U.S. merchandise gross profit dollars increased 5%.
CST Brands Inc., one of the largest independent retailers of motor fuels and convenience merchandise in North America, reported financial results for the second quarter ended June 30, 2014.
Three Months Results
For the three month period ending June 30, 2014, the Company reported net income of $32 million, or $0.43 per diluted share. Net income was $41 million, or $0.54 per diluted share, for the comparable period in 2013. Until May 1, 2013, the Company was still a wholly-owned subsidiary of Valero and, as such, the second quarter of 2013 results do not include all of the expenses associated with being a public company.
Operating revenues totaled $3.3 billion for the second quarter of 2014 compared to $3.2 billion for the same period of 2013. The increase in operating revenues was due to an increase in U.S. merchandise sales and a rise in the per gallon average selling price of motor fuel during the period. Partially offsetting the increase in operating revenues was a decline of $69 million due to the weakness of the Canadian dollar relative to the U.S. dollar.
Motor fuel gross profit (per gallon) in the U.S., after deducting credit card fees, was $0.14 compared to $0.17 in the second quarter of 2013, which was primarily caused by the rising price of crude oil and wholesale motor fuel during the period. U.S. merchandise gross profit dollars increased 5% when compared to the second quarter of 2013.
In Canada, the motor fuel gross profit (per gallon), after deducting credit card fees, was $0.25 in both the second quarters of 2014 and 2013. Excluding the effects of foreign exchange, the motor fuel gross profit (per gallon) increased $.01. Canada merchandise gross profit percentage, net of credit card fees, was up slightly during the quarter.
Operating income was $57 million for the second quarter of 2014 compared to $78 million for the second quarter of 2013. EBITDA was $88 million for the three month period ending June 30, 2014 compared to $109 million for the same period in 2013. The decrease in operating income and EBITDA was due primarily to a decrease in motor fuel gross profit of $12 million in the U.S., as discussed above, and increases in operating expenses and general and administrative expenses of $7 million and $5 million, respectively, when compared to the same periods in 2013. The increase in operating expenses was due to an increase in the number of company-operated convenience stores during 2014 and an increase in health care costs in the U.S. The increase in general and administrative expenses was the result of new costs associated with being an independent, stand-alone, public company, including additional corporate personnel and associated benefits and stock-based compensation.
Six Months Results
Net income for the six months ending June 30, 2014 was $43 million, or $0.57 per diluted share. For the same period in 2013, net income was $64 million, or $0.84 per diluted share. During the first four months of 2013, the Company was still a wholly-owned subsidiary of Valero and, as such, the six months ended June 30, 2013 results do not include all of the expenses associated with being a public company.
For the six month period ending June 30, 2014, revenues were approximately $6.3 billion compared to $6.4 billion for the six month period ending June 30, 2013. The decline was driven by a decrease in both the retail price and gallons sold of motor fuel in the U.S. and a decline of $173 million in operating revenues in Canada due to the weakness of the Canadian dollar relative to the U.S. dollar.
Motor fuel gross profit (per gallon) in the U.S., after deducting credit card fees, was $0.12 for both the six months ended June 30, 2014 and 2013. U.S. merchandise gross profit percentage, net of credit card fees, increased to 30.2% for the six months ended June 30, 2014 compared to 29.6% for the same period of the prior year.
In Canada, the motor fuel gross profit (per gallon), after deducting credit card fees, was $0.23 for the six months ended June 30, 2014 and $0.24 for the same period of the prior year. Excluding the effects of foreign exchange, the motor fuel gross profit (per gallon) increased $.01. Canada merchandise gross profit percentage, net of credit card fees, increased to 28.1% for the six months ended June 30, 2014 compared to 27.7% for the same period of the prior year.
Operating income was $82 million for the six months ending June 30, 2014 compared to $110 million for the six months ending June 30, 2013. EBITDA was $145 million for the six month period ending June 30, 2014 compared to $172 million for the same period in 2013. The primary reasons for the declines were increases in general and administrative expenses and operating expenses of $15 million and $12 million, respectively, when compared to the same periods in 2013.
The increase in general and administrative expenses was the result of new costs associated with being an independent, stand-alone, public company, including additional corporate personnel and associated benefits and stock-based compensation. The increase in operating expenses was due to an increase in the number of company operated convenience stores during 2014 and an increase in health care costs in the U.S.
“We experienced a challenging fuel environment during the second quarter, especially in the U.S., as crude oil and wholesale motor fuel prices continued this steady rise,” observed Kim Bowers, chairman & CEO of CST Brands. “However, the in-store business remained strong with further improvements in merchandise sales and merchandise margins. Our Canadian Operations also experienced a strong quarter, improving motor fuel and merchandise gross profit during the period, absent the effects of foreign exchange. Moreover, the CST team opened a new chapter in our short history with the announcement of the proposed acquisition of the general partner along with the incentive distribution rights of Allentown, Pa.-based Lehigh Gas Partners LP, which we expect to close early in the fourth quarter of this year.”
New Store Openings
Year to date, the Company has opened 12 new stores in the U.S. and two stores in Canada. The Company currently expects to build 30 new stores in the U.S. and eight new stores in Canada during 2014. These new stores provide a much larger footprint, more product variety and enhanced offerings such as foodservice.
Liquidity and Capital Resources
For the six month period ending June 30, 2014, cash flow provided by operating activities totaled $168 million. Cash flow used in investing activities was $92 million, primarily related to capital expenditures. Cash flow used in financing activities was $26 million, due to payments of long-term debt and dividends. Overall, cash increased by $50 million. Cash, as of June 30, 2014, was $428 million.
Total capital expenditures for the three and six months ended June 30, 2014 were $45 million and $88 million, respectively.
