CST Brands Inc., one of the largest independent retailers of motor fuels and convenience merchandise in North America, reported financial results for the first quarter ended March 31, 2015.
Three Months Results
“Led by a strong U.S. fuel margin along with continued growth in same store merchandise sales, both in the U.S. and Canada, we delivered solid results for the first quarter of 2015,” said Kim Lubel, chairman and CEO of CST Brands Inc. “The momentum in inside store traffic has positioned us well for the upcoming summer driving season.”
For the three month period ended March 31, 2015, the company reported net income of $14 million, or $0.18 per diluted share, primarily driven by a significant increase in motor fuel gross profit during the quarter. Net income was $11 million, or $0.14 per diluted share, for the comparable period in 2014. Reflected in net income are acquisition expenses, legal expenses and professional fees of $5 million, net of tax, and a gain on the sale of assets of $3 million, net of tax, related to store divestitures for the three month period ended March 31, 2015. Excluding these items, net income would have been $16 million, or $0.20 per diluted share.
Operating income was $31 million for the first quarter 2015 compared to $25 million for the first quarter 2014.
EBITDA (non-GAAP measures, including EBITDA, are described and are reconciled to the corresponding GAAP measures in the Supplemental Disclosure section of this release) was $66 million for the three month period ended March 31, 2015 compared to $57 million for the same period in 2014. The increase in operating income and EBITDA was due primarily to an increase in motor fuel gross profit of $19 million and an increase in merchandise gross profit of $5 million in the U.S., partially offset by increases in operating expenses and general and administrative expenses of $7 million and $14 million, respectively, when compared to the same periods in 2014.
The increase in operating expenses was due to the acquisitions of Nice N Easy and Landmark stores in the U.S., along with the addition of 33 “New to Industry” stores when compared to the first quarter 2014. The increase in general and administrative expenses was primarily the result of severance costs, acquisition costs, legal related expenditures and incentive compensation.
Motor fuel gross profit (per gallon) in the U.S. for the first quarter of 2015, after deducting credit card fees, was $0.14 compared to $0.10 in the first quarter of 2014, which was primarily caused by a declining crude oil and wholesale gasoline pricing environment. U.S. merchandise gross profit increased 5% when compared to the first quarter of 2014, primarily driven by the Company’s “New to Industry” stores.
In Canada, the motor fuel gross profit (per gallon) for the first quarter of 2015, after deducting credit card fees, was $0.21 or flat, when compared to the first quarter of 2014. Excluding the effects of foreign currency exchange, the motor fuel gross profit (per gallon) increased $0.03 over the same period in 2014.
Operating revenues totaled $2.2 billion for the first quarter of 2015 compared to $3.0 billion for the same period of 2014. The decrease in operating revenues was primarily due to a decrease in the per gallon average selling price for both the U.S. Retail and Canadian Retail segments. The average motor fuel selling price per gallon for our U.S. segment during the first quarter 2015 was $1.10 lower when compared to the price for the same period last year or a decline of 33 percent. Additionally, a decline of $86 million due to the weakness of the Canadian dollar relative to the U.S. dollar contributed to the decrease in operating revenues.
Sale of Wholesale Fuel Supply Equity Interests
In January 2015, the Company closed on the sale of a 5% limited partner equity interest in CST Fuel Supply to CrossAmerica Partners LP (“CrossAmerica”) in exchange for common units representing an approximate 6.1% limited partner interest in CrossAmerica. The value of the common units at closing was approximately $60 million. Because this transaction was between entities under common control, the Company did not record a gain on the sale of CST Fuel Supply.
Liquidity and Capital Resources
For the quarter ended March 31, 2015, cash flow provided by operating activities totaled $58 million. Cash flow used in investing activities was $54 million, primarily related to capital expenditures and acquisitions. Cash flow used in financing activities was $28 million, including payments of long-term debt of $9 million, dividends of $5 million and the buyback of common stock of $14 million. The effect of foreign currency exchange rates was a reduction in cash of $20 million. Overall, cash decreased by $44 million. Cash, as of March 31, 2015, was $309 million.
Total capital expenditures, excluding acquisitions, for the three months ended March 31, 2015 and 2014 were $50 million and $43 million, respectively.