Core-Mark Holding Company Inc. announced financial results for the second quarter, which ended June 30, 2019.
“Our results in the second quarter reflect continued execution on our strategic priorities that drove strong same store sales growth in higher margin non-cigarettes, margin expansion from a favorable sales mix shift within the non-cigarette category and operating expense leverage,” said President and CEO Scott E. McPherson. “Our results, both for the quarter and year-to-date, demonstrate our ability to drive earnings growth as we execute on multiple levers to grow sales, expand margins and leverage costs.”
Second Quarter Results
Net sales increased 2.7% to $4.3 billion compared to $4.2 billion for the same period in 2018, driven by growth in non-cigarette sales to existing customers and net market share gains. Non-cigarette sales increased 8.8% driven by a 7.5% increase in sales to existing customers and net market share gains. Non-cigarette sales increased to 34.7% of total net sales for the second quarter of 2019 compared to 32.7% of total net sales for the same period in 2018. Cigarette sales decreased 0.3% driven primarily by declines in carton sales to existing customers, partially offset by manufacturer price increases and net market share gains.
Gross profit increased 10.1% to $238.9 million compared to $216.9 million for the same period in 2018. The increase in gross profit was driven primarily by an increase in non-cigarette sales to existing customers, net market share gains and strong growth in alternative nicotine products, partially offset by a decline in cigarette cartons sold. Remaining gross profit, a non-GAAP financial measure, increased 10.1% to $242.5 million from $220.3 million.
Gross profit margin increased 38 basis points to 5.51% of total net sales from 5.13% for the same period in 2018. Remaining gross profit margin expanded 38 basis points to 5.59% from 5.21%. The increase in gross profit margin was driven primarily by an overall shift in sales mix towards higher margin non-cigarette products, growth in sales of higher margin alternative nicotine products, higher margins in the food category and the benefit of our strategic pricing initiative.
First Six Months of 2019
Net sales increased by 0.8% to $8.1 billion compared to $8.0 billion for the same period in 2018 due primarily to an increase in non-cigarette sales of 5.3%. This increase in non-cigarette sales was driven primarily by growth in sales to existing customers, led by the increasing popularity of alternative nicotine products. Non-cigarette sales increased to 34.5% of total net sales for the first quarter of 2019 compared to 33.0% of total net sales for the same period in 2018. Cigarette sales decreased 1.5% driven primarily by declines in carton sales which were partially offset by manufacturer price increases.
Gross profit increased 7.3% to $447.1 million from $416.7 million for the same period in 2018. The increase in gross profit was driven primarily by the growth in non-cigarette sales, including strong growth in alternative nicotine products. Remaining gross profit, a non-GAAP financial measure, increased 7.2% to $448.9 millionfrom $418.9 million.
Gross profit margin increased 33 basis points to 5.52% of total net sales during the first six months of 2019 from 5.19% for the same period in 2018. Remaining gross profit margin improved by 33 basis points to 5.55% in the first half of 2019 from 5.22% for the same period in 2018 driven primarily by a shift in sales mix toward higher margin non-cigarette items, in addition to an increase in the overall margin for non-cigarette sales.
Core-Mark announced today that its Board of Directors has approved an $0.11 cash dividend per common share. The dividend is payable on Sept. 13, 2019 to stockholders of record as of the close of business on Aug. 22, 2019.
Guidance for 2019
The company reaffirms guidance for the full year of 2019. Annual net sales for 2019 are expected to be between $16.8 billion and $17.0 billion. Diluted EPS for the year are estimated to be between $1.09 and $1.19 and Diluted EPS, excluding LIFO expense, in a range of $1.50 to $1.60. The company expects Adjusted EBITDA to be between $176 million and $182 million. Key assumptions include $25.0 million in LIFO expense, a 25% tax rate and 46.0 million fully diluted shares outstanding. The Company’s financial outlook includes cigarette inventory holding gains of $19 million. Capital expenditures for 2019 are expected to be approximately $30 million.
Conference Call and Webcast Information
Core-Mark is hosting an earnings call on Aug. 7, 2019, during which management will review the results of the second quarter of 2019. The call may be accessed by dialing 1-800-588-4973 using the code 48871367. The call may also be listened to on the company’s website at www.core-mark.com.
An audio replay will be available for approximately one month following the call by dialing 1-888-843-7419 using the same code provided above. The replay will also be available via webcast at www.core-mark.com for approximately 90 days following the call.
Core-Mark is one of the largest marketers of fresh and broad-line supply solutions to the convenience retail industry in North America. Founded in 1888, Core-Markoffers a full range of products, marketing programs and technology solutions to approximately 43,000 customer locations in the U.S. and Canada through 32 distribution centers (excluding two distribution facilities the company operates as a third-party logistics provider). Core-Mark services traditional convenience stores, grocers, drug stores, big box and supercenter stores, liquor and specialty stores, and other stores that carry convenience products.