Core-Mark Holding Co. Inc., a marketer of fresh and broad-line supply solutions to the convenience retail industry in North America, announced financial results for the third quarter ended Sept. 30, 2012.
“We expect record sales and record profits in 2012 despite the compressing effect that a lack of inflation had on third quarter earnings,” said J. Michael Walsh, president and CEO. “I have never felt more bullish on the future of the Company as I do at this time and have total confidence that Tom Perkins will leverage our strategies for the benefit of our customers and continued industry-leading growth for Core-Mark. This Company has a bright future due to the fact it is exceptionally in sync with its customers. The past 10 years for Core-Mark have been great; the next 10 will be even better.”
Net sales increased 4.0% to $2.31 billion for the third quarter of 2012 compared to $2.23 billion for the same period in 2011 driven by the Company’s expansion in the Southeastern U.S. during the third quarter of 2011. Sales growth was compressed by lower cigarette carton sales in our base business and one less selling day this quarter. However, non-cigarette sales increased 9.1% driven by market share expansion, increases in our same store sales and execution on our key marketing strategies.
Gross profit for both the third quarter of 2012 and 2011 was $122.2 million. Remaining gross profit increased 3.9% to $125.8 million. Non-cigarette remaining gross profit grew $4.9 million or 6.1% compared to the same quarter last year, and cigarette remaining gross profit per carton was essentially flat. The following table reconciles the components of gross profit.
The Company’s operating expenses for the third quarter of 2012 were $105.0 million compared to $101.1 million in the same quarter of 2011. As a percentage of net sales, total operating expenses were essentially flat.
Operating expenses were underleveraged on lighter than expected sales and some temporary operating inefficiencies at certain warehouses during the summer months.
Net income for the third quarter of 2012 was $10.5 million compared to $12.0 million for the same period in 2011. The decrease in net income was driven primarily by a near absence of manufacturers’ price increases and the associated inventory holding gains. The timing of manufacturer price increases can vary year to year and are not within the Company’s direct control. In 2012, there has been little or no inflation in a number of product categories compared to historical levels. Adjusted EBITDA decreased from $33.0 million in the third quarter of 2011 to $28.7 million in the third quarter of 2012 for the same reasons.
Diluted earnings per share were $0.90 for the third quarter this year compared to $1.03 in the third quarter of last year. These per share results were impacted by several items, which are reconciled in the attached diluted EPS table following the financial statements. Excluding these items, diluted earnings per share on an adjusted basis were $1.01 for the third quarter in 2012 compared to $1.14 for the same quarter last year. Approximately 80% of this decline was due to an absence of manufacturers’ price increases and the associated inventory holding gains
First Nine Months of 2012
Net sales were $6.70 billion for the first nine months of 2012 compared to $5.99 billion for the same period in 2011, a 12.0% increase. The increase in sales was driven primarily by the expansion in the Southeastern U.S. and the acquisition of Forrest City Grocery Company (FCGC). In addition, non-cigarette sales contributed to the growth with increases in same store sales and continuing successful implementation and execution of the Company’s Vendor Consolidation Initiative and “Fresh” program.
Gross profit for the first nine months of 2012 was $354.9 million compared to $324.3 million for the same period last year. Remaining gross profit was $361.4 million in the first nine months of 2012 compared to $325.3 million in 2011, an increase of $36.1 million or 11.1%. The following table reconciles the components of gross profit.
The Company’s operating expenses for the nine months of 2012 increased to $313.8 million compared to $287.3 million for the same period in 2011. As a percentage of net sales, operating expenses improved 12 basis points due primarily to start-up costs associated with our Florida and FCGC distribution centers last year and a reduction in insurance costs related to legacy claims this year.
Net income for the nine months of 2012 was $24.2 million compared to $21.0 million for the same period in 2011, a 15% increase. Strong revenue growth and increases in gross profit dollars, despite the lower level of non-cigarette holding gains were the primary drivers to the improvement in net income. In addition, adjusted EBITDA increased 8% from $69.7 million in the first nine months of 2011 to $75.2 million for the same period this year.
Diluted earnings per share were $2.08 for the first nine months of this year compared to $1.78 for the same period last year, an increase of 16.9%. These per share results were impacted by several items, which are reconciled in the attached diluted EPS table following the financial statements. Excluding these items, diluted earnings per share would have been $2.34 for the first nine months of 2012 compared to $2.07 for the same period last year, representing a 13.0% increase.
Guidance for 2012
The Company refined its annual diluted earnings per share guidance to $2.75- $2.85. The EPS guidance includes $0.78 per share of LIFO expense, or about $15 million, a 39% tax rate and approximately 11.7 million fully diluted shares outstanding. Further, the Company expects annual net sales to approximate $9.0 billion and expects adjusted EBITDA to be between $102 and $103 million. The adjusted EBITDA guidance includes holding gains, a lack of inflation in the non-cigarette categories and excludes any impact from acquisitions.
Capital expenditures for 2012 are expected to approach $30 million, approximately half of which is being utilized for expansion projects with the remainder used for maintenance investments.