A busy first quarter of 2017 has led to substantial growth for Alimentation Couche-Tard.
It has been a busy first quarter of fiscal 2017 for Alimentation Couche-Tard Inc., and the company has now released its financial results for the quarter, ending July 17, 2016. These financial results have been released on the heels of a couple of momentous acquisitions that the company has made in recent weeks, including the recently announced acquisition of CST Brands and the even more recent acquisition of a number of Cracker Barrel stores.
For its first quarter, Couche‑Tard has announced net earnings of $324.4 million, representing 57 cents per share on a diluted basis. The results for the first quarter of fiscal 2017 were affected by a $6.9 million pre-tax accelerated depreciation and amortization expense in connection with the corporation’s global brand initiative as well as by a net pre-tax foreign exchange gain of $3.2 million. The results for the first quarter of fiscal 2016 included a net pre-tax foreign exchange gain of $6.8 million. Excluding these items as well as the acquisition costs from both comparable quarters’ results, the diluted net earnings per share would have been 58 cents for the first quarter of fiscal 2017 compared with 51 cents for the first quarter of fiscal 2016, an increase of 13.7%. This increase is attributable to higher fuel margins, continued organic growth and the contribution from acquisitions. These items, which contributed to the growth in net earnings, were partially offset by the impact of a higher consolidated income tax rate as well as by the negative net impact from the translation of revenues and expenses from its Canadian and European operations into U.S. dollars. All financial information is in U.S. dollars unless stated otherwise.
“Our performance in the quarter was both steady and gratifying,” said Brian Hannasch, president and CEO, Alimentation Couche-Tard. “Same store merchandise revenues were solid in the U.S. and Canada – and strong in Europe, all fueled by the growing popularity of our expanded food service offering, our effective merchandising strategies as well as growing contributions from our acquisitions.”
“This quarter was also really the first time we introduced our global Circle K brand to our customers in Europe. With already close to 250 stores rebranded from the well-established Statoil brand to our new global Circle K brand, we’re starting to see very positive feedback from our customers. Customer traffic has remained steady in stores where we have rolled out the new brand in Norway, Sweden and Denmark – indicating that we are maintaining our momentum in our largest and most profitable European markets,” said Hannasch. “Our integration teams are delivering the desired results. The Pantry continues to make significant contributions and the integration of Topaz is on track and moving steadily ahead. This quarter we were also excited to officially welcome the long awaited A/S Dansk Shell’s sites in Denmark into our portfolio while we are confident we will soon be able to integrate the Imperial Oil sites in Canada.”
“Finally, just after the close of the quarter, we announced a definitive merger agreement with CST Brands in North America, which is currently pending regulatory and CST Brands shareholder approval. We are excited about what this transaction can do to strategically strengthen our positioning in both the “U.S. sun belt” and the east coast of North America,” Hannasch continued.
“It is the combination of our strong and committed approach to organic growth and our disciplined approach to mergers and acquisitions that bring us further on our journey to becoming the world’s preferred destination for convenience and fuel,” concluded Hannasch.
“First quarter results drove adjusted earnings per share growth of 13.7 % and operating cash flow of $413.2 million. Our return on capital employed also increased to 18.7%,” said Claude Tessier, chief financial officer.
“As a growth oriented company, we know every acquisition is only as good as its successful integration, especially when it comes to anticipated synergies,” Tessier continued. “We are on track when it comes to delivering on more than $125 million in cost synergies for The Pantry and will apply the same diligence to delivering on the synergies we have identified with Topaz and now, for the Shell sites in Denmark. We will apply this same approach and financial discipline to the recently announced acquisition of CST Brands, so that we are poised to take advantage of additional opportunities that might present themselves.”
Significant Items of the First Quarter of Fiscal 2017
- A total of 247 stores in Europe and 477 stores in North America are now proudly displaying the company’s new global convenience brand Circle K. In connection with this rebranding, an incremental depreciation and amortization expense of $6.9 million was recorded to earnings in the first quarter of fiscal 2017.
- In connection with The Pantry integration, current cost reduction run rate reached $71.0 million compared with the 24-months objective of $85.0 million. For merchandises and services supply cost reductions, the company has quickly reached its projected run rate of approximately $27.0 million. As for fuel synergies associated with the fuel rebranding of approximately 1,000 stores in the U.S. southeast, the company has also reached its target.
- On May 6, 2016, Couche-Tard proceeded with the issuance of Euro denominated senior unsecured notes totalling €750.0 million (approximatively $854.0 million) with a coupon rate of 1.875% and maturing in 2026, further improving financial flexibility.
Changes in the Company’s Network for the First Quarter of Fiscal 2017
- On May 1, 2016, Alimentation Couche-Tard completed the acquisition of all the shares of Dansk Fuel A/S from A/S Dansk Shell, comprising 315 service stations, a commercial fuel business and an aviation fuel business all located in Denmark. As per the requirements of the European commission, the company will retain 127 sites, of which 82 are owned and 45 are leased from third parties, and will divest the remaining of the Dansk Fuel business in addition to 24 of company legacy sites. In order to meet these requirements, Couche-Tard signed an agreement for the sale of the shares of Dansk Fuel to DCC Holding A/S, a subsidiary of DCC plc, which is pending the customary regulatory approvals. This sale transaction is expected to close during the third quarter of fiscal 2017, once the retained sites are transferred to our Danish subsidiary. Until approval and completion of this transaction, Couche-Tard and Dansk Fuel will continue to operate separately. A trustee has been appointed to manage and operate Dansk Fuel during this interim period as required by the European commission. As Couche-Tard does not have control over Dansk Fuel’s operation, its shares are accounted for as an investment in an associated company using the equity method during this quarter.
- Couche-Tard gains control over the operations of the retained sites as they are transferred from Dansk Fuel to our Danish subsidiary and from that date, the results and assets related to these sites are included in the company’s balance sheet and its consolidated earnings. Of the 127 retained sites, 72 are full-service stations, 49 are unmanned automated fuel stations and six are truck stops, all of which are dealer-operated. During the first quarter of fiscal 2017, Couche-Tard has reached agreements with the independent dealers to convert all the retained sites to company-operated sites.
- During the first quarter of fiscal year 2017, Couche-Tard transferred 50 sites from Dansk Fuel to the company’s Danish subsidiary and converted those 50 sites to the company-operated model. Couche-Tard expects that the transfer and conversion of the remaining 77 sites will be completed by the end of the third quarter of fiscal year 2017.
- On May 26, 2016, Alimentation Couche-Tard reached an agreement to purchase 23 company-operated sites located in Estonia from Sevenoil Est OÜ and its affiliates. Of the 23 sites, 11 are full service fuel stations with convenience stores and 12 are unmanned automated fuel stations. The transaction was approved by the regulatory authorities and is anticipated to close in the second quarter of fiscal year 2017. This transaction is subject to the standard closing conditions.
- On August 21, 2016, Couche-Tard signed a definitive merger agreement to acquire CST Brands Inc. for a total enterprise value of approximately $4.4 billion, including assumed debt.
- On August 29, 2016, subsequent to the end of the quarter, the company signed an agreement to purchase 53 company-operated sites from American General Investments LLC and North American Financial Group LLC. The sites are located in Louisiana, and currently operate under the store brand Cracker Barrel. The transaction is anticipated to close in the third quarter of fiscal year 2017 and is subject to the standard regulatory approvals and closing conditions.