CST Brands has reported on the company’s great success for the year 2015.
Financial results for the fourth quarter and the year ending Dec. 31, 2015 have been released for CST Brands Inc. CST Brands Inc. remains one of the largest independent retailers of motor fuels and convenience merchandise in North America.
Review of 2015
In 2015, CST continued to advance its strategic goals, through its new-to-industry store expansion, along with acquisition opportunities and the completion of drop down transactions with CrossAmerica.
The Company, alongside CrossAmerica, began the year with the joint purchase of 22 Shell-branded convenience stores from Landmark Industries located in the San Antonio and Austin, Texas markets. Continuing CST’s strategic vision for growth into 2016, the Company announced its largest acquisition to date with the purchase of Flash Foods. The 165 convenience stores located in Georgia and Florida allow the Company to continue to grow and bridge the geographic gap between its existing retail networks. The transaction closed in early 2016.
Completing its first drop down transaction with CrossAmerica in January, CST sold a 5% limited partner interest in CST Fuel Supply LP in exchange for approximately 1.5 million CrossAmerica limited partner common units. This transaction was followed by drop down transactions that were completed on July 1. CST sold an additional 12.5% in CST Fuel Supply LP and the real property associated with 29 New to Industry stores to CrossAmerica for an aggregate consideration of $142 million and 3.6 million common units. CST now owns 18.7% of the outstanding limited partner common units of CrossAmerica.
The Company’s focus on organic growth continued in 2015 with the opening of 31 new stores in the U.S. and 11 in Canada. The Company expects to open a total of 45-50 new stores in the U.S. and 10-15 new stores in Canada during 2016. These new stores provide a much larger footprint that accommodates broader merchandise categories and food offerings, and have more fuel dispensers than the Company’s legacy stores.
“CST enjoyed strong fuel margins in the fourth quarter of 2015, but fuel margins were even stronger in the fourth quarter 2014, resulting in lower fourth quarter 2015 results when compared to 2014. CST still delivered strong results in 2015, primarily due to the continued improvement in our merchandise profitability,” said Kim Lubel, chairman and CEO of CST Brands. “We continue to focus on growing our business, organically and through strategic acquisitions. We recently closed on the Flash Foods acquisition and opened 42 new stores during 2015. Last year’s success was due largely to the dedication and commitment of our over 14,000 employees. I am grateful for their support and contributions to our business.”
Three Months Results
For the three month period ending Dec. 31, 2015, the Company reported net income of $25 million, or 34-cents per diluted share, driven by an increase in merchandise gross profit during the quarter. Net income was $94 million, or $1.21 per diluted share, for the comparable period in 2014. Included in net income are asset impairment charges, acquisition expenses, legal expenses, professional fees and net effects on repatriation of $16 million, net of tax, for the three month period ending Dec. 31, 2015. Asset impairment charges of $5 million, net of tax, and a gain on the sale of assets of $20 million, net of tax, were recorded for the same three month period ending Dec. 31, 2014. Excluding these items, net income would have been $42 million, or 55-cents per diluted share, and $79 million, or $1.02 per diluted share for the three month periods ending Dec. 31, 2015 and 2014, respectively.
Motor fuel gross profit (per gallon) in the U.S. for the fourth quarter of 2015, after deducting credit card fees and amounts distributed to CrossAmerica, was 19-cents compared to 32-cents in the fourth quarter of 2014, which was primarily caused by a steeper declining crude oil and wholesale gasoline pricing environment in the fourth quarter of 2014 compared to 2015. U.S. merchandise and services gross profit increased 6% when compared to the fourth quarter of 2014, primarily driven by an overall increase in merchandise sales driven by the Company’s acquisitions of Nice N Easy and Landmark stores and an increase in the number of New-to-Industry stores.
In Canada, the motor fuel gross profit (per gallon) in U.S. dollars for the fourth quarter of 2015, after deducting credit card fees, was 22-cents compared to 24-cents in the fourth quarter of 2014. Excluding the effects of foreign exchange, the Company’s motor fuel gross profit in Canada increased $4 million for the quarter.
Operating income was $53 million for the fourth quarter 2015, a 66% decline from the $155 million achieved in the fourth quarter 2014. EBITDA (non-GAAP measures, including EBITDA, as described are reconciled to the corresponding GAAP measures in the Supplemental Disclosure section of this release) was $101 million for the three month period ending Dec. 31, 2015 compared to $195 million for the same period in 2014. The decrease in operating income and EBITDA was due primarily to a decrease in U.S. motor fuel gross profit of $70 million.
Twelve Months Results
For the year ending Dec. 31, 2015, the Company reported EBITDA of $422 million. Adjusted EBITDA, which includes the sales of the interests in CST Fuel Supply that occurred in January and July 2015, was $602 million. For the year ending Dec. 31, 2014, the Company reported EBITDA and Adjusted EBITDA of $479 million. Adjusted net income, after considering the sales, net of tax, for the year ending Dec. 31, 2015, was $263 million and diluted earnings per common share was $3.44. For the year ending Dec. 31, 2014, adjusted net income was $200 million and diluted earnings per common share was $2.63. This represents an improvement of more than 30% compared to the same period last year. (Non-GAAP measures, including EBITDA, are described and are reconciled to the corresponding GAAP measures in the Supplemental Disclosure section of this release).
Net income for the year ending Dec. 31, 2015 was $149 million, or $1.95 per diluted share. For the same period in 2014, net income was $200 million, or $2.63 per diluted share. Included in 2015 net income are asset impairment charges, acquisition expenses, legal expenses, professional fees and net effect on repatriation of $22 million, net of tax, and a gain on the sale of assets, net of tax, of $4 million. Included in 2014 net income are asset impairment charges, acquisition expenses, legal expenses and professional fees of $10 million, net of tax, and a gain on the sale of assets, net of tax, of $20 million. Excluding these items, net income would have been $167 million, or $2.19 per diluted share, and $190 million, or $2.50 per diluted share, for the year ending Dec. 31, 2015 and 2014, respectively.
