Core-Mark Announces Second Quarter 2019 Financial Results

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WESTLAKE, Texas, Aug. 07, 2019 (GLOBE NEWSWIRE) -- Core-Mark Holding Company, Inc. (NASDAQ: CORE) (“the Company”), one of the largest marketers of fresh and broad-line supply solutions to the convenience retail industry in North America, announced financial results for the second quarter ended June 30, 2019.

“Our results in the second quarter reflect continued execution on our strategic priorities that drove strong same store sales growth in higher margin non-cigarettes, margin expansion from a favorable sales mix shift within the non-cigarette category and operating expense leverage,” said Scott E. McPherson, President and Chief Executive Officer.  “Our results, both for the quarter and year-to-date, demonstrate our ability to drive earnings growth as we execute on multiple levers to grow sales, expand margins and leverage costs.”

Net sales increased 2.7% to $4.3 billion compared to $4.2 billion for the same period in 2018, driven by growth in non-cigarette sales to existing customers and net market share gains.  Non-cigarette sales increased 8.8% driven by a 7.5% increase in sales to existing customers and net market share gains.  Non-cigarette sales increased to 34.7% of total net sales for the second quarter of 2019 compared to 32.7% of total net sales for the same period in 2018.  Cigarette sales decreased 0.3% driven primarily by declines in carton sales to existing customers, partially offset by manufacturer price increases and net market share gains.

Gross profit increased 10.1% to $238.9 million compared to $216.9 million for the same period in 2018.  The increase in gross profit was driven primarily by an increase in non-cigarette sales to existing customers, net market share gains and strong growth in alternative nicotine products, partially offset by a decline in cigarette cartons sold. Remaining gross profit, a non-GAAP financial measure, increased 10.1% to $242.5 million from $220.3 million.

Gross profit margin increased 38 basis points to 5.51% of total net sales from 5.13% for the same period in 2018.    Remaining gross profit margin expanded 38 basis points to 5.59% from 5.21%.  The increase in gross profit margin was driven primarily by an overall shift in sales mix towards higher margin non-cigarette products, growth in sales of higher margin alternative nicotine products, higher margins in the food category and the benefit of our strategic pricing initiative.

______________________________________Note (1): See below for the “Reconciliation of Net Income 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:

The Company’s operating expenses were $210.5 million compared to $198.6 million for the same period in 2018.  The increase in operating expenses was driven primarily by higher distribution expenses and costs associated with the relocation of our corporate headquarters.  Operating expenses as a percentage of remaining gross profit decreased to 86.8% compared to 90.1% for the second quarter of 2018 due primarily to the positive effects of the sales mix shift to higher margin non-cigarette products and efficiencies in warehouse operations.

Net income improved to $17.7 million compared to $11.0 million for the same period in 2018, a 60.9% increase.  Adjusted EBITDA, a non-GAAP financial measure, increased 26.2% to $53.5 million compared to $42.4 million for the second quarter of 2018.  The increases in net income and Adjusted EBITDA were due primarily to higher gross profit from the overall shift in sales mix to higher margin non-cigarette products and operating expense leverage.

The following table reconciles Adjusted EBITDA to net income, its most comparable financial measure under U.S. GAAP:

______________________________________________

(1) Interest expense, net, is reported net of interest income.

Diluted Earnings per Share (EPS) was $0.38 compared to $0.24 for the second quarter of 2018.  Diluted EPS excluding LIFO expense, a non-GAAP financial measure, was $0.50 compared to $0.35 for the second quarter of 2018.  See the attached “Supplemental Schedule for Items Impacting Diluted EPS.”

Net sales increased by 0.8% to $8.1 billion compared to $8.0 billion for the same period in 2018 due primarily to an increase in non-cigarette sales of 5.3%.  This increase in non-cigarette sales was driven primarily by growth in sales to existing customers, led by the increasing popularity of alternative nicotine products.  Non-cigarette sales increased to 34.5% of total net sales for the first quarter of 2019 compared to 33.0% of total net sales for the same period in 2018.  Cigarette sales decreased 1.5% driven primarily by declines in carton sales which were partially offset by manufacturer price increases.

Gross profit increased 7.3% to $447.1 million from $416.7 million for the same period in 2018.  The increase in gross profit was driven primarily by the growth in non-cigarette sales, including strong growth in alternative nicotine products.  Remaining gross profit, a non-GAAP financial measure, increased 7.2% to $448.9 million from $418.9 million.

Gross profit margin increased 33 basis points to 5.52% of total net sales during the first six months of 2019 from 5.19% for the same period in 2018.  Remaining gross profit margin improved by 33 basis points to 5.55% in the first half of 2019 from 5.22% for the same period in 2018 driven primarily by a shift in sales mix toward higher margin non-cigarette items, in addition to an increase in the overall margin for non-cigarette sales.

The following table reconciles remaining gross profit, a non-GAAP financial measure, to gross profit, its most comparable financial measure under U.S. GAAP:

The Company’s operating expenses for the first six months of 2019 were $413.3 million compared to $396.8 million for the same period in 2018.  The increase in operating expenses was due primarily to higher distribution and bad debt expenses, as well as costs associated with the relocation of our corporate headquarters.  Operating expenses as a percentage of remaining gross profit, a non-GAAP measure, improved to 92.1% compared to 94.7% for the first six months of 2018 due to the shift in sales mix to higher margin non-cigarette products, warehouse productivity and general cost containment.

Net income was $19.0 million compared to $9.7 million for the same period in 2018, a 95.9% increase.  Adjusted EBITDA, a non-GAAP financial measure, was $83.2 million compared to $66.7 million for the first six months of 2018, a 24.7% increase.  The increases in net income and Adjusted EBITDA were due primarily to higher gross profit from a favorable sales mix shift toward higher margin non-cigarette products and operating expense leverage.

The following table reconciles Adjusted EBITDA to net income, its most comparable financial measure under U.S. GAAP:

______________________________________________

(1) Interest expense, net, is reported net of interest income.

Diluted EPS was $0.41 for the first six months of 2019 compared to $0.21 for the same period in 2018.  Diluted EPS excluding LIFO expense, a non-GAAP financial measure, was $0.64 for the first six months of 2019 compared to $0.42 for the same period in 2018.  See the attached “Supplemental Schedule for Items Impacting Diluted EPS.”

Core-Mark announced today that its Board of Directors has approved an $0.11 cash dividend per common share.  The dividend is payable on September 13, 2019 to stockholders of record as of the close of business on August 22, 2019.

The Company reaffirms guidance for the full year of 2019.  Annual net sales for 2019 are expected to be between $16.8 billion and $17.0 billion.  Diluted EPS for the year are estimated to be between $1.09 and $1.19 and Diluted EPS, excluding LIFO expense, in a range of $1.50 to $1.60.  The Company expects Adjusted EBITDA to be between $176 million and $182 million.  Key assumptions include $25.0 million in LIFO expense, a 25%  tax rate and 46.0 million fully diluted shares outstanding.  The Company’s financial outlook includes cigarette inventory holding gains of $19 million.  Capital expenditures for 2019 are expected to be approximately $30 million.

Core-Mark will host an earnings call on Wednesday, August 7, 2019 at 8:00 a.m. Central time during which management will review the results of the second quarter of 2019.  The call may be accessed by dialing 1-800-588-4973 using the code 48871367.  The call may also be listened to on the Company’s website at .

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  for approximately 90 days following the call.

Core-Mark is one of the largest marketers of fresh and broad-line supply solutions to the convenience retail industry in North America.  Founded in 1888, Core-Mark offers a full range of products, marketing programs and technology solutions to approximately 43,000 customer locations in the U.S. and Canada through 32 distribution centers (excluding two distribution facilities the Company operates as a third-party logistics provider).  Core-Mark services traditional convenience stores, grocers, drug stores, big box & supercenter stores, liquor and specialty stores, and other stores that carry convenience products.  For more information, please visit .

Contact: David Lawrence, Vice President of Treasury and Investor Relations, 1-800-622-1713 x 7923 or david.lawrence@core-mark.com

This press release includes non-GAAP financial measures including Diluted EPS excluding LIFO expense, Adjusted EBITDA, remaining gross profit, and operating expenses 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 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.

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, our 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, disruptions or security breaches 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, regulations and other matters negatively affecting the cigarette, tobacco and alternative nicotine 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 SEC on March 1, 2019 and Part II, Item 1A, “Risk Factors” of any quarterly report on Form 10-Q subsequently filed by us for a more comprehensive discussion of these and other risk factors.  In addition, please note that the date of this press release is August 7, 2019, and any forward-looking statements contained herein are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

______________________________________________                   

(1)     Amounts and percentages have been rounded for presentation purposes and may differ from unrounded results. 

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Globe Newswire: 11:00 GMT Wednesday 7th August 2019

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