CST Brands encountered impressive growth, both in stores and at the pump, during the second quarter of 2016.
CST Brands Inc. has released the company’s financial results for the second quarter ending June 30, 2016.
“During the second quarter of 2016, we grew the company with impressive results both inside the stores and at the fuel pumps,” said Kim Lubel, chairman and CEO of CST Brands. “This was led by continuing and substantial improvements in the U.S. with overall gross profits climbing to $233 million on increased sales and a 110 basis point improvement in merchandise and services margin capture over the second quarter of 2015. Our Canadian stores grew merchandise and services gross profits 10%, excluding the effects of foreign currency change.”
“We closed on the sale of our California and Wyoming properties, allowing us to bring down our debt and position the company for continued growth. The integration of our Flash Foods network is on target and we have opened two new stores in Georgia and Florida. We have opened a total of 18 new stores in 2016 with 39 additional stores under construction. I am pleased with our continued growth, reach, and ability to delight more customers every day,” Lubel continued.
Second Quarter Results
For the three month period ended June 30, 2016, the company reported net income of $27 million, or 36 cents per diluted share compared to net income of $25 million, or 32 cents per diluted share, for the same period in 2015. This improvement in net income was driven by an increase in both the U.S. and Canada motor fuel and merchandise and services gross profit during the quarter. For the three month period ended June 30, 2016, included in net income are certain acquisition expenses, legal expenses and professional fees of $2 million, net of tax. For the same period in 2015, included in net income was a gain on the sale of assets of $1 million, net of tax. Excluding these special items, net income would have been $29 million, or 39 cents per diluted share, and $24 million, or 31 cents per diluted share, for the three month periods ended June 30, 2016 and 2015, respectively.
EBITDA (non-GAAP measures, including EBITDA, as described are reconciled to the corresponding GAAP measures in the Supplemental Disclosure section of this release) was $98 million for the three month period ended June 30, 2016 compared to $80 million for the same period in 2015 or a 23% increase. The increase in EBITDA was due primarily to an increase in both the U.S. and Canada motor fuel and merchandise and services gross profits.
U.S. merchandise and services gross profit increased 27% when compared to the second quarter of 2015, primarily driven by an overall increase in merchandise sales and gross margins in the company’s U.S. core and New-to-Industry (“NTI”) store sales, aided by acquisition and organic growth, including the company’s acquisition of the Flash Foods stores. In addition to the improvement in non-fuel operations, motor fuel gross profit in the U.S. for the second quarter of 2016 grew to $73 million versus $59 million in the same quarter of 2015, which resulted from an increase in motor fuel gallons sold related to the company’s Flash Foods acquisition, an increase in premium fuel sales and favorable crude oil and wholesale motor fuel price trends.
In Canada, motor fuel gross profit increased 3% and merchandise and services gross profit increased 5% when compared to the second quarter of 2015, primarily driven by an increase in volume of motor fuel sold along with an improvement in merchandise and services sales that included grocery and packaged beverages. On a same-store basis, merchandise and services sales per site per day increased 5% when compared to the second quarter of 2015. Excluding the effects of foreign currency exchange, the company’s overall gross profit in Canada would have increased 12% for the three month period ended June 30, 2016 when compared to the same period in 2015.
Six Months Results
For the six month period ended June 30, 2016, the company reported net income of $46 million, diluted earnings per common share of 61 cents and EBITDA of $177 million. For the six month period ended June 30, 2015, the company reported net income of $39 million, diluted earnings per common share of 50 cents and EBITDA of $146 million. The 21% growth in year-to-date EBITDA was driven in part by continued improvement in the company’s merchandise and services gross profits, including same-store sales gross profit growth in the U.S. and Canada of 6% and 6%, respectively (non-GAAP measures, including EBITDA, are described and are reconciled to the corresponding GAAP measures in the Supplemental Disclosure section of this release).
Year to date, the company has grown its company-operated stores by 19%; however, operating expenses have only increased 16% for the six month period ended June 30, 2016 when compared to the same period in 2015. The increase in company-operated stores was due to the acquisition of Flash Foods and NTI store openings.
Liquidity and Capital Resources
For the six months ended June 30, 2016, cash flow provided by operating activities totaled $186 million. Cash flow used in investing activities was $579 million, primarily related to capital expenditures and the Flash Foods acquisition. Total capital expenditures, excluding acquisitions, for the six months ended June 30, 2016 and 2015 were $140 million and $116 million, respectively. Cash flow provided by financing activities was $275 million, including net proceeds under the CST Brands’ revolving credit facility of $311 million, dividends of $10 million and payments of $31 million on the CST Brands’ term loan. The effect of foreign currency exchange rates was a decrease in cash of $2 million. Overall, cash decreased by $120 million. Cash, as of June 30, 2016, was $193 million.
On July 7, 2016, CST Brands consummated the previously announced sale of all 79 stores in the California and Wyoming markets to 7-Eleven Inc. and its wholly-owned subsidiary, SEI Fuel Services Inc. The closing purchase price for the transaction was $408 million plus adjustments for inventory and working capital. With the closing of this transaction, CST Brands expects to realize a significant tax benefit from the completion of a like kind exchange strategy with its acquisition of the Flash Foods properties in Georgia and Florida that closed earlier this year. The company used $297 million of the cash proceeds from the sale to repay borrowings under CST’s revolving credit facility. As of August 3, 2016, approximately $419 million was available for future borrowings under CST Brands’ revolving credit facility.
Continued Review of Strategic Alternatives
The company announced on March 3, 2016 that it was commencing an exploration of strategic alternatives to further enhance stockholder value. This process is active and continuing. The company does not intend to provide updates unless or until it determines that disclosure is appropriate or necessary.
Basis of Presentation
The CST Brands Statements of Income are presented on a consolidated basis; however, the amounts presented account for CST’s investment in CrossAmerica under the equity method of accounting. CrossAmerica is a consolidated variable interest entity; however, management reviews the results of operations of CrossAmerica under the equity method of accounting because of CST’s limited ownership interest of CrossAmerica’s outstanding units. Net income and earnings per share attributable to CST are unchanged under the equity method of accounting from consolidating CrossAmerica. CST’s operating segments on the following pages are presented before intercompany eliminations with CrossAmerica and therefore include wholesale fuel sales from CrossAmerica to certain retail sites in the U.S. Retail segment. Consolidated financial statements that include CrossAmerica are provided in CST Brands’ 2016 Form 10-Q (June 30, 2016 report).
The company hosted a conference call on August 5, 2016 at 8:30 a.m. Eastern Time (7:30 a.m. Central Time) to discuss 2016 second quarter earnings results. A live audio webcast of the conference call and the related earnings materials, including reconciliations of any non-GAAP financial measures to GAAP financial measures and any other applicable disclosures, was also made available on Aug. 5 on the investor section of the CST Brands website.
A slide presentation for the conference call is also available on the investor section of the company’s website. A replay of the conference call is also available for a period of thirty days. The replay numbers are 888-843-7419 or 630-652-3042 and the passcode for both is 5854571#. An archive of the webcast will be available on the investor section of the CST Brands website at http://www.cstbrands.com/en-us/investors/eventsandpresentations within 24 hours after the call for a period of sixty days.