Alimentation Couche-Tard Inc. has released its results for the fourth quarter and the results are encouraging.
For its fourth quarter, which ended April 26, 2015, Alimentation Couche‑Tard Inc. announced net earnings of $129.5 million, representing $0.23 per share on a diluted basis.
The results for the fourth quarter of fiscal 2015 were affected by non‑recurring restructuring and integration costs of $22.2 million mainly in connection with the acquisition of The Pantry, a net foreign exchange gain of $3.5 million and a $0.6 million additional loss on disposal of the aviation fuel business.
The results from the fourth quarter of fiscal 2014 included a net foreign exchange loss of $8.7 million as well as a non‑recurring income tax recovery of $28.2 million. Excluding these items as well as the acquisition costs and negative goodwill from both comparable quarters’ results, the diluted net earnings per share would have been $0.25 for the fourth quarter of fiscal 2015 compared with $0.22 for the fourth quarter of fiscal 2014, an increase of 13.6%. This increase is attributable to continued organic growth and higher fuel margins as well as to the contribution from acquisitions. These items, were offset in part by the strengthening of the U.S. dollar against the corporation’s other functional currencies and by a higher income tax rate. All financial information is in U.S. dollars unless stated otherwise.
- Excluding non‑recurring items for both comparable periods, net earnings for the quarter would have been approximately $142.0 million ($0.25 per share on a diluted basis) compared with $123.0 million ($0.22 per share on a diluted basis) for the fourth quarter of fiscal 2014, an increase of 15.4%.
- Same‑store merchandise revenues up 5.2% in the U.S., 3.0% in Europe and 3.8% in Canada. Same‑store merchandise revenues in the U.S. include The Pantry’s results from the acquisition date.
- Merchandise and service gross margin stood at 33.4% in the U.S., at 42.1% in Europe and at 32.5% in Canada, for a consolidated margin of 34.1%.
- Same‑store road transportation fuel volumes grew by 6.4% in the U.S., 3.7% in Europe and 1.5% in Canada. Same‑store road transportation fuel volume in the U.S. includes The Pantry’s results from the acquisition date.
- Road transportation fuel gross margin at US 15.46¢ per gallon in the U.S., at US 8.55¢ per liter in Europe and at CA 6.18¢ per liter in Canada. Because it is presented in US dollars, the margin in Europe is significantly affected by the negative impact of foreign currency translation. In local currency, the margin in Europe was higher than that of the fourth quarter of fiscal 2014.
- Repurchase of the long-term debt assumed in connection with the acquisition of The Pantry.
- Quarterly dividend increase of more than 22.0% to CA 5.5¢ considering our strong balance sheet and our dividends distribution practices.
- Subsequent to the end of the quarter, in relation to the acquisition of The Pantry, issuance of Canadian dollar denominated senior unsecured notes totaling CA $700.0 million at satisfactory conditions and cross-currency interest rate swaps for the same amount, allowing for the synthetic conversion of Canadian dollar notes into US dollars.
“Our performance in the fourth quarter was a great way to end an exceptional fiscal year. It allowed us to begin fiscal year 2016 with the momentum needed to achieve the ambitious goals we have set for ourselves” said Brian Hannasch, president and CEO. “In all our markets, we recorded strong organic growth while maintaining our solid profit margins, confirming the sustainability of our strategies. In Europe, our proprietary miles fuel brand continues to gain traction and to perform well against the market, allowing us to grow volumes despite a relatively flat demand. In the U.S., we have experienced our strongest growth since the beginning of the financial crisis in 2008. We are applying all of our best practices to The Pantry’s network and the integration is going well. In line with our business model, our people are already actively working on sharing best practices, benchmarking and on the identification and realization of synergies, which should not only benefit our newly acquired network but also our existing network. We have just completed The Pantry’s budget process and I am very excited about what I have seen and heard. The opportunities are plentiful and our teams are eager to make the most of them. I am confident that we will be able to meet our objectives and continue creating value for our shareholders and other stakeholders.”
Hannasch concluded, “We are also looking forward to closing the transaction with A/S Dansk Shell in Denmark. We are working with the local competition authorities to secure a successful conclusion and we are still expecting the transaction to close before the end of Fiscal 2016.”
“We are very proud of our fourth quarter results, but even prouder of our ability to demonstrate strong, sustained growth, quarter after quarter, year after year,” Raymond Paré, vice president and chief financial officer said. “Even after the acquisition of The Pantry, our financial position remains strong, with very good leverage ratios which are already decreasing, as per our commitment. In addition, the issuance in May of CA$700.0 million in Canadian dollar denominated senior unsecured notes was achieved under very satisfactory conditions. This gives us an even better financial structure and greater flexibility. We will continue to ensure we are well positioned to take advantage of any opportunities that might present themselves in the future and, hopefully, further improve our credit profile and ratings. Our return on capital employed dropped slightly on a pro forma basis following the acquisition of The Pantry, as expected, but we are still best in class. We are already hard at work to bring it back to a level in line with our expectations. To achieve this, we will use the usual tools we have at our disposal, including the realization of synergies and other opportunities coming from the acquisition of The Pantry and those still available in Europe as well as our proven ability to generate strong and sustainable organic growth. Our results clearly show the advantages of our business model, our culture and our geographic diversification. The future holds many opportunities and by applying our disciplined financial investment strategy we will undeniably capitalize on such prospects.”
Fiscal 2015 Overview
The corporation closed the fourth quarter of fiscal 2015 with net earnings of $129.5 million, compared with $145.1 million for the fourth quarter of the previous fiscal year. Diluted net earnings per share stood at $0.23, compared with $0.25 for the previous year. The translation of revenues from Canadian and European operations into the U.S. dollars had a negative net impact of approximately $8.6 million on net earnings of the fourth quarter of fiscal 2015.
Excluding from the fourth quarter of fiscal 2015 earnings restructuring and integration costs of $22.2 million, the net foreign exchange gain of $3.5 million, acquisition costs of $1.2 million, the $0.6 million loss from the disposal of our aviation fuel business as well as the negative goodwill of $0.1 million and excluding from the fourth quarter of fiscal 2014 earnings the non-recurring income tax recovery, the net foreign exchange loss, the negative goodwill as well as acquisition costs, the fourth quarter of fiscal 2015 net earnings would have been approximately $142.0 million, compared with $123.0 million for the fourth quarter of fiscal 2014, an increase of $19.0 million or 15.4%. Adjusted diluted net earnings per share were $0.25 for the fourth quarter of fiscal 2015 compared with $0.22 for the corresponding period of fiscal 2014, an increase of 13.6%. This increase is attributable to continued organic growth and higher fuel margins as well as to the contribution from acquisitions. These items, were offset in part by the strengthening of the U.S. dollar against the Corporation’s other functional currencies and by a higher income tax rate.
Net earnings amounted to $933.5 million for fiscal 2015. Fiscal 2015 results were affected by restructuring and integration costs of $30.3 million in connection with the acquisition of The Pantry and restructuring activities in Europe, a net foreign exchange loss of $22.7 million, a non-recurring $41.8 million tax expense related to an internal reorganization, an $11.0 million loss from the disposal of our aviation fuel business, a curtailment gain on defined benefits pension plans obligation of $2.6 million as well as a negative goodwill of $1.2 million. On the other hand, the results of fiscal 2014 included a negative goodwill of $48.4 million, a non-recurring income tax recovery of $28.2 million, a net foreign exchange loss of $10.1 million, a $6.8 million impairment charge over a non-operational lubricant plant in Poland, as well as a $0.9 million curtailment gain on pensions plan obligation.
Excluding these items as well as acquisition costs from both periods, fiscal 2015 net earnings would have been approximately $1,022.0 million ($1.80 per share on a diluted basis) compared with $766.0 million ($1.35 per share on a diluted basis) for fiscal 2014, an increase of $256.0 million, or 33.4%. This significant growth in net earnings is attributable to higher road transportation fuel margins, to the continuous strong organic growth from merchandise and services and road transportation fuel, to the contribution from acquisitions as well as to the decrease in financial expenses following the repayment of a significant portion of our debt during the first three quarters. These items, which contributed to the growth in net earnings, were partially offset by the negative net impact from the translation of revenues and expenses from our Canadian and European operations into the U.S. dollar and by a higher tax rate.
Acquisition of The Pantry Inc. (“The Pantry”)
On March 16, 2015, Couche-Tard acquired 100% of the outstanding shares of The Pantry, a leading convenience store operator in the southeastern U.S. and one of the largest independently operated convenience store chains in the U.S., through an all-cash transaction valued at $36.75 per share or $850.7 million. During the 52‑week period which ended April 26, 2015, Couche-Tard recorded to earnings transaction costs of $0.9 million, in connection with this acquisition.
The Pantry acquisition included approximately 1,500 convenience stores in 13 states under select banners, including Kangaroo Express, the primary operating banner. The company financed this transaction using existing credit facilities, for which the limit has been increased for the purpose of this transaction.
The results for the 12 and 52‑week periods ended April 26, 2015 include those of The Pantry for the period beginning March 16, 2015 and ending April 26, 2015.
Synergies and cost reduction initiatives
Couche-Tard is working on realizing the identified synergies and cost reduction opportunities. It estimates achieving a minimum of $85 million in cost reductions over the 24 months following the acquisition in addition to growing in-store sales and fuel volumes in this geographic area through the improvement of our operations and a better brand combination by sharing its business awareness, each company’s best practices and better supply conditions.
Since the acquisition, Couche-Tard has already taken actions that should allow it to record cost reductions it estimates to approximately $45 million before income taxes on an annual basis. These cost reductions should mainly reduce operating, selling, administrative and general expenses as thus are mainly related to the reduction of overhead costs.