merchandise, which shows a 4.4% increase in average per store month margins in the fourth quarter comes despite lower fuel traffic and transactions. We are showing balance and sustainable growth in all categories, across all formats, so we are excited about the momentum we are bringing into 2018.

I also want to speak about tobacco specifically as Q4 results showed strong customer engagement from our promotion that generated very impressive response rates and help drive same-store margins up 6%. This level of customer uptake, which registered over 1 million unique participants in an 8-week time frame is a positive indicator of the kind of impact we believe a wider Murphy USA loyalty offer can generate.

We remain on track with our pilot for the end of Q1. We further bought the industry trends and expanded our net store contribution and fuel breakeven requirement metric as we continue to cut per store operating expenses.

As shown in the table on Page 3, station operating expenses, excluding credit card fees average $20,800 per month in 2017, down from $21,400 in 2016 or a 2.6% improvement resulting in approximately $10 million of the financial benefit. From a fuel perspective, 2017 was a relatively healthy year for margins as we price to maximize fuel contribution especially in periods of disruption versus pricing for volume in a competitive marketplace.

As we compete for customers with larger number of low price operators, our volumes are going to continue to be under pressure. We will fight for our customers and customer visits with our refresh stores, outstanding customer service, our loyalty program and with an enhanced offer in our stores, which brings me to the third point.

We are a moderating our rate of new store growth, while transforming our real estate strategy. We expect to build fewer new stores in 2018, and this is really a function of several factors.

First, it is more difficult to generate acceptable returns with higher land cost, and escalating building cost. Even with some of the improvements we have made, fewer locations of the same type will meet our return hurdles as we continue to allocate capital in a highly disciplined manner.

Second, a lower rate of growth was always and outcome of Plan B that we announced in early 2016. I’ve been on record saying this is a finite growth business since we spun in 2013, and while there are still very attractive markets to build new stores we must remain deliberate and where we choose to build and the offer we are providing customers.

As we take a longer-term view of the marketplace, we see more value in pursuing infield strategies and stronger markets versus dogmatically building our stores within the halo of Walmart Super Centre. Walmart remains a world-class retailer and traffic aggregator and they continued to draw customers to their brick and mortar stores, but attractive locations are not exclusive to collocating with the Walmart and there are fewer good locations left.

Thus, we have retooled our real estate strategy to put the right assets in the right locations to generate the right returns and better compete for customer visits, while staying within our capability set. The fourth and final takeaway is, we are well positioned as we enter 2018 with a strong balance sheet and free cash flow profile to continue the execution of our capital allocation strategy.

Our direct outcome of a reduced capital budget is of course more free cash flow, coupled with a lower effective corporate tax rate we are in our very strong position to continue allocating capital to the best returns, which includes share repurchases, as well as internal investments to support new initiative focused on driving additional value from our existing network of assets. Our leverage remains comfortably yonder 2.5 times, giving us financial flexibility and option reality as we head into 2018.

And with that, I will turn things over to Mindy, and then conclude with a discussion of our 2018 guidance.

Thanks Andrew, and hi everyone. Revenue for the fourth quarter and full year totaled $3.4 billion and $12.8 billion respectively, versus $3.1 billion and $11.6 billion in the prior period.

This was largely attributable to higher product prices and to a lesser extent, higher merchandise sales. Average retail gasoline prices per gallon during the fourth quarter and full-year were $2.27 and $2.19 respectively, versus $2.03 and $1.93 in 2016.

Adjusted earnings before interest, taxes, depreciation, and amortization or EBITDA as previously mentioned was $99 million in the fourth quarter and $406 million for the full-year. This compares to $103.2 million in the fourth quarter of 2016 and $400 million for the full-year.

Net income was up significantly for the quarter, due to an $88.96 million deferred income tax benefit as a result of the required revaluation of our existing deferred tax liability in accordance with the new lower federal tax rate. As a result, the effective tax rate for the full-year 2017 was a negative 2.2% versus 37.1% in 2016.

Total debt on the balance sheet as of December 31 was $881 million, broken out as follows. Long-term debt of $861 million consisting of $494 million carrying value of our 6% notes, due 2023, $299 million value of our 5.625% notes due in 2027, and $72 million remaining on our $200 million term loan, and in addition we are carrying $20 million of expected amortization, amortization under that term loan in current liabilities on the balance sheet.

Using these figures in 2017 EBITDA of $406 million, our leverage ratio approximates 2.14, which is roughly the same as it was last quarter. Our ABL facility remains in place with a $450 million cap subject to periodic borrowing base determinations currently limiting us to $258 million at year-end.

And at the present time that facility is undrawn. Cash and cash equivalents totaled $170 million on December 31, resulting in net debt of approximately $711 million.

During the quarter, we repurchased 712,000 common shares for approximately $54 million at an average price of around $76 per share, completing our previously announced $500 million share repurchase plan within the stated two-year timeframe. That means, upon completion of that program we continue to repurchase shares in the open market, approximately $29 million worth in the fourth quarter to end the quarter with $54 million in repurchases.

We have since spent an additional $17 million on repurchases so far in 2018. As we said in our earnings release, we remain committed to share repurchases and we expect to conduct future repurchases in the same disciplined way, framed by our shareholder value model, and for quarterly amounts consistent with our past history subject of course to available cash balances and other demands on capital.

There were 34.1 million common shares outstanding as of December 31, 2017. So that brings us to CapEx.

CapEx for the quarter, $61 million bringing year-to-date CapEx to $274 million. As we will further address in the guidance portion of this call, our expected capital spending in 2018 will fall within a range of $225 million to $275 million.

That consists of approximately $175 million for retail growth, approximately $40 million for maintenance capital with the remaining funds earmarked for other investments, including various corporate initiatives and completion of our home office remodel. That concludes the financial update.

So, I will turn it back over to Andrew.

Thanks, Mindy. So, let’s review our 2018 guidance and we’re going to use our value creation formula components as a guide to that.

So, starting with organic growth we’re targeting up to 30 new stores and up to 25 raise and rebuild locations in 2018. This is versus 45 new stores in 21 raise and rebuilds in 2017.

And there are several points I want to make around our new store activity. Building fewer better stores is a direct and intended outcome of Plan B if you recall our dialogue around the decision to build only express branded sites back in early January of 2016.

We also took a judicious look at our Midwest stores and markets within that geographically and decided in many cases the return is just not there for continued new build investment in those markets. Third, in an industry that has seen a lot of new build brick and mortar activity in the past several years, we remain disciplined with our capital and will not grow just for growth's sake.

We remain disciplined with our investment and we believe 2% to 3% unit-growth is in line with other successful retail strategies that focus on quality over quantity. As such, we will continue investing in market before we can generate good returns and continue to upgrade our network through a raise and rebuild activity.

2018 will be bit of a transition year with respect to our real estate program. We want to put the right assets in the right location to generate the right returns and that means we are focusing on the strongest markets to both sue in fill activity in high-quality locations that may or may not be in close proximity to a Walmart.

Logical outcome of the strategy is to build largest stores than our previous 1,200 square foot locations, which in many cases were limited by the size of the lots we acquired near Walmart. We are optimizing our merchandise offer in a more efficient floor plan to provide 90% of the product that’s in our larger format, 3,400 square-foot stores into a roughly 2,800 square-foot box that can still be built modularly and efficiently.

We will begin building some of these larger stores in 2018 and 2019 as our real estate team develops the pipeline for 2020 and beyond. As with all over investment decisions, we will continue to be disciplined about our brick and mortar growth as one lever of our capital allocation strategy designed to maximize shareholder value.

Moving on to fuel contribution, we are adding a new guidance metric this year, total fuel contribution dollars, which is simply a product of our range of total fuel volumes at the range of expected margins. For the full-year, we have provided a wide range of outcomes from $575 million to $700 million, which won't necessarily help your modelling, but as a function of the volatile margin environment in which our business operates.

We are providing annual retail fuel volume guidance of $4.1 billion to $4.3 billion gallons per year, which is a direct output of our average per store month volume guidance of 235,000 to 245,000 gallons per month. Given 2017 actual average per store month volumes of just over 245,000, we continue to expect downward pressure on volumes, as long as industry newbuild activity continues at the pace we have seen in the last several years.

While some notable competitors like Walmart have dramatically reduced their brick and mortar investment at both neighborhood markets in Supercenters, other public and private convenience store operators continue to open new stores in areas we operate. Although we expect some of the competitive pressures to diminish going forward, we expect lower volumes as a result of a highly saturated and competitive market, while still generating three times the industry average with our low-price position.

We do have a number of volume enhancing initiatives underway, but we have not factored those yet into 2018 guidance. From an all-in margin perspective, including our PS&W activities plus RINs, we expect a range of $0.14 per gallon to $0.165 per gallon versus the $0.1637 cents per gallon we delivered in 2017.

With the run-up in oil prices, we believe the market presents more balanced opportunity for continued volatility as prices seesaw between periods of OpEx cooperation and U.S. Shale expansion, as well as other factors.

Moving on to fuel breakeven and starting with merchandise. On the merchandise side of that equation, we will continue to see growth in contribution dollars.

We are guiding to the same sales ranges as 2017, due to downward pressure on the tobacco category from a topline perspective. However, tobacco margins have remained stable, due to manufacturing pricing, promotional programs and new products that we take advantage of.

And when coupled with higher non-tobacco sales and margins, we were guiding margin contribution to $390 million to $400 million from a sales range of $2.4 billion to $2.45 billion. As a final caveat around merchandise performance in 2017, I will point out that we exited a couple of product categories that made the comp a little bit more difficult in 2017 that we haven't discussed before.

The heightened customer security and reduce unnecessary complexity in our merchandise offer, we no longer sell fuel additives blended at the pump, nor do we sell certain brands of prepaid gift cards that were susceptible to fraud. As such, the non-tobacco side of the business actually performed even better than the year-over-year comp suggest.

The second component of the fuel breakeven equation is the retail station OpEx expenses incurred at the store level in certain fuel functions supporting the store network. Our long-term stated goal is to beet inflation which sets the brackets on our guided range of a 0% to 2% increase in operating cost.

We still have meaningful value creation opportunities ahead of us, and we will still be able to move the needle by executing on a higher number, a smaller improvement, but at the end of the day we are faced with the same challenges other retail operators are facing in the form of higher wage pressure, increased benefit expense, and escalating fuel support cost. Rest assured, cost discipline remains the cornerstone of our operating philosophy and we will continue to make the business more competitive by focusing on remaining areas of inefficiency, leveraging technology investments, and executing more consistently.

Moving onto corporate cost, our guidance for SG&A expense will remain the same as 2017 and the $135 million to $140 million range. We will continue to invest in our home office capabilities in IT infrastructure improvement at a consistent pace.

2017 SG&A expense included $10 million investment in our community through accelerating charitable gifts into 2017 that we would have ultimately made in future time periods. The passage of the Tax Cuts and Jobs Act's created the opportunity to do this and a couple of other tax related strategies that improve our after-tax cash profile by over $2.7 million at the end of the year.

As previously suggested, our effective tax rate is expected to be between 24% and 26%, including state taxes, down from the upper 30s range in prior years. This brings us to capital allocation, and from a CapEx standpoint as a function of moderate store growth, we expect our capital expenditures to fall in the range of $225 million to $275 million for 2018.

For net income, a combination of the above guided ranges coupled with expected offsets within the ranges results in EBITDA guidance of $390 million to $440 million. After adjusting for depreciation, interest and other items as provided in our supplemental disclosure, this translates to a net income range of $155 million to $195 million.

We will be thoughtful in our approach of how to redeploy incremental funds freed up from tax reform to make the appropriate investments in our business or people all for the long-term benefit of our shareholders. Our free cash flow will continue to gravitate towards the highest return opportunities in order to maximize shareholder returns.

We remain committed to share repurchases and as announced in our earnings release, we expect to opportunistically and consistently be in the market in a disciplined manner subject to available cash balances and other demands on capital. With that, I will open up the call to Q&A.

Hi, this is [indiscernible] on for Carla. Just looking at your capital structure, do you have any thoughts on perhaps calling on refinancing the 2018 [ph] bonds come August?

It’s something that we will take a look at and that’s going to depend on, first of all the premium that we would have to pay to call in those notes, as well as what the rate environment is. So, we will take a look at it, but we have not made a discussion at this time.

Great. And second, thoughts on, what are your thoughts on the wage increases, both from the consumer base point-of-view and your labor cost while as you are going forward?

Yes, so on labor cost and wages, we want to be competitive in all of our markets, and so we use geographic wage rates and benchmarks to make sure we’re aligned there. So, when we see pressures in those markets we’re able to adjust accordingly and be competitive.

Certainly, one of the challenges in the convenience store industry is the high turnover, especially at the starting cash year rate, but that also allows you to then maintain lower wages as a lot of the entry wages don't change year-over-year versus the business that might have significantly lower turnover in the business. And so that’s something we watch carefully because we want to remain competitive and those markets have the right employees and just manage that carefully.

Oh yes, and additionally, how about from the consumer voice point-of-view, are you seeing any changes in the way that people purchase and their behavior and that such?

If the question is, if higher wages in across the U.S. has trickled down to consumers in our stores that we can attribute to more traffic or less traffic, I’d say it is too early to see anything at that point, and frankly it would be hard to isolate that from a lot of the other factors that are going on.

Got it. And lastly, can you give us any color on how your Texas markets have been performing in general [ph]?

Our Texas markets? Okay, so I couldn't understand you.

Our Texas markets remain some of our strongest markets. We have 20% to 25% of our stores located there.

And we have always had a very strong position there. They performed, I guess they were challenged in Q3 and the beginning of Q4 with the storms.

And so, we’ve seen the recovery coming out of that. Good markets typically beget more competition and so you’ve seen continued new build activity in those markets from a variety of competitors.

That said, our value proposition remains very strong. That’s where we have done a lot of our raise and rebuild activity, and the raise and rebuild performance post pre-opening has been very solid.

So, we continue to see Texas as a very strong market, but also a very competitive market.

Okay, thanks.

Good morning, thanks for taking my questions.

Good morning, Ben.

I wanted to first start with CapEx, Mindy could you provide a little bit more color in passing on the buckets for CapEx, and then as it relates to tax reform in relation to CapEx, is there anything that you’ve earmarked in terms of user proceeds from tax reform, within the CapEx guidance or is the inference perhaps that you intend to use the majority of the proceeds to share repurchase?

Well, to get to your second question first if I may, the tax reform and the cash impact that that provides gives us some optionality and we will be thoughtful in how we use that. We obviously, put together a 28-formal plan before we knew that that was going to pass, and so the way to think about that is, it does provide additional freeboard and optionality for additional share repurchases or other investments that we may choose to make.

And some additional cover under the 2018 CapEx as I said, we’re guiding to around 175 million of retail growth, and so that’s up to 13 new to industry sites that we will construct as well as up to 25 raise and rebuilds. We also have a bucket in here for a land bank as we continue to be aggressive in purchasing land for sites that we will build in future years.

For maintenance, it’s comprised of the same things that usually is, although I will say it’s down a little bit from last year as a result of our refresh program as mostly done. We will be touching about 250 locations this year, but it’s a much lighter touch than previously, so we will have roughly $4 million to $5 million in the budget for that.

Our super cooler investments will continue as we finish out that program. We're going to touch roughly 150 sites there.

So, that’s roughly $8 million in capital that is classified under the maintenance portion. And then for the rest, we have the completion of our building remodel and then investment and corporate and other initiatives comprises the remainder of that amount.

Yes, Ben the one thing I would say is well, the tax reforms certainly created some benefits in flexibility. There is nothing at all about our capital allocation discipline that’s going to get looser.

It’s going to remain as tight as it’s ever been.

Okay. Great, thanks for that.

And then this could be a better question better suited for an off-line discussion, but if I take the mid-point of your guidance assumptions that you provided, I have a hard time getting to do even the low end of the EBITDA guidance range you provided, so I’ wondering if you could help me understand sort of what assumptions are baked into the mid-point of the EBITDA guidance recognizing that they might not all be linear?

Now, that’s so good point and I suspect you're not the only one who will look value for some off-line discussions with Christian and his team on that. The reality is, there is a lot of offsets in the business, and so if we’re challenged with a difficult fuel volume environment, you may see margins improve from that.

There may be independent relationships between that and merchandise as we demonstrated in Q4 because of other promotional activity that we went on, we took on. Certainly, there is relationship between the operating cost and we have lower transactions whether it’s in payment fees or it is in just us staff labor hours allocated to the stores or other variable costs associated with the business.

If we underperform from our earnings standpoint, our compensation metrics underperformance SG&A is lower and then there is other specific levers we can pull there. So, there is a whole set of offsets there, and so I think when we fell from an overall guidance range, even though we wanted to build set parameters that over any quarter in the year, may underperform, I think we have demonstrated the resilience in our business model, our approach to dealing with that first quarter that we can still bring, kind of total earnings within a much tighter range there.

So, I think 2017 was an excellent example of that, Q1 started off in a very challenged way. We are still able to deliver the numbers.

I think we felt like we left money on the table in 2017, in terms of total performance versus our potential, but it gives you an example of how we believe we can stay resilient. So, hope that helps, but there is no way you can kind of take the mid-point of all those things and come out of the midpoint.

There is just going to be some interrelationships that we feel confident in when we give you that overall guidance range for EBITDA.

Understood that does help, and then if I could just sneak in one last one, on the PS&W to put it bluntly, we whipped pretty hard on our estimate here in the fourth quarter, and I’m wondering all the indicators that we monitor suggested us that we should see some improvements in that profitability line sequentially and year-over-year, can you discuss some of the factors, I know this is kind of resetting the clock on describing the CS&W business, but why was that business under pressure in 4Q in light of the backdrop.

Well, I think if you look at refining coming out of the storms, utilization continue to go back up, you know, and the market kind of showed its resilience to that. I think from RIN standpoint, while RIN started off higher in the quarter, it came down as you had more regulatory uncertainty towards the backend.

I think if you look at the three months, you know at $0.27 all-in, including RINs, while it was lower than last year that’s clearly within our range, and so I guess we’d say, we didn’t see that much arise from a market standpoint, it’s just a lot of the same kind of general pressures out there we have seen. Certainly, with the rising price environment, you know there are some benefits around the uncontrollable side of it, the inventory value [indiscernible].

Fair enough. Thanks so much, and I’ll get back in the queue.

Hi good morning. Thanks for taking the question.

Andy, on the retooling you touched on the retooling and the real estate and kind of focused on the filling opportunity, are all of the new builds in 2018 going to be adjacent or still strategically targeting a radius around Walmart? And can you just touch on that kind of 2400 square foot model that you are looking at, any metrics you can give there?

Yes. So, the up to 30 new to industry stores, probably two-thirds of those are going to be kind of the traditional 1,200 square-foot stores in close proximity to Walmart’s little more than third and then the remainder of the larger format stores.

We already had plans for some of the larger 3,450 square foot stick build stores, and we believe a couple of those will be the modular 2,800 square foot stores. That’s actually 2,700 in 56 square foot.

We have built some of those in the past. We like the fact that they are modular because you get them build for less, you get them up and running more quickly than the stick build models, and the merchandise performance really isn't all that different from some of the larger square-footed stores.

We’ve - for the limited sample of those that we have in our network today 36, their fuel volume performance is well over 300,000 gallons, largely because of the markets. And the merchandise sales are well over $230,000 in sales per month at higher GP, because you’ve added couple of new cooler doors, you have a [indiscernible] and you have some additional grab and go prepared food offers, but at as I said before, we want to stay within our capability set and so we’re not getting into food in a big way through this.

So, we believe it generates very attractive after tax and levered returns. And so, if you compare that to the 3,450 stores you are getting kind of more in the same or more bank for less buck, so you get to a higher return, and I think compared to the 1,200 square foot stores it is really just a function of how many great locations are left where you would put a 1,200 square foot store and with fewer and fewer in the Halo with the Walmart Supercenters available, we believe the infill strategy in the strongest markets is going to be a better deployment of capital.

And we’d already started some of that with the 3,450 square foot stores in Arkansas and Colorado and Louisiana. We just believe this is a refinement to that where we can do it better faster, stronger as we go forward.

That’s helpful. And on the merchandise margin that improvement was significantly better than what I had modelled.

It looks like a lot of it came from, the bulk of it came from Tobacco and you referenced the loyalty program earlier in the call, can you just give a little color on that, it seems like it’s continuing to run through in the first quarter and why the growth rate moderations on margins that you're guiding through 2018?

So, this was our participation in a manufacturing program that other competitors had run prior to us, so we had periods in Q4 where we were running it with fewer other competitors running it, and I think over 40% of tobacco consumer awareness is through word of mouth and so consumers know where to find value with those products. And so, with the best deals out there, we attracted disproportionately a higher level of traffic as a result of that and as we said, independent of fuel traffic, and I think with our unique distinctive upselling ability, we were able to execute on that program at a very high level.

So, as we enter into 2018, we’re going to be amongst many competitors that have this program, and while we think we can execute that program at a very high level, others will be doing it at the same time, and so 2017 Q4 was a bit off an anomaly from our standpoint, and if you recall in the third quarter of 2017, we saw some pressure in part because that’s when our competitors were running that program. So that’s why you see the moderation as we guide throughout 2018.

I think, the key point about this is as we introduced something through our sales associates at our store that’s unique new and different. We were extremely encouraged by that upselling ability to something new that had loyalty program attributes to it.

And that gives us a lot of confidence as we get ready to pilot that program at the end of Q1.

Thank you.

Thanks. Good morning, Andrew.

Good morning.

Hi. So, I wanted to ask you about your retail fuel volumes, I guess I’m just trying to better understand some of the pressure your facing here.

I know you touched on a bit, but any more color would be helpful, and then what’s a realistic long-term outlook for retail fuel volumes? And curious how you’re seeing may be the Amazon effect impacting your business, and have you guys considered partnering with them in any way?

Yes. So, let me start with sort of the pressures.

I mean they are the same ones that we see, our competitors see and those and other retail industries that that sell common goods like fuel and tobacco and the like see. I think you unique to Q4, we started October in the aftermath of two of the biggest events, that hit our markets in Texas and Florida.

And as the supply situation sorted itself out, we kind of shifted from pricing for margin to getting more aggressive to putting some margin on the street as we would do in a falling price environment towards volume. And for a period of time, we saw the kind of volume response we would expect to see.

Unfortunately, we saw pretty quickly a major run-up in crude prices that persisted for the remainder of Q4 and into Q1. And so that’s a pressure that we see every year at some point rising prices, falling prices, and during those rising price periods we just aren't going to be as aggressive in pricing given the margin compression and we always expect to bleed off during those periods 2% to 3% in volume.

Similarly, when prices fall sharply, we can price more aggressively if all the conditions are in place, and we can pick up 2% to 3% in volume when that happens. So, one of the positives about a significant run-up in crude prices as we’re now at a higher level and at some point-in-time you will see shale expansion and over drilling and prices will come back down and we will be able to benefit from that.

The competitive pressures just remain ongoing, and where maybe in the prior year when the following price environment we would have a monthly volume of 102% or 103%. In those periods in 2017, we were close to be just right at 100%.

And so, we have seen a kind of 2% to 3% decline in our average per store month volumes kind of structurally from competition. We had kind of anticipated in prior years that being closer to 1% to 2%, but we did see competition increase in a number of areas.

One of the things that we had hoped to offset that with was the performance of our ongoing newbuild program and certainly the earlier build classes 2015, 2016 and some of 2017 in the Midwest markets and the remainder of the Walmart 200 program, just didn’t perform and meet our expectations. I think with our larger format as express stores, they did.

So, some of that offset wasn’t as meaningful as we had hoped. I would say the raise in rebuilds continue to impress us in terms of when we’re adding to Spencer’s, adding the bigger store, we’re getting the rebound there, but of course you take those stores out of commission for four or five months, and then you bring them back on.

You don't see the immediate impact there, but as we have more and more of those in the portfolio, we believe that will start to have a meaningful impact there. But I would say the pressures are what they have been, right you have got some one-off events that differ in their type of impact year-over-year.

We certainly would not want to see 2017’s events repeat itself. We got the falling and rising prices.

And then you’ve got the ongoing competition. I do think the number of Walmart neighborhood markets that were built in the prior three years was a meaningful number, and it took shopping occasions away from the Supercenter’s and those shopping occasions impacted fuel visits at our store, but as you saw in their Analyst Day they’ve now guided to 25 stores in total for the entire U.S., and so I would say that competitive pressure has moderated significantly.

That’s really helpful. And then, could you touch on Amazon and the effect we are seeing whether it is related to traffic or consumer behavior changing, just would love to hear from you, how you're thinking about that and do you foresee any plans to work with them in any fashion?

I’m just thinking drop locations or anything there would be helpful?

I mean, I this is where you have to really get in the customer segmentation. I know how many packages show up at my office, my home, Mindi's office, next door every day from Amazon, and it certainly adds a lot of convenience from that standpoint, but I still drive to Walmart and Home Depot and all the other places.

I’m just not picking up all the same items, but I'm still making trips there. I hate to ever think of myself as our average customer, but if you look at our demographics, my belief is, not as many packages from Amazon are showing up on their doors as some of us on this call, and I think that’s really what you’ve got to look at.

I think the pickup points at the Walmart Supercenters delivers a last mile solution, especially for these heavy dry goods, dog food, bottled water, et cetera, but it isn't necessarily reducing the number of trips in-and-out of the parking lot, it may just be a different type of trip. So, I think it’s something we can't just over generalize or use our own perspective or the perspectives of Metro America to apply to our business.

I think our unique customer segments where we are co-located, and even the kind of the more rural markets that we’re in. I was going to suggest that it will impact us different than maybe someone in a more metropolitan market with a different customer segment who has a whole different set of shopping experiences day-to-day.

Look, there are a number of things that between Amazon Cash, Google Pay, Walmart Pay, Apple et cetera that from a payment systems standpoint creates opportunities for all retailers and it's certainly something as we roll-out our EMV solution and continue to accept more in different types of payment mechanisms, including those with our loyalty program that we will try to fully take advantage of. So, it’s too early to say, what those partnerships look like, but there is some more and more out there and as consumers move towards those, we've want to accept as many payment methods as we can, especially if those drive down, but very, very high cost of payment cards in our business.

You know, it’s almost $0.03 per gallon cost for our business, and it’s one of the biggest cost out there. So, hopefully there could be some improvements on that front.

All right. I appreciate.

Thank you.

Hi, good morning guys. Vast majority of my questions have already been answered, but just to follow back up on one of Ben's questions earlier with regards to the merchandise margins and how that tobacco promotion help provides 100 basis points uplift in the quarter.

That may not be necessarily unique going into 2018, that’s somewhat of the reason as to why we should see a bit more moderation on merchant margin expansion. Andrew, when it comes to guidance itself, and your loyalty program in totality as it’s launched or piloted at the end of Q1, what is embedded in the guidance expectation?

We have known [ph] - as I mentioned in my notes, any of sort of the volume or traffic enhancing initiatives, including that loyalty program, none of those baked into our guidance, but we’re going to have pilots in two major market areas starting at the end of Q1, and given that loyalty is really an outcome of changing consumer behavior, you’ve got highly loyal customers today and you’re seeking to move their behavior. You’ve got low share of wallet customers today and you’re trying to change their behavior and you've got zero share of wallet customers trying to change their behavior, and so we need to look at this in a very thoughtful way and it’s going to take some time to make sure that the unique way in which we’ve designed this, the unique platform in which we’ve built it on and the way we’re going to direct different segments of customers, given their starting point to make sure that this is going to be an economically viable attractive meaningful program for us.

As an everyday low play price retailer, we don't have the ability to do high low pricing and price discrimination that so many of the existing loyalty programs have where they have raised prices for everybody, and then lowered them for those who are part of the program. We cannot do that because our core customer comes to us every day for that low price of fuel and tobacco and other convenience items.

So, we’ve designed something that’s unique We understand the economics that need to make it work and the customer behaviors that are needed to generate those are economics, and so we’re going to take our time and do it right. We’ve always said we're not going to come up with the me-too light solution.

This is going to be unique solution, but the economics have to work and we have to give it some time to make sure that we’re changing customer behaviors.

Okay. And then on capital allocation and the discussion around need to free cash, I just wanted to clarify, not having a formal buyback program out there, is that pivot a result of the fact that you just simply didn’t know what tax reform was going to provide you when you established your 2018 plan or if there is something out that we necessarily need to be cognizant about, whether it be thoughts of accelerating the establishment of a dividend or something along those lines?

Exactly. Here is the way I would describe the language and the release.

That is our formal announcement. It is a good till cancel announcement and we just decided not to bracket in the conventional way of a big number over a time period, but we remain confident in our ability to continue to do that, subject to other uses of cash and capital and market conditions.

So, consider that our formal announcement is good till cancel.

Got it, and then last one for me, Marathon brought it up earlier this morning, and you guys alluded to it a little bit in your press release as well. Andrew, I just was wondering if you could update us with regards to that this statement of regulatory uncertainty and not just what’s out there today, but also if at all or at least remind us, what type of financial implications could [indiscernible]?

Yes, and the sort of specific area like our RFS that you are thinking about or other areas of the regulatory uncertainty.

Well, so that’s what Marathon had specified this morning, and I was just under the presumption that that’s in fact what you are referencing in your release as well?

Look, I think there is regulatory uncertainty across the board right. We started last year with uncertainty around FSLA and certainly some competitors did think that had a bottom line impact, it didn’t impact us because of how we responded.

I think the thing about Q1 with the certain market behavior as a certain participant, and how news and rumors and perceptions kind of echo through the RIN market and what that did on prices, you know the RIN price became disconnected from the, all-in supply margin one would expect. When you have someone propose a cap on RIN prices, when we know that relationship exist and the EPA has gone out of the way to show it, improve it, and deny petitions because the interrelation exists between RIN price and the supply margin or the crack spread the refiners earn, they say we are going to cap RIN prices without putting a cap on crack spreads for refineries, just creates that same type of uncertainty when you have firms filing bankruptcy, specifically blaming it on that cost as opposed to assets that are stranded from advantaged crewed and imports and the like.

There is just a lot of noise that gets built up on that, but I think over time groups like the EPA are able to come back, get all the information and say no this is what matters and this doesn't matter. I think, we will get to the same outcome, but there will be market noise and perceptions that impact the RIN market, which is its own independent paper market, and if it gets disconnected from the supply markets for which over the longer term there is a relationship with.

Those are the things that could impact our business. I wouldn't expect to see structurally a change as a result of it because of that interrelationship, but I would say you could have periods like Q1 or you could get disconnected, and it’s no different than what we saw in Q3 of 2013 as we’re spinning off.

We probably got - RIN prices got overinflated relatively to what they’ve should have been. So, I think that’s the dynamics that we have here.

It’s not going to impact our long-term business one bit, but there can be short-term noise that we could be a beneficiary of or we could get impacted in kind of around the RINs topic it is has typically been a lot of effort that brings down those prices relative to other relationships we would expect.

Right, so maybe just to summarize there, there is perception and then there is reality at the end of the day, regardless of what happens with the RFS mandate and the way of a program, Murphy as a whole still expects that $0.02 to $0.03 of net contribution between PS&W and RINs on an annual basis?

That’s correct. Because if you didn’t have that, if you think about the working capital that we employee or anyone who supplies their home proprietary barrels, the value of the line space, the other capital and working capital involved in that, if you're not getting a benefit of that then you’re not getting a return on that capital and the market should act very efficiently around that.

So, we believe that over the long term that’s how we will be remunerated and others who have similar positions will as well.

Alright. Thanks for the refresh Andrew and best of luck in 2018.

Thank you.

Hi, good morning and thanks for taking my question. So, for 2018 guidance, the high-end of the retail fuel margin guidance is a bit above the typical long-term guidance, not too much, but is there anything to read into that?

Are you are adjusting the way you price in 2018, getting sharper or doing anything differently?

No, I would just say look, over the last 2, 3 years we’ve made improvements to our business on a number of fronts and those things kind of cumulatively add up, and so I think we're just revising that to say that’s what the potential of this business can generate, and so it’s really nothing more than that Ryan.

Very good. And the second question, as you mentioned in the press release on your SG&A guidance that includes investments for IT Incorporated projects, I think we can talk about what the dollar amount of those investments are, and then how many years are those investments expected to persist, kind of when could they fall off, is it next year, the following year or further on?

Thanks.

Yes. I’ll let Mindy provide any specific details on that.

Some of that’s in the CapEx as well. I think, if you think about our company right, a spin-off subsidiary under a refining and marketing subsidiary of an exploration and production company.

We’ve had to really build some of our foundational capabilities to be a standalone retailing company, and there is just frankly some areas, especially around IT that we hadn't invested in. In 2017, we rolled out the latest version of our PDI enterprise, software, accounting system at the field and the Home Office, the standards for PCI compliance continued to go up and we’re committed to provide secure safe environments for consumer data that involve switches at our stores and various things that we have to roll out.

There is other homegrown systems that we’ve replaced like our fuel pricing system and others that we’re looking at and so just across the board there is just a series of upgrades and enhancements, some of which are past due, others are just getting up to the right standard, and so I’d say there is another year or two of that kind of spend. And then at some point, you get out of the foundational spend, and you start looking at opportunities that could then be even more business enhancing, and certainly with our loyalty program providing successful outcome of that.

You start focusing more around marketing analytics and the tools and the data environment to be able to better target customer segments and the like. And so, I would expect more of the nature of the spend to change from foundational to business enhancing than the total amount to spend.

I think, one of the key things to note is that from a scale standpoint SG&A per store is going down and that’s something that we’re mindful to make sure we’re getting the scale benefits out of our spend.

And Ryan to answer your question about the quantities we’re talking about here. So, embedded in the G&A guidance on the expense side, somewhere roughly of $5 million or so additive to SG&A for those type of projects, the bigger impact is in the CapEx part of the budget because we are able to capitalize a lot of this labor that we are spending and so we’re talking here $20 million, $25 million of CapEx, not all of that is foundation, some of it is business enhancing, and some of it quite frankly will never go away because you’re always going to have things that you need to look at and replace over time.

But to echo Andrew's comments, we would expect that the bulk of these larger expenditures will be over this year, and we will be able to turn our attention to more value enhancing type projects, but I would expect us to always have a layer in both expense and in CapEx for projects of this type.

Got it. That’s really helpful commentary.

Thank you both.

Thank you very much. We certainly appreciate all the questions as we’ve wrapped up 2017.

We’re looking forward to an exciting 2018, and we look forward to visiting with all of you in the near future. Thank you very much.