Core-Mark optimistic as third quarter results reveal company gains in the last quarter.

Core-Mark Holding Co. Inc. has released the financial results for its third quarter ending Sept. 30, 2015.  

“Core-Mark is having a very good year driven by significant market share gains and continued success in our core strategies. We remain focused on infrastructure investments to support our growth and integration efforts to prepare for Murphy USA and other customer account wins. We are excited about our future and continue to focus on additional market share gains, the execution of our core strategies and operational excellence,” said Thomas Perkins, president and CEO.

Third Quarter Results
Net sales increased 8.9% to $3 billion for the third quarter of 2015 compared to $2.7 billion for the same period in 2014. Excluding the impact of foreign currency fluctuations, net sales increased 11.3%. Non-cigarette sales increased 5.9% led by food category sales, which increased 8.6%, driven primarily by the company’s core strategies. Cigarette sales increased 10.3% driven primarily by an increase in cigarette carton sales due mostly to market share gains.  

Gross profit increased 13.3% to $171.6 million for the third quarter of 2015 compared to $151.4 million for the same period in 2014 driven primarily by increases in sales volume and margins, an $8.3 million cigarette tax stamp inventory holding gain and a $3.2 million reduction in LIFO expense. Gross profit in the third quarter of 2014 included $5.2 million of candy inventory holding gains and $2.3 million of other tobacco products tax refunds. Remaining gross profit increased 10.5% to $166 million driven primarily by higher sales and margins in the non-cigarette categories. Non-cigarette remaining gross profit margins increased 41 basis points to 12.57% driven in part by sales growth in the food category and a sales shift towards other higher margin items. 

The company’s operating expenses for the third quarter of 2015 were $146.2 million compared to $131.2 million for the same period in 2014. Operating expenses as a percentage of net sales were 4.9% for the third quarter of 2015 compared to 4.8% for the third quarter of 2014. The increase in operating expenses in the third quarter of 2015 includes approximately $4.5 million of incremental expenses from the company’s new Ohio division and the addition of Karrys Bros. acquired earlier in 2015. In addition, operating expenses in the third quarter this year were impacted by increases in the amount of cubic feet of product handled, incremental customer deliveries, investment spending to support our growth and $0.9 million related to the lump sum settlement of pension liabilities.  

Net income for the third quarter of 2015 was $15.1 million compared to $13.7 million for the same period in 2014. Adjusted EBITDA increased 13.2% to $41.3 million in the third quarter of 2015 compared to $36.5 million in the third quarter of 2014. The increases in net income and Adjusted EBITDA for the third quarter of 2015 were driven primarily by an increase in gross profit.  

Diluted earnings per-share (EPS) were 65 cents for the third quarter of 2015 compared to 59 cents for the third quarter of 2014. Excluding LIFO expenses, diluted EPS were 73 cents for the third quarter of 2015 compared to 76 cents for the third quarter of 2014. EPS compared to prior year was impacted by foreign currency transaction losses and a $1.2 million reduction in tax benefits that increased our effective tax rate. In addition, per-share results were impacted by several other items as well. 

First Nine Months of 2015
Net sales increased 7.6% to $8.3 billion for the first nine months of 2015 compared to $7.7 billion for the same period in 2014. Excluding the impact of foreign currency fluctuations, net sales increased 9.5%. This growth was driven primarily by an increase in cigarette carton sales, including market share gains, an increase in cigarette prices and an increase in non-cigarette sales. Non-cigarette sales grew 6.7% while cigarette sales increased 8%.  

Gross profit increased 11.6% to $467.8 million for the first nine months of 2015 compared to $419.1 million for the same period in 2014. Remaining gross profit increased 9.6% to $461.5 million driven by a 10% increase in non-cigarette remaining gross profit compared to the same period last year and an 8.3% increase in cigarette remaining gross profit. Non-cigarette remaining gross profit margin increased 39 basis points to 12.57% driven primarily by sales growth in the Food category and a sales shift towards higher margin items.  

The company’s operating expenses for the first nine months of 2015 were $410.3 million compared to $373.8 million for the same period of 2014. Operating expenses as a percentage of net sales were 5% for the first nine months of 2015 and 4.9% for the first nine months of 2014. The increase in operating expenses this year compared to last year, included $13.6 million of incremental expenses from the company’s new Ohio division and the addition of Karrys Bros. acquired earlier in 2015. In addition, increases in the amount of cubic feet of product handled, incremental customer deliveries and investment spending to support our growth contributed to higher operating costs for the first nine months of 2015. 

Net income for the first nine months of 2015 was $33.8 million compared to $28.1 million for the same period in 2014. Adjusted EBITDA increased 17.4% to $101.7 million in the first nine months of 2015 compared to $86.6 million in the first nine months of 2014. The increase in net income for the first nine months of 2015 was driven primarily by an increase in gross profit.  

Diluted EPS were $1.45 for the first nine months of 2015 compared to $1.21 for the same period in 2014. Excluding LIFO expenses, diluted EPS were $1.69 for the first nine months of 2015 compared to $1.57 for the same period in 2014, a 7.6% increase. Per-share results were impacted by several other items, which are provided in the attached diluted EPS table following the financial schedules. 

Dividend
Core-Mark also announced its Board of Directors has approved a 16 cent cash dividend per common share for the fourth quarter, or 64 cents annually, an increase of three cents per quarter from the prior dividend. The dividend for the three months ended September 30, 2015 is payable on December 15, 2015 to stockholders of record as of the close of business on November 20, 2015. 

Guidance for 2015
The company has reiterated its net sales and Adjusted EBITDA guidance for the full year of 2015. Net sales are expected to be between $11 billion and $11.2 billion and Adjusted EBITDA is expected to be between $133 million and $136 million. 

The company has adjusted its diluted EPS guidance for the full year due to higher than expected foreign currency transaction losses, additional expansion costs related to onboarding its large customer wins, offset by a reduction in LIFO expense. Reflecting the aforementioned items, diluted EPS is now expected to be between $2.08 and $2.15, previously $2.03 to $2.10 and diluted EPS, excluding LIFO expense, are now expected to be between $2.40 and $2.47, previously $2.45 to $2.52. Management still anticipates a tax rate of approximately 38%. Diluted shares outstanding are now expected to be 23.3 million, previously 23.4 million and LIFO expense is estimated to be approximately $12 million, previously $16 million. 

The company reaffirmed capital expenditure estimates for 2015 of approximately $35 million, which will be utilized for expansion projects and maintenance investments.