Core-Mark Announces 2017 Fourth Quarter and Full Year Financial Results; Re-affirms 2018 Full Year Guidance

• Record Annual Sales of $15.7 Billion, an 8.0% increase
  
• Non-cigarette Sales increased 17.6% in the Fourth Quarter, Fresh Sales Increased 13.1%
• Diluted EPS was $0.72, or $1.00 Excluding LIFO Expense (Non-GAAP)⁽¹⁾
• Announced $0.10 Dividend Payable March 29, 2018

SOUTH SAN FRANCISCO, Calif., March 01, 2018 (GLOBE NEWSWIRE) -- Core-Mark Holding Company, Inc. CORE, one of the largest marketers of fresh and broad-line supply solutions to the convenience retail industry in North America, announced financial results for the fourth quarter and year ended December 31, 2017.

"Core-Mark performed well on our core strategies in 2017 including the completion of an important acquisition that expanded our geographic footprint.  Our financial performance, however, did not meet our expectations as we worked through the impact and disruptive nature of the on-boarding and off-boarding of several large customers, especially at two of our divisions that doubled their volume," said Thomas B. Perkins, Chief Executive Officer.  "Looking ahead there is a lot of hard work to do, but I am confident in our operating plan and in the team we have in place to execute it.  These factors along with our focus on reducing expenses across the organization, put us in a good position to deliver improved performance in 2018."

Fourth Quarter Results

Net sales increased 6.1% to $4.1 billion for the fourth quarter of 2017 compared to $3.8 billion for the same period in 2016.  Non-cigarette sales increased 17.6%, while cigarette sales increased 1.5%.  The increase in non-cigarette sales in 2017 was driven primarily by net market share gains, including our acquisition of Farner-Bocken Company (Farner-Bocken), the addition of Wal-Mart Stores, Inc. (Walmart), to a lesser extent the addition of 7-Eleven Inc. (7-Eleven), and an increase in sales to existing customers.  Cigarette sales benefited from a 7.7% increase in the average sales price per carton, driven primarily by increases in cigarette manufacturers' prices and increases in excise taxes in certain jurisdictions, offset by a decline in carton sales of approximately 6%.  In addition, both cigarette and non-cigarette sales in the fourth quarter this year were impacted, on a comparative basis, by a soft convenience industry sales environment and by the expiration of certain distribution agreements in 2017.

Gross profit increased 5.2% to $209.4 million during the fourth quarter of 2017 compared to $199.0 million for the same period in 2016.  The increase in gross profit was driven primarily by net market share gains, including the acquisition of Farner-Bocken and the addition of Walmart, offset by the expiration of certain distribution agreements, a $4.9 million decrease in cigarette inventory holding gains due to timing and an increase in LIFO expense of $3.5 million compared with the same period in 2016.  Remaining gross profit, a non-GAAP financial measure, increased $16.1 million, or 8.2% to $211.4 million. 

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Note (1): See the reconciliation of Diluted Earnings Per Share (Diluted EPS) to Diluted EPS excluding LIFO in "Supplemental Schedule for Items Impacting Diluted EPS."

The following table reconciles remaining gross profit to gross profit, its most directly comparable financial measure under U.S. GAAP:

The Company's operating expenses for the fourth quarter of 2017 were $211.5 million compared to $168.0 million for the same period in 2016.  The increase in operating expenses was driven primarily by the addition of Farner-Bocken, a non-cash charge of $17.2 million related to the settlement of our pension obligation and higher warehouse and delivery expenses compared with last year. 

Net income was $10.8 million during the fourth quarter of 2017 compared to $18.7 million for the same period in 2016.  In addition to the non-cash pension settlement charge, net income for the fourth quarter of 2017 included a one-time tax benefit of $14.6 million related to the Tax Cuts and Jobs Act (TCJA).  Adjusted EBITDA, a non-GAAP financial measure, was $38.1 million in the fourth quarter of 2017 compared to $46.5 million in the fourth quarter of 2016.

The following table reconciles Adjusted EBITDA to net income, its most directly comparable financial measure under U.S. GAAP:

Diluted earnings per-share (EPS) was $0.23 for the fourth quarter of 2017 compared to $0.41 for the fourth quarter of 2016.  Diluted EPS excluding the impact of LIFO, a non-GAAP financial measure, was $0.33 in the fourth quarter compared to $0.45 for the fourth quarter of 2016.  See the attached "Supplemental Schedule for Items Impacting Diluted EPS" following the financial schedules for the reconciliation of Diluted EPS to Diluted EPS excluding LIFO expense.

2017 Full Year Results

Net sales increased 8.0% to $15.7 billion for 2017 compared to $14.5 billion for the same period in 2016.  Non-cigarette sales increased 14.5%, while cigarette sales increased 5.3%.  Non-cigarette sales increased due primarily to net market share gains, including the acquisition of Farner-Bocken in July 2017 and Pine State Convenience (Pine State) in June 2016, the addition of Walmart and 7-Eleven, and incremental food/non-food sales to existing customers.  The increase in cigarette net sales was driven primarily by a 9.3% increase in the average sales price per carton and incremental carton sales from Farner-Bocken and Pine State, offset by a 9.0% decrease in carton sales for the remainder of the business.  Both non-cigarette and cigarette sales for 2017 were impacted by a soft convenience industry sales environment and by the expiration of certain distribution agreements in 2017.

Gross profit increased 7.4% to $791.7 million in 2017 compared to $736.9 million for the same period in 2016.  The increase in gross profit for 2017 was driven primarily by net market share gains, including the acquisitions of Farner-Bocken and Pine State, the addition of Walmart and 7-Eleven and a net increase in sales to existing customers, offset by the expiration of the aforementioned distribution agreements.  Remaining gross profit, a non-GAAP financial measure, increased 7.9% to $793.2 million for the year.

The following table reconciles remaining gross profit to gross profit, its most directly comparable financial measure under U.S. GAAP:

The Company's operating expenses for 2017 were $754.1 million compared to $646.8 million for 2016.  The increase in operating expenses was driven primarily by the additions of Farner-Bocken and Pine State, a one-time non-cash charge of $17.2 million related to the settlement of our pension obligation and higher warehousing and distribution expenses at two of our Western distribution centers due mainly to the onboarding and servicing of 7-Eleven.  

Net income for 2017 was $33.5 million compared to $54.2 million for 2016.  In addition to the non-cash pension settlement charge, net income for 2017 included a one-time tax benefit of $14.6 million related to the TCJA.  Adjusted EBITDA, a non-GAAP financial measure, was $135.7 million in 2017 compared to $152.3 million in 2016.

The following table reconciles Adjusted EBITDA to net income, its most directly comparable financial measure under U.S. GAAP:

Diluted EPS was $0.72 for 2017 compared to $1.17 in 2016.  Diluted EPS excluding the impact of LIFO, a Non-GAAP financial measure, was $1.00 for 2017 and $1.35 for 2016.  See the attached "Supplemental Schedule for Items Impacting Diluted EPS" following the financial schedules for the reconciliation of Diluted EPS to Diluted EPS excluding LIFO expense.

Dividend

Core-Mark also announced today its Board of Directors has approved a $0.10 cash dividend per common share.  The dividend is payable on March 29, 2018 to stockholders of record as of the close of business on March 12, 2018.

2018 Full Year Guidance

The Company reiterated its net sales, Diluted EPS and Adjusted EBITDA guidance for the full year of 2018 which it previously provided on January 5, 2018.  Annual net sales for 2018 are expected to be between $16.6 billion and $16.8 billion.  Adjusted EBITDA is expected to be between $157.0 million and $167.0 million.  Diluted EPS for the full year is expected to be between $0.84 and $1.00.  Diluted EPS, excluding LIFO expense, is expected to be between $1.13 and $1.29.  Key assumptions remain unchanged and include $18.0 million of LIFO expense, a 25% tax rate based on preliminary assessment of the TCJA and 46.4 million fully diluted shares outstanding. In addition, these projections include cigarette inventory holding gains, but do not include any other significant holding gains.
Capital expenditures for 2018 are expected to be approximately $30 million.

Conference Call and Webcast Information

Core-Mark will host an earnings call on Thursday, March 1, 2018 at 9:00 a.m. Pacific time during which management will review the results of the fourth quarter and full year.  The call may be accessed by dialing 1-800-588-4973 using the code 46387738.  The call may also be listened to on the Company's website 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

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-Mark offers a full range of products, marketing programs and technology solutions to approximately 45,000 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 retailers, grocers, drug, big box or supercenter stores, liquor and specialty stores, and other stores that carry convenience products.  For more information, please visit www.core-mark.com.

About Non-GAAP Financial Measures

This press release includes non-GAAP financial measures including diluted earnings per share excluding LIFO expense, Adjusted EBITDA and remaining gross profit.  We believe these non-GAAP financial measures provide meaningful supplemental information for investors regarding the performance of our business and facilitate a meaningful period to period evaluation.  We also believe these measures allow investors to view results in a manner similar to the method used by our management.  We use these non-GAAP financial measures in order to have comparable financial results to analyze changes in our underlying business.  These non-GAAP measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.  These measures may be defined differently than other companies and therefore such measures may not be comparable to ours.  We strongly encourage investors and stockholders to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.

Adjusted EBITDA is a measure used by us to measure operating performance.  Adjusted EBITDA is also among the primary measures used externally by our investors, analysts and peers in our industry for purposes of valuation and comparing our results to other companies.  Adjusted EBITDA is equal to net income adding back net interest expense, provision for income taxes, depreciation and amortization, LIFO expense, stock-based compensation expense, net foreign currency transaction gains or losses and pension termination expenses.

Remaining gross profit is a non-GAAP financial measure.  We provide this metric to segregate the effects of LIFO expense, cigarette and candy inventory holding gains and other items that significantly affect the comparability of gross profit.

We do not provide a reconciliation for non-GAAP estimates on a forward-looking basis (including the information under "Guidance for 2018" above where we are unable to provide a meaningful calculation or estimation of reconciling items and the information is not available without unreasonable effort.  This is due to the inherent difficulty of forecasting the timing or amount of various items that would impact the most directly comparable forward-looking GAAP financial measure, that have not yet occurred, are out of the company's control and/or cannot be reasonably predicted.  For the same reasons, we are unable to address the probable significance of the unavailable information.  Forward-looking non-GAAP financial measures provided without the most directly comparable GAAP financial measures may vary materially from the corresponding GAAP financial measures.

The tables in this press release contain more details on the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliations between these financial measures.

Forward-Looking Statements

Statements in this press release that are not statements of historical fact are forward-looking statements.  These statements include statements regarding our guidance for 2018 net sales, Adjusted EBITDA, diluted earnings per share, diluted earnings per share excluding LIFO expense, capital expenditures and related disclosures.  Forward-looking statements in some cases can be identified by the use of words such as "may," "will," "should," "potential," "intend," "expect," "seek," "anticipate," "estimate," "believe," "could," "would," "project," "predict," "continue," "plan," "propose" or other similar words or expressions.  Forward-looking statements are made only as of the date of this press release and are based on our current intent, beliefs, plans and expectations.  They involve risks and uncertainties that could cause actual future results, performance or developments to differ materially from those described in or implied by such forward-looking statements. 

Factors that might cause or contribute to such differences include, but are not limited to, our dependence on the convenience retail industry for our revenues; our dependence on qualified labor, our senior management and other key personnel; declining cigarette sales volumes; competition in our distribution markets, risks and costs associated with efforts to grow our business through acquisitions; the dependence of some of our distribution centers on a few relatively large customers; manufacturers or retail customers adopting direct distribution channels; fuel and other transportation costs; failure or disruptions of our information technology systems; the low-margin nature of cigarette and consumable goods distribution; our reliance on manufacturer discount and incentive programs and cigarette excise stamping allowances; the dependence of some of our distribution centers on a few relatively large customers; our dependence on relatively few suppliers; product liability and counterfeit product claims and manufacturer recalls of products; our ability to achieve the expected benefits of implementation of marketing initiatives; failing to maintain our brand and reputation; unexpected outcomes in legal proceedings, attempts by unions to organize our employees; increasing expenses related to employee health benefits, changes to minimum wage laws; increasing labor costs related to contract employees, failure to comply with governmental regulations or substantial changes to governmental regulations; earthquake and natural disaster damage, increases in the number or severity of insurance and claims expenses; legislation and other matters negatively affecting the cigarette and tobacco industry; increases in excise taxes or reduction in credit terms by taxing jurisdictions; potential liabilities associated with sales of cigarettes and other tobacco products; changes to federal, state or provincial income tax legislation; reduction in the payment of dividends; currency exchange rate fluctuations; our ability to borrow additional capital; restrictive covenants in our Credit Facility; and changes to accounting rules or regulations.  Refer to the "Risk Factors" section of our Annual Report on Form 10-K filed with the SEC and Part II, Item 1A, "Risk Factors" of any quarterly report on Form 10-Q for a more comprehensive discussion of these and other risk factors.  In addition, please note that the date of this press release is March 1, 2018, and any forward-looking statements contained herein are based on assumptions that we believe to be reasonable as of this date.  We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Contact: Ms. Milton Gray Draper, Director of Investor Relations at 650-589-9445 x 3027 or at mdraper@core-mark.com