Market Overview

Alimentation Couche-Tard announces record earnings for its second quarter of fiscal year 2018 with the contribution from CST

Share:
  • Net earnings attributable to shareholders of the Corporation ("net earnings") of $435.3 million ($0.76 per share on a diluted basis) for the second quarter of fiscal 2018 compared with $321.5 million ($0.57 per share on a diluted basis) for the second quarter of fiscal 2017. Excluding certain items for both comparable periods, net earnings for the quarter would have been approximately $458.0 million1 or $0.80 per share on a diluted basis, compared with $0.58 per share on a diluted basis1, for the second quarter of fiscal 2017, an increase of 37.9%.
  • The Corporation's network was impacted by Hurricanes Harvey and Irma in the United States, and lost approximately 3,000 store days in merchandise and service sales and 5,700 store days in road transportation fuel sales.
  • Total merchandise and services revenues were $3.1 billion, an increase of 23.4%. Same‑store merchandise revenues, excluding the CST Brands Inc. ("CST") stores network, increased by 0.7% in the U.S., by 1.6% in Europe and decreased by 1.6% in Canada.
  • Merchandise and service gross margin slightly decreased by 0.1% in the U.S., to 33.2% due to the integration of the CST stores. Excluding the CST stores, gross margin in the U.S. increased by 0.2%, to 33.5%. Merchandise and service gross margin increased by 0.6% in Europe, to 42.0% and by 1.0% in Canada, to 34.6%.
  • Total road transportation fuel volumes grew by 21.5%. Same‑store road transportation fuel volumes, excluding the CST stores network, decreased by 0.7% in the U.S., negatively impacted by Hurricanes Harvey and Irma. Same-store volumes decreased by 0.2% in Europe and by 2.3% in Canada, also excluding the CST stores network.
  • Road transportation fuel gross margin increased by US 4.83¢ per gallon in the U.S. to US 24.70¢ per gallon, by US 0.44¢ per litre in Europe, to US 9.54¢ per litre and by CA 1.89¢ per litre in Canada, to CA 8.64¢ per litre.
  • Successful issuance of Canadian- and US-dollar-denominated senior unsecured notes for a total amount of CA $700.0 million and US $2.5 billion, respectively, and repayment of CST's US-dollar-denominated senior unsecured notes for an amount of $577.1 million.
  • Current annual costs reduction run rate related to the CST integration reached approximately $84.0 million.
  • The Corporation reached an agreement with Metro Inc. to repurchase and cancel 4.4 million of its shares.
  • Successful completion of the Circle K rebranding in the Baltics. The project is still progressing well in Poland and in North America. Close to 2,000 stores in North America and close to 1,400 stores in Europe now display Couche-Tard's new Circle K global brand.
  • Return on equity and return on capital employed at 21.6% and 12.4%, respectively, on a pro-forma basis.

_____________________________________

1 Please refer to section "Net earnings and adjusted net earnings attributable to shareholders of the Corporation" of this press release for additional information on this performance measure not defined by IFRS.

 

LAVAL, QC, Nov. 28, 2017 /CNW Telbec/ - For its second quarter ended October 15, 2017, Alimentation Couche-Tard Inc. (TSX: ATD.A ATD.B) announces record net earnings attributable to shareholders of the Corporation of $435.3 million, representing $0.76 per share on a diluted basis. The results for the second quarter of fiscal 2018 were affected by a pre-tax net foreign exchange loss of $17.3 million, by pre-tax incremental expenses caused by hurricanes totaling $4.8 million, by a $4.2 million pre-tax accelerated depreciation and amortization expense in connection with the Corporation's global brand initiative, as well as by pre-tax acquisition costs of $3.4 million. The results for the comparable quarter of fiscal 2017 included pre-tax acquisition costs of $7.6 million, a $6.5 million pre-tax accelerated depreciation and amortization expense in connection with the Corporation's global brand initiative, as well as a pre-tax net foreign exchange gain of $5.3 million. Excluding these items, the adjusted diluted net earnings per share would have been $0.80 for the second quarter of fiscal 2018, an increase of 37.9%, mainly driven by the contribution from acquisitions, as well as by the impact of higher road transportation fuel gross margins, partly offset by the negative impact of Hurricanes Harvey and Irma on revenues and gross profit. All financial information is in US dollars unless stated otherwise.

"In terms of our overall performance this quarter, the positive contribution from our newly acquired CST network is particularly notable and added to the strong increase of nearly 38.0% in our adjusted net earnings per share." announced Brian Hannasch, President and CEO of Alimentation Couche-Tard. "This is even more remarkable in light of the challenges faced by some our network due to Hurricanes Harvey and Irma, and the continued softness in the industry in general. I am deeply proud of how our teams came together during and after these catastrophic storms in order to get our stores back online to serve our communities." 

"The integration of the CST network is going extremely well. Our operation teams are successfully optimizing site layouts, implementing key programs and pushing strategic promotions to increase traffic to those stores," added Brian Hannasch. "Our strategies allowed us to reverse the negative traffic trend in less than three months. On the synergies side, in less than four months, our annual run rate in cost reductions reached $84.0 million, which puts us ahead of our initial plan and makes us optimistic that we will reach our initial target of $150.0 to $200.0 million in cost reductions1 over the three years following the close of the transaction."

"On the acquisition front, we anticipate the close of the Holiday Stationstores transaction in the third quarter of fiscal 2018.  As we become more familiar with the Holiday network, we are learning about the talented management team, dedicated employees and exceptional assets of that network. Over the weeks ahead, we will continue evaluating the business and planning the integration process, which will begin immediately upon closing. However, it is already clear that many best practice opportunities will result from the acquisition," continued Brian Hannasch.

"As we continue our acquisition growth strategy, we are also positioning ourselves as an innovative leader preparing for the future of the convenience business. Earlier this month, we announced a partnership with European auto makers to create the first network of high-power chargers across Europe to enable long-distance mobility of electric vehicles, which is a true tribute to our newly implemented brand Circle K. Our goal is to evaluate and learn about the potential of this technology in the years ahead, all the while expanding our traditional fuel offerings and increasing traffic inside our stores," concluded Brian Hannasch.  

Claude Tessier, Chief Financial Officer stated, "One of our highest priorities is to reduce our debt and further strengthen our balance sheet. The strong cash flow generated during the quarter through the added contribution of CST and strong fuel margins, allowed us to accelerate our deleveraging plan as evidenced by our adjusted leverage ratio of 2.88:1." He continued, "The recent repurchase of 4.4 million of our shares at favorable conditions was also a nice opportunity for us to create value for our shareholders. As usual, we will continue to focus on cost control and on our commitment to financial discipline to increase value for our shareholders", concluded Claude Tessier.

_____________________________________

1 As our previously stated goal is considered a forward looking statement, we are required, pursuant to securities laws, to clarify that our costs reduction estimate is based on a number of important factors and assumptions. Among other things, our synergies and cost savings objective is based on our comparative analysis of organizational structures and the current level of spending across our network, as well as on our ability to bridge the gap, where relevant. Our synergies and cost reduction objective is also based on our assessment of current contracts in North America and how we expect to be able to renegotiate these contracts to take advantage of our increased purchasing power. In addition, our synergies and costs reduction objective assumes that we will be able to establish and maintain an effective process for sharing best practices across our network. Finally, our objective is also based on our ability to integrate CST's system with ours. An important change in these facts and assumptions could significantly impact our synergies and costs reductions estimate as well as the timing of the implementation of our different initiatives.

 

Significant Items of the Second Quarter of Fiscal 2018

  • During the quarter, our stores network was impacted by two major hurricanes, Harvey in Texas and Irma in Florida. Our stores were impacted mainly through the loss of sales, fuel supply disruptions and incremental expenses, including property damages, inventory losses and clean-up costs. Overall, 1,300 of our stores were affected at various levels and as a consequence, we lost approximately 3,000 store days in merchandise and service sales and 5,700 store days in road transportation fuel sales. Incremental costs reached $4.8 million during the quarter. As of today, most of our network was fully operational.
  • On July 26, 2017, we issued Canadian-dollar-denominated senior unsecured notes totaling CA $700.0 million (approximately $558.0 million) as well as US-dollar-denominated senior unsecured notes totaling $2.5 billion, divided as follows:

 


Notional amount

Maturity

Coupon rate

Tranche 6

$1,000.0 million

July 26, 2022

2.700%

Tranche 7

CA $700.0 million

July 26, 2024

3.056%

Tranche 8

$1,000.0 million

July 26, 2027

3.550%

Tranche 9

$500.0 million

July 26, 2047

4.500%

 

The net proceeds from those issuances, which were approximately $3.0 billion, were mainly used to repay a portion of our acquisition facility and of our term revolving unsecured operating credit facility.

  • On July 28, 2017, we repaid all of CST's outstanding senior notes for an amount of $577.1 million using our acquisition facility.
  • As a result of the review of our transportation fuel supply strategy, starting August 1, 2017, we now supply our Scandinavian stores network through multiple suppliers, primarily through 12 to 18 months contract. We believe we will benefit from these changes through improved supply conditions and increased flexibility.
  • On October 11, 2017, we reached an agreement to repurchase 4,372,923 Class B subordinate voting shares held by Metro Canada Holdings Inc., a wholly owned subsidiary of Metro Inc., for a net amount of $194.3 million. The Class A shares held by Metro Canada Holdings Inc. were converted into an equivalent number of Class B shares before the repurchase. The transaction closed on October 17, 2017, subsequent to the end of the quarter. All shares repurchased were cancelled. The dividend deemed to have been received by Metro Canada Holdings Inc. as a result of this repurchase is an eligible dividend within the meaning of the Income Tax Act of Canada and the Québec Taxation Act. Additionally, on October 11, 2017, 11,369,599 Class A shares were converted to Class B shares.
  • As of October 15, 2017, our current annual costs reduction run rate for the CST acquisition reached approximately $84.0 million. These cost reductions should mainly result from reductions in operating, selling, administrative and general expenses, from improvements in road transportation fuel and merchandises distribution costs, as well as from the optimization of merchandises supply costs.
  • The rollout of our new Circle K global convenience brand has been successfully completed in the Baltics. In North America and in Poland, our rebranding efforts are progressing steadily. Close to 2,000 stores in North America and close to 1,400 stores in Europe are now proudly displaying our new global brand. In connection with this rebranding project, a depreciation and amortization expense of $4.2 million was recorded to earnings for the second quarter of fiscal 2018.

Changes in our Network

  • On September 6, 2017, as per the requirements of the US Federal Trade Commission, we sold 70 company-operated sites acquired through the CST transaction to Empire Petroleum Partners, LLC ("Empire").
  • During the second quarter and first half-year of fiscal 2018, we acquired six company-operated stores through distinct transactions.
  • During the second quarter of fiscal 2018, we completed the construction, relocation or reconstruction of 21 stores, reaching a total of 44 stores since the beginning of the fiscal year. As of October 15, 2017, 52 stores were under construction and should open in the upcoming quarters.

Summary of changes in our stores network during the second quarter and the first half-year of fiscal 2018

The following table presents certain information regarding changes in our stores network over the 12-week period ended October 15, 2017.

 


12-week period ended October 15, 2017

Type of site

Company-
operated


CODO


DODO


Franchised and
other affiliated


Total

Number of sites, beginning of period

9,329


742


1,050


1,104


12,225


Acquisitions

6


-


-


-


6


Openings / constructions / additions

21


-


7


24


52


Closures / disposals / withdrawals

(31)


(4)


(11)


(22)


(68)


Store conversion

2


(1)


(1)


-


-

Number of sites, end of period

9,327


737


1,045


1,106


12,215

CAPL network









1,206

Circle K branded sites under licensing agreements









1,843

Total network









15,264

Number of automated fuel stations included in the period-end figures









978

 

Outstanding transactions

  • On August 7, 2017, we reached an agreement to acquire certain assets from Jet Pep, Inc., including a fuel terminal, associated trucking equipment and 18 retail sites located in Alabama. In addition, through a distinct transaction, CrossAmerica Partners LP has agreed to purchase other assets of Jet Pep, Inc. consisting of 101 commission operated retail sites, including 92 owned sites, 5 leased sites and 4 independent commission accounts. These transactions are expected to close before the end of November 2017 and will be financed using available cash and existing credit facilities.
  • On July 10, 2017, we entered into an agreement with Holiday Companies to acquire all issued and outstanding shares of Holiday Stationstores, Inc. and certain affiliated companies ("Holiday"). Holiday is an important convenience store and fuel player in the U.S. Midwest region, with 522 sites, of which 374 are operated by Holiday and 148 are operated by franchisees. Holiday also has a strong car wash business with 221 locations, a food commissary operation and a fuel terminal in Newport, Minnesota. Its stores are located in Minnesota, Wisconsin, Washington State, Idaho, Montana, Wyoming, North Dakota, South Dakota, Michigan and Alaska. On July 31, 2017, this transaction was approved by Holiday's parent company's shareholders. The transaction is subject to the customary regulatory approvals and closing conditions and is expected to close during the third quarter of fiscal 2018. We expect to finance this transaction using our available cash and existing credit facilities.

Transaction subsequent to quarter end

  • On November 27, 2017, subsequent to the end of the quarter, we have reached an agreement to sell 100% of our shares in Statoil Fuel & Retail Marine AS to St1 Norge AS. The transaction is subject to the customary regulatory approvals and closing conditions and is expected to close before the end of fiscal 2018.

Exchange Rate Data

We use the US dollar as our reporting currency, which provides more relevant information given the predominance of our operations in the United States.

The following table sets forth information about exchange rates based upon closing rates expressed as US dollars per comparative currency unit:





12-week periods ended

24-week periods ended


October 15, 2017

October 9, 2016

October 15, 2017

October 9, 2016

Average for period






Canadian Dollar

0.8021

0.7656

0.7766

0.7705


Norwegian Krone

0.1268

0.1208

0.1227

0.1207


Swedish Krone

0.1239

0.1173

0.1197

0.1187


Danish Krone

0.1590

0.1502

0.1548

0.1506


Zloty

0.2769

0.2589

0.2716

0.2570


Euro

View Comments and Join the Discussion!
 
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com