Reports record annual sales of $14.5 Billion.
Core-Mark Holding Co. Inc. announced its financial results for the fourth quarter and year ended Dec. 31, 2016, as well as a strong outlook for 2017 driven by anticipated organic growth.
Core-Mark is a marketer of fresh and broad-line supply solutions to the convenience retail industry in North America.
“Core-Mark delivered a very strong performance in 2016. The acquisition of Pine State and addition of large new customers fit well with our strategic goals of generating profitable growth,” said Thomas Perkins, president and CEO. “We expect to build on this momentum in 2017, with an expectation of improving profitability driven by our core strategies and leveraging of operational efficiencies. We are well positioned to continue to grow market share long term.”
Fourth Quarter Results
Net sales increased 36.3% to $3.8 billion for the fourth quarter of 2016 compared to $2.8 billion for the same period in 2015. Net sales of cigarettes increased 41.4% while net sales of non-cigarettes increased 25.2%. Each benefited from market share gains and the addition of Pine State. Cigarette sales benefited from a 35.6% increase in carton sales as well as from manufacturers’ price increases. Non-cigarette sales to existing customers increased through the success of Core-Mark’s core strategies.
Gross profit increased 17% to $199.0 million during the fourth quarter of 2016 compared to $170.1 million for the same period in 2015. Gross profit for the fourth quarter of 2016 includes LIFO expense of $3.2 million compared with $7.3 million of LIFO income for the same period in 2015. Remaining gross profit, a non-GAAP financial measure, increased 24.1% to $195.3 million, driven by market share gains, including the addition of Murphy U.S.A., the acquisition of Pine State, and core strategies.
The Company’s operating expenses for the fourth quarter of 2016 were $168.0 million compared to $140.9 million for the same quarter of 2015. Increases in the amount of cubic feet of product handled, incremental customer deliveries, costs related to the onboarding of 7-Eleven and the acquisition of Pine State contributed to higher operating costs.
In addition, operating expenses in the fourth quarter of 2016 include approximately $3 million of identifiable costs related to acquisition and business expansion compared with $1.4 million of similar costs in the same period in 2015. Operating expenses as a percentage of net sales were 4.4% for the fourth quarter of 2016 compared to 5% for the fourth quarter of 2015.
The shift in sales to cigarettes, which have higher price points than food/non-food products, decreased operating expenses as a percentage of total net sales by approximately 30 basis points in the fourth quarter of 2016 compared to the same period in 2015.
Net income increased 5.6% to $18.7 million during the fourth quarter of 2016 compared to $17.7 million for the same period in 2015. Net income includes LIFO expense of $3.2 million (pre-tax) for the fourth quarter of 2016 compared with LIFO income of $7.3 million (pre-tax) for the same period in 2015. Adjusted EBITDA, a non-GAAP financial measure, increased $13 million, or 38.8% to $46.5 million in the fourth quarter of 2016 compared to $33.5 million in the fourth quarter of 2015, due largely to market share gains and the success of core strategies.
Diluted earnings per-share were $0.41 for the fourth quarter of 2016 compared to $0.38 for the fourth quarter of 2015. Diluted earnings per-share excluding the impact of LIFO, a non-GAAP financial measure, were $0.45 in the fourth quarter compared to $0.28 for the fourth quarter of 2015. In addition, per-share results were impacted by several other items, which are provided in the attached diluted EPS table following the financial schedules.
2016 Full Year Results
Net sales increased 31.3% to $14.5 billion for 2016 compared to $11.1 billion for 2015, driven primarily by significant market share gains, including the addition of Murphy U.S.A. and the acquisition of Pine State in June 2016. Cigarette sales increased 37.3%, driven by an increase in cigarette carton sales attributable primarily to market share gains and the acquisition of Pine State. Non-cigarette sales increased 18.4% through market share gains and an increase in sales to existing customers due to leveraging core strategies.
Gross profit increased 15.5% to $736.9 million in 2016 compared to $637.9 million in 2015. Gross profit for 2016 includes LIFO expense of $13.2 million compared with $1.9 million of LIFO expense for the same period in 2015. Remaining gross profit, a non-GAAP financial measure, increased 18.7% or $115.9 million in 2016 compared to 2015, driven by market share gains, including the addition of Murphy U.S.A., the acquisition of Pine State, and core marketing strategies.
The Company’s operating expenses for 2016 were $646.8 million compared to $551.2 million for 2015. Increases in cubic feet of product handled, incremental deliveries made, and costs related to the onboarding of new customers contributed to higher operating expenses in 2016. In addition, operating expenses in 2016 included expenses of approximately $29.5 million related to Pine State, including $2.2 million of acquisition costs. Operating expenses as a percentage of net sales were 4.5% for 2016 compared to 5% for 2015. The shift in sales mix towards cigarettes reduced operating expenses as a percentage of total net sales by approximately 40 basis points.
Net income increased 5.2% to $54.2 million in 2016 compared to $51.5 million for the same period in 2015. Net income for 2016 includes $13.2 million (pre-tax) of LIFO expense compared with $1.9 million (pre-tax) in 2015. Adjusted EBITDA, a non-GAAP financial measure, increased 12.6% from $135.2 million in 2015 to $152.3 million in 2016. Net income and Adjusted EBITDA for 2015 include net cigarette tax stamp holding gains of $8.5 million (pre-tax), which did not reoccur in 2016.
Diluted earnings per share were $1.17 for 2016 compared to $1.11 last year. Diluted earnings per share excluding the impact of LIFO, a Non-GAAP financial measure, were $1.35 for 2016 and $1.14 for 2015. The cigarette tax stamp inventory holding gain, net of related expenses, increased diluted EPS by $0.11 in 2015.
Dividend
Core-Mark also announced its Board of Directors has approved a $0.09 cash dividend per common share. The dividend is payable on March 28, 2017 to stockholders of record as of the close of business on March 13, 2017.
2017 Full Year Guidance
The Company expects 2017 net sales to be between $15.2 billion and $15.5 billion. This increase in sales compared to 2016 is expected to be driven primarily by organic growth.
Adjusted EBITDA for 2017 is expected to be between $166.0 million and $173.0 million. Diluted earnings per-share for the full year are expected to be between $1.18 and $1.25. The diluted per-share estimates, excluding LIFO expense, are between $1.42 and $1.49. EPS estimates assume a 37.5% tax rate and 46.5 million fully diluted shares outstanding. These projections include cigarette inventory holding gains of $15 million but do not include any other significant holding gains, nor any pension settlement expenses.
On Sept. 14, 2016, the Board of Directors approved a motion to terminate the Company’s qualified defined-benefit pension plan. The Company expects its pension liabilities will be either settled through lump sum payments or purchased annuities by Dec. 31, 2017.
Capital expenditures for 2017 are expected to be approximately $50 million, which will be utilized for expansion projects, including investments costs associated with the Company’s supply agreement with Walmart.
Conference Call and Webcast Information
Core-Mark will host an earnings call on Wednesday, March 1. An audio replay will be available for approximately one month following the call by dialing (888) 843-7419 using the code 44242803. The replay will also be available via webcast at www.core-mark.com for approximately 90 days following the call.
