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Core-Mark Announces First Quarter 2019 Financial Results
- Diluted EPS of
$0.03 per share, or$0.14 Excluding LIFO Expense (Non-GAAP) - Net Income of
$1.3 Million ; Adjusted EBITDA (Non-GAAP)(1) Increased 22%, to$29.7 Million - Gross Profit Increased 4.2%; Non-cigarette Gross Profit Increased 5.2%
- 2019 Guidance Reaffirmed
- Announced
$0.11 Dividend Payable June 14, 2019
“Our results in the first quarter reflect continued progress on our key priorities and a solid start towards meeting our strategic objectives for the year,” said
First Quarter Results
Net sales were
Gross profit increased 4.2% to
Gross profit margin increased 30 basis points to 5.55% of total net sales during the first quarter of 2019 from 5.25% for the same period in 2018. Remaining gross profit margin expanded by 28 basis points to 5.50% in the first quarter of 2019 compared to 5.22% for the same period in 2018 driven primarily by a shift in sales mix toward higher margin non-cigarette items as well as an increase in the overall margin for non-cigarette sales. The increase in non-cigarette margins was driven primarily by the increase in sales of higher margin alternative nicotine products and higher margins in our Food and Candy categories.
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Note (1): See below for the “Reconciliation of Net Income (Loss) to Adjusted EBITDA.”
The following table reconciles remaining gross profit, a non-GAAP financial measure, to gross profit, its most comparable financial measure under U.S. GAAP:
RECONCILIATION OF GROSS PROFIT (U.S. GAAP) TO REMAINING GROSS PROFIT (NON-GAAP) | ||||||||||||||
(Unaudited and $ in millions) | ||||||||||||||
For the Three Months Ended March 31, | ||||||||||||||
2019 | 2018 | |||||||||||||
Amounts | % of Net Sales | Amounts | % of Net Sales | % Change | ||||||||||
Gross profit | $ | 208.2 | 5.55% | $ | 199.8 | 5.25% | 4.2% | |||||||
Cigarette inventory holding gains | (8.8) | (0.24)% | (7.1) | (0.19)% | ||||||||||
LIFO expense | 7.0 | 0.19% | 5.9 | 0.16% | ||||||||||
Remaining gross profit (Non-GAAP) | $ | 206.4 | 5.50% | $ | 198.6 | 5.22% | 3.9% |
The Company’s operating expenses were
Net income improved to
The following table reconciles Adjusted EBITDA to net income (loss), its most comparable financial measure under U.S. GAAP:
RECONCILIATION OF NET INCOME (LOSS) (U.S. GAAP) TO ADJUSTED EBITDA (NON-GAAP) | |||||||||||||||||||||||||||||
(Unaudited and $ in millions) | |||||||||||||||||||||||||||||
For the Three Months Ended March 31, |
|||||||||||||||||||||||||||||
2019 | 2018 | % Change | |||||||||||||||||||||||||||
Net income (loss) | $ | 1.3 | $ | (1.3) | |||||||||||||||||||||||||
Interest expense, net (1) | 3.4 | 3.8 | |||||||||||||||||||||||||||
Provision (benefit) from income taxes | 0.5 | (0.5) | |||||||||||||||||||||||||||
Depreciation and amortization | 15.4 | 14.9 | |||||||||||||||||||||||||||
LIFO expense | 7.0 | 5.9 | |||||||||||||||||||||||||||
Stock-based compensation expense | 1.9 | 1.9 | |||||||||||||||||||||||||||
Foreign currency transaction losses (gains), net | 0.2 | (0.4) | |||||||||||||||||||||||||||
Adjusted EBITDA (Non-GAAP) | $ | 29.7 | $ | 24.3 | 22.2% |
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(1) Interest expense, net, is reported net of interest income.
Diluted Earnings per Share (EPS) was
Dividend
Core-Mark’s Board of Directors has approved a
Guidance for 2019
The Company reaffirms prior guidance for the full year of 2019. Annual net sales for 2019 are expected to be between
Corporate Headquarter Relocation
The Company today announced that it had substantially completed the relocation of its corporate headquarters from
Conference Call and Webcast Information
An audio replay will be available for approximately one month following the call by dialing 1-888-843-7419 using the same code provided above. The replay will also be available via webcast at www.core-mark.com for approximately 90 days following the call.
About Non-GAAP Financial Measures
This press release includes non-GAAP financial measures including Diluted EPS excluding LIFO expense, Adjusted EBITDA, remaining gross profit, and operating expense as a percentage of remaining gross profit. We believe these non-GAAP financial measures provide meaningful supplemental information for investors regarding the performance of our business and facilitate a meaningful period-to-period evaluation. We also believe these measures allow investors to view results in a manner similar to the method used by our management. We use these non-GAAP financial measures in order to have comparable financial results to analyze changes in our underlying business. These non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. These measures may be defined differently than other companies and therefore such measures may not be comparable to ours. We strongly encourage investors and stockholders to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.
Adjusted EBITDA is a measure used by us to measure operating performance. Adjusted EBITDA is also among the primary measures used externally by our investors, analysts and peers in our industry for purposes of valuation and comparing our results to other companies. Adjusted EBITDA is equal to net (loss) income adding back net interest expense, provision for income taxes, depreciation and amortization, LIFO expense, stock-based compensation expense, and net foreign currency transaction gains or losses.
Diluted EPS excluding LIFO expense is a measure used by us to measure financial performance. Diluted EPS is also among the primary measures used externally by our investors, analysts and peers in our industry for purposes of valuation and comparing our results to other companies. Remaining gross profit is a non-GAAP financial measure. We provide this metric to segregate the effects of LIFO expense, cigarette inventory holding gains and other items that significantly affect the comparability of gross profit. Operating expenses as a percentage of remaining gross profit is a non-GAAP financial measure, used by us to measure operating leverage.
We do not provide a reconciliation for non-GAAP estimates on a forward-looking basis (including the information under “Guidance for 2019” above) where we are unable to provide a meaningful calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing or amount of various items that would impact the most directly comparable forward-looking GAAP financial measure, that have not yet occurred, are out of the company’s control and/or cannot be reasonably predicted. For the same reasons, we are unable to address the probable significance of the unavailable information. Forward-looking non-GAAP financial measures provided without the most directly comparable GAAP financial measures may vary materially from the corresponding GAAP financial measures.
The tables in this press release contain more details on the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliations between these financial measures.
Forward-Looking Statements
Statements in this press release that are not statements of historical fact are forward-looking statements made pursuant to the safe-harbor provisions of the Securities Exchange Act of 1934 and the Securities Act of 1933. These statements include statements regarding our guidance for 2019 net sales, Adjusted EBITDA, diluted earnings per share, diluted earnings per share excluding LIFO expense, capital expenditures and related disclosures. Forward-looking statements in some cases can be identified by the use of words such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “believe,” “could,” “would,” “project,” “predict,” “continue,” “plan,” “propose” or other similar words or expressions. Forward-looking statements are made only as of the date of this press release and are based on our current intent, beliefs, plans and expectations. They involve risks and uncertainties that could cause actual future results, performance or developments to differ materially from historical results or those described in or implied by such forward-looking statements.
Factors that might cause or contribute to such differences include, but are not limited to, our dependence on the convenience retail industry for our revenues; our dependence on qualified labor, senior management and other key personnel; declining cigarette sales volumes; competition in our distribution markets; risks and costs associated with efforts to grow our business through acquisitions; the dependence of some of our distribution centers on a few relatively large customers; manufacturers or retail customers adopting direct distribution channels; fuel and other transportation costs; failure or disruptions of our information technology systems; the low-margin nature of cigarette and consumable goods distribution; our reliance on manufacturer discount and incentive programs and cigarette excise stamping allowances; our dependence on relatively few suppliers; product liability and counterfeit product claims and manufacturer recalls of products; our ability to achieve the expected benefits of implementation of marketing initiatives; failing to maintain our brand and reputation; unexpected outcomes in legal proceedings; attempts by unions to organize our employees; increasing expenses related to employee health benefits; changes to minimum wage laws; failure to comply with governmental regulations or substantial changes to governmental regulations; earthquake and natural disaster damage; increases in the number or severity of insurance and claims expenses; legislation and other matters negatively affecting the cigarette and tobacco industry; increases in excise taxes or reduction in credit terms by taxing jurisdictions; potential liabilities associated with sales of cigarettes and other tobacco products; changes to federal, state or provincial income tax legislation; reduction in the payment of dividends; currency exchange rate fluctuations; our ability to borrow additional capital; restrictive covenants in our Credit Facility; and changes to accounting rules or regulations. Refer to the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the
CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES | ||||||||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||||||||||||
(In millions, except share and per share data) | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||
March 31, | December 31, | |||||||||||||||||
Assets | 2019 | 2018 | ||||||||||||||||
Current assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 25.8 | $ | 27.3 | ||||||||||||||
Accounts receivable, net of allowance for doubtful accounts of $10.9 and $8.3 as of March 31, 2019 and December 31, 2018, respectively |
395.5 | 403.5 | ||||||||||||||||
Other receivables, net | 81.4 | 89.4 | ||||||||||||||||
Inventories, net | 503.5 | 689.0 | ||||||||||||||||
Deposits and prepayments | 81.2 | 78.8 | ||||||||||||||||
Total current assets | 1,087.4 | 1,288.0 | ||||||||||||||||
Property and equipment, net | 223.7 | 229.0 | ||||||||||||||||
Operating lease right-of-use assets | 234.6 | — | ||||||||||||||||
Goodwill | 72.8 | 72.8 | ||||||||||||||||
Other intangible assets, net | 49.9 | 51.1 | ||||||||||||||||
Other non-current assets, net | 24.9 | 25.2 | ||||||||||||||||
Total assets | $ | 1,693.3 | $ | 1,666.1 | ||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||
Current liabilities: | ||||||||||||||||||
Accounts payable | $ | 230.0 | $ | 199.8 | ||||||||||||||
Book overdrafts | 46.2 | 49.4 | ||||||||||||||||
Cigarette and tobacco taxes payable | 223.2 | 297.8 | ||||||||||||||||
Operating lease liabilities | 41.9 | — | ||||||||||||||||
Accrued liabilities | 134.0 | 134.0 | ||||||||||||||||
Total current liabilities | 675.3 | 681.0 | ||||||||||||||||
Long-term debt | 187.7 | 346.2 | ||||||||||||||||
Deferred income taxes | 27.0 | 27.1 | ||||||||||||||||
Long-term operating lease liabilities | 206.2 | — | ||||||||||||||||
Other long-term liabilities | 2.5 | 14.6 | ||||||||||||||||
Claims liabilities | 30.6 | 30.2 | ||||||||||||||||
Total liabilities | 1,129.3 | 1,099.1 | ||||||||||||||||
Stockholders’ equity: | ||||||||||||||||||
Common stock, $0.01 par value (150,000,000 shares authorized, 52,692,236 and 52,524,853 shares issued; 45,871,088 and 45,703,705 shares outstanding at March 31, 2019 and December 31, 2018, respectively) |
0.5 | 0.5 | ||||||||||||||||
Additional paid-in capital | 283.1 | 283.3 | ||||||||||||||||
Treasury stock at cost (6,821,148 shares of common stock at each of March 31, 2019 and December 31, 2018, respectively) |
(90.6) | (90.6) | ||||||||||||||||
Retained earnings | 377.8 | 381.6 | ||||||||||||||||
Accumulated other comprehensive loss | (6.8) | (7.8) | ||||||||||||||||
Total stockholders’ equity | 564.0 | 567.0 | ||||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,693.3 | $ | 1,666.1 |
CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES | ||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||||||
(In millions, except per share data) | ||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||
March 31, | ||||||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||
Net sales | $ | 3,754.1 | $ | 3,805.9 | ||||||||||||||||||
Cost of goods sold | 3,545.9 | 3,606.1 | ||||||||||||||||||||
Gross profit | 208.2 | 199.8 | ||||||||||||||||||||
Warehousing and distribution expenses | 134.2 | 132.3 | ||||||||||||||||||||
Selling, general and administrative expenses | 65.9 | 63.4 | ||||||||||||||||||||
Amortization of intangible assets | 2.7 | 2.5 | ||||||||||||||||||||
Total operating expenses | 202.8 | 198.2 | ||||||||||||||||||||
Income from operations | 5.4 | 1.6 | ||||||||||||||||||||
Interest expense, net | (3.4) | (3.8) | ||||||||||||||||||||
Foreign currency transaction (losses) gains, net | (0.2) | 0.4 | ||||||||||||||||||||
Income (loss) before income taxes | 1.8 | (1.8) | ||||||||||||||||||||
(Provision for) benefit from income taxes | (0.5) | 0.5 | ||||||||||||||||||||
Net income (loss) | $ | 1.3 | $ | (1.3) | ||||||||||||||||||
Basic and diluted earnings (loss) per share (1) | $ | 0.03 | $ | (0.03) | ||||||||||||||||||
Basic weighted-average shares | 45.9 | 46.2 | ||||||||||||||||||||
Diluted weighted-average shares | 46.0 | 46.2 | ||||||||||||||||||||
(1) Basic and diluted earnings per share are calculated based on unrounded actual amounts. |
CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES | ||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||
March 31, | ||||||||||||||||||||||
2019 |
2018 | |||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||
Net income (loss) | $ | 1.3 | $ | (1.3) | ||||||||||||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||||||||
LIFO and inventory provisions | 7.0 | 6.0 | ||||||||||||||||||||
Amortization of debt issuance costs | 0.2 | 0.2 | ||||||||||||||||||||
Stock-based compensation expense | 1.9 | 1.9 | ||||||||||||||||||||
Bad debt expense, net | 3.1 | 0.3 | ||||||||||||||||||||
Loss on disposals | 0.1 | 0.3 | ||||||||||||||||||||
Depreciation and amortization | 15.4 | 14.9 | ||||||||||||||||||||
Foreign currency losses (gains), net | 0.2 | (0.4) | ||||||||||||||||||||
Deferred income taxes | (0.3) | 0.3 | ||||||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||||
Accounts receivable, net | 5.4 | 1.6 | ||||||||||||||||||||
Other receivables, net | 8.2 | 9.5 | ||||||||||||||||||||
Inventories, net | 180.7 | 60.6 | ||||||||||||||||||||
Deposits, prepayments and other non-current assets | (4.1) | 31.8 | ||||||||||||||||||||
Accounts payable | 29.9 | 34.0 | ||||||||||||||||||||
Cigarette and tobacco taxes payable | (75.8) | (70.7) | ||||||||||||||||||||
Claims, accrued and other long-term liabilities | 2.0 | 12.1 | ||||||||||||||||||||
Net cash provided by operating activities | 175.2 | 101.1 | ||||||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||
Additions to property and equipment, net | (5.1) | (6.9) | ||||||||||||||||||||
Capitalization of software and related development costs | (1.4) | (0.5) | ||||||||||||||||||||
Proceeds from sale of property and equipment, net | 0.2 | — | ||||||||||||||||||||
Net cash used in investing activities | (6.3) | (7.4) | ||||||||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||
Borrowings under revolving credit facility | 340.7 | 463.1 | ||||||||||||||||||||
Repayments under revolving credit facility | (499.2) | (531.3) | ||||||||||||||||||||
Payments on finance leases | (0.9) | (0.7) | ||||||||||||||||||||
Dividends paid | (5.1) | (4.6) | ||||||||||||||||||||
Repurchases of common stock | — | (2.8) | ||||||||||||||||||||
Tax withholdings related to net share settlements of restricted stock units | (2.1) | (1.5) | ||||||||||||||||||||
Decrease in book overdrafts | (3.2) | (6.2) | ||||||||||||||||||||
Net cash used in financing activities | (169.8) | (84.0) | ||||||||||||||||||||
Effects of changes in foreign exchange rates | (0.6) | 0.2 | ||||||||||||||||||||
Change in cash and cash equivalents | (1.5) | 9.9 | ||||||||||||||||||||
Cash and cash equivalents, beginning of period | 27.3 | 41.6 | ||||||||||||||||||||
Cash and cash equivalents, end of period | $ | 25.8 | $ | 51.5 | ||||||||||||||||||
Supplemental disclosures: | ||||||||||||||||||||||
Cash (paid) received during the period for: | ||||||||||||||||||||||
Income taxes, net | $ | (0.2) | $ | (0.1) | ||||||||||||||||||
Interest | $ | (3.1) | $ | (3.2) |
CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES | ||||||||||||||||||||||||||||||||
RECONCILIATION OF DILUTED EARNINGS (LOSS) PER SHARE (U.S. GAAP) TO DILUTED EARNINGS (LOSS) PER SHARE EXCLUDING LIFO EXPENSE (NON-GAAP) AND |
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SUPPLEMENTAL SCHEDULE FOR ITEMS IMPACTING DILUTED EPS | ||||||||||||||||||||||||||||||||
(In millions, except per share data) | ||||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||
Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
2019 (a)(b) |
2018 (a)(b) | % Change | ||||||||||||||||||||||||||||||
Net income (loss) | $ | 1.3 | $ | (1.3) | ||||||||||||||||||||||||||||
Diluted shares | 46.0 | 46.2 | ||||||||||||||||||||||||||||||
Diluted EPS | $ | 0.03 | $ | (0.03) | ||||||||||||||||||||||||||||
LIFO expense, per share | 0.11 | 0.10 | ||||||||||||||||||||||||||||||
Diluted EPS excluding LIFO expense (Non-GAAP) | $ | 0.14 | $ | 0.07 | 100.0% | |||||||||||||||||||||||||||
Additional Items Impacting Diluted EPS: | ||||||||||||||||||||||||||||||||
Cigarette inventory holding gains (1) | $ | 0.14 | $ | 0.11 | ||||||||||||||||||||||||||||
Legacy bad debt expense (2) | (0.03) | — | ||||||||||||||||||||||||||||||
Foreign exchange gains (losses) (3) | — | 0.01 | ||||||||||||||||||||||||||||||
(a) Amounts and percentages have been rounded for presentation purposes and might differ from unrounded results. (b) The per share impacts of the above items were calculated using a tax rate of 26.5% and 26.1% for the three months ended March 31, 2019 and 2018. |
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(1) Cigarette inventory holding gains | ||||||||||||||||||||||||||||||||
Cigarette inventory holding gains were $8.8 million and $7.1 million for the three months ended March 31, 2019 and 2018, respectively. | ||||||||||||||||||||||||||||||||
(2) Legacy bad debt expense | ||||||||||||||||||||||||||||||||
For the three months ended March 31, 2019, a bad debt reserve of $2.0 million was recorded to reserve for the balance of un-reserved receivables pertaining to specific customers with receivable balances exceeding twelve months past due and are no longer deemed collectable. | ||||||||||||||||||||||||||||||||
(3) Foreign exchange gains (losses) | ||||||||||||||||||||||||||||||||
Foreign exchange losses were $0.2 million for the three months ended March 31, 2019. Foreign exchange transaction gains were $0.4 million for the three months ended March 31, 2018. |
CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES | ||||||||||||||||||||||||
RECONCILIATION OF OPERATING EXPENSES AS A PERCENTAGE OF REMAINING GROSS PROFIT (NON-GAAP) | ||||||||||||||||||||||||
(In millions, except percentages)(1) | ||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||
March 31, | ||||||||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Gross profit | $ | 208.2 | $ | 199.8 | ||||||||||||||||||||
Cigarette inventory holding gains | (8.8) | (7.1) | ||||||||||||||||||||||
LIFO expense | 7.0 | 5.9 | ||||||||||||||||||||||
Remaining gross profit (non-GAAP) | $ | 206.4 | $ | 198.6 | ||||||||||||||||||||
Warehousing and distribution expenses | $ | 134.2 | $ | 132.3 | ||||||||||||||||||||
Selling, general and administrative expenses | 65.9 | 63.4 | ||||||||||||||||||||||
Amortization of intangible assets | 2.7 | 2.5 | ||||||||||||||||||||||
Total operating expenses | $ | 202.8 | $ | 198.2 | ||||||||||||||||||||
Warehouse and distribution expense as a percentage of remaining gross profit (non-GAAP) | 65.0% | 66.6% | ||||||||||||||||||||||
Selling, general and administrative expense as a percentage of remaining gross profit (non-GAAP) | 31.9% | 31.9% | ||||||||||||||||||||||
Amortization of intangible assets as a percentage of remaining gross profit (non-GAAP) | 1.3% | 1.3% | ||||||||||||||||||||||
Total operating expense as a percentage of remaining gross profit (non-GAAP) | 98.3% | 99.8% |
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(1) Amounts and percentages have been rounded for presentation purposes and may differ from unrounded results.
Contact:David Lawrence , Vice President of Treasury and Investor Relations, 650-589-9445 x 7923 or at david.lawrence@core-mark.com
Source: Core-Mark Holding Company, Inc.