9 Highlights From Couche-Tard’s Third-Quarter 2018
By Greg Lindenberg on Mar. 20, 2018LAVAL, Quebec --Alimentation Couche-Tard Inc. has cited the U.S. Tax Cuts and Jobs Act for a 62% increase in net earnings despite weak same-store sales and fuel volumes. The Laval, Quebec-based global convenience-store retailer reported net earnings of $463.9 million for its third quarter ended Feb. 4, 2018, vs. $287 million for the comparable period in 2017.
The company, which is No. 2 in CSP's 2017 Top 202 c-store ranking b y number of company-operated locations, also saw $9.6 million in costs related to the corporation's global Circle K branding initiative and $1.8 million in cleanup and repair expenses caused by two major hurricanes, among other factors.
Here are more details …
1. Tax Benefit
Couche-Tard received a net tax benefit of $196.3 million following the approval of the U.S. Tax Cuts and Jobs Act.
The benefit derived mostly from the remeasurement of the company’s deferred income-tax balances using the new U.S. statutory federal income-tax rate, which decreased from 35% to 21%, partly offset by the Deemed Repatriation Transition Tax, it said.
"We are continuing our push toward integration, digitalization and mobilization of advanced technology to bring even more efficiencies to our operations. Additionally, after further review, our analysis indicates that with all else equal, the U.S. tax reform should bring our consolidated tax rate down to a range of approximately 17% to 19%, starting in fiscal year 2019,” said Claude Tessier, CFO. “With these combined elements of cost control and greater cash flow from a lower expected income tax rate, we are positioned to deliver growth in the future as we continue to apply our customary financial discipline to add value for our shareholders."
2. CST Brands
"Several parts of our network, in particular Europe, Canada and the CST Brands sites, showed improving trends this quarter in same-stores fuel volumes, same-store merchandise revenues and merchandise gross margins," said Brian Hannasch, president and CEO of Alimentation Couche-Tard. "I am particularly pleased with the progress on reversing the negative trends CST was experiencing prior to the acquisition and, while we are seeing solid U.S. fuel margins year to date, this quarter's results were negatively impacted by volatility in the crude-oil market, particularly in the southwest U.S."
During the quarter, as part of Couche-Tard’s cost-reduction initiatives and the search for synergies, the company decided to proceed with the restructuring of certain European and U.S. operations, recording an additional restructuring expense of $6.8 million during the quarter.
"We continue to be pleased with the integration of the Esso and CST Brands acquisitions and the benefits they are bringing to the business. With CST, we are announcing expected synergies of $215.01 million over the three years following the close of the transaction, and we have already seen a run rate of $103 million after nine months," Hannasch said.
These synergies result mainly from reductions in operating, selling, administrative and general expenses, as well as from improvements in road transportation fuel and merchandise distribution and supply costs, the company said.
3. Holiday
"A clear highlight of this quarter is the completion of the acquisition of Holiday Stationstores," Hannasch sais.
Couche-Tard acquired Holiday Stationstores LLC and certain affiliated companies on Dec. 22, 2017, for a total cash consideration of approximately $1.6 billion.
As of the closing of the transaction, it had 516 sites, 373 operated by Holiday and 143 operated by franchisees, as well as 27 dealer contracts. Holiday also operates a strong car-wash business with 234 locations, two food commissaries and a fuel terminal in Newport, Minn. Its stores are located in Minnesota, Wisconsin, Washington, Idaho, Montana, Wyoming, North Dakota, South Dakota, Michigan and Alaska.
"In terms of synergies with the Holiday purchase, our goal is $50.0 [million] to $60.01 million over three years and, like CST, we are off to a very strong start," he said.
These synergies should result mainly from reductions in operating, selling, administrative and general expenses; improvements in road transportation fuel and merchandise distribution and supply costs; and retail pricing optimization, the company said.
"We are confident that Holiday's sustained record of solid consistent growth, strong U.S. Midwest market penetration and truly talented team will bring superior value to our network,” said Hannasch. “As part of the integration plan, we are excited to have put in place, for the first time, a senior leadership role to identify reverse synergies in Holiday's best practices to bring into our broader organization."
The company did not name who will fill that role and would not comment to CSP Daily News.
4. Jet Pep
On Nov. 28, 2017, Couche-Tard acquired certain assets from Jet Pep Inc., including a fuel terminal, associated trucking equipment and 18 retail sites in Alabama. In addition, through a distinct transaction, its Allentown, Pa.-based CrossAmerica Partners LP unit purchased other assets from Jet Pep consisting of 101 commission-operated retail sites, including 92 owned sites, five leased sites and four independent commission accounts.
5. Circle K Branding
The rollout of Couche-Tard’s Circle K global convenience brand in North America and in Poland is “progressing steadily,” the company said. More than 2,500 stores in North America and more than 1,450 stores in Europe are now displaying the new global brand. In connection with this rebranding project, the company recorded a quarterly pretax depreciation and amortization expense of $6.6 million, as well as pretax incremental costs of $3 million.
6. Other Acquisitions and Construction
During the third quarter of fiscal 2018, Couche-Tard acquired one company-operated c-store through a distinct transaction, for a total of seven company-operated stores since the beginning of fiscal-year 2018.
And during the third quarter of fiscal 2018, the company completed the construction, relocation or reconstruction of 22 stores, for a total of 66 stores since the beginning of fiscal 2018. As of Feb. 4, 2018, Couche-Tard had 54 c-stores under construction.
7. Revenues
Couche-Tard’s revenues were $15.8 billion for the third quarter of fiscal 2018, up by $4.4 billion, an increase of 38.3% compared with the corresponding quarter of fiscal 2017, mainly attributable to the contribution from acquisitions, a higher average road transportation fuel selling price and other factors.
Total merchandise and service revenues for the third quarter of fiscal 2018 were $3.8 billion, an increase of $766.9 million compared with the corresponding quarter of fiscal 2017, attributable to the contribution from acquisitions, which amounted to approximately $676 million, as well as to organic growth, partly offset by the closure of stores that did not meet profitability standards.
Excluding the Holiday network, same-store merchandise revenues increased by 0.1% in the United States. Same-store merchandise revenues declined by 1% in CST’s U.S. store network, a “clear improvement” over the trend prior to the acquisition and compared to the second quarter of fiscal 2018, driven by the effect of Couche-Tard’s work on the CST site layouts and the implementation of some of its key programs, the company said.
Total road transportation fuel revenues for the third quarter of fiscal 2018 were $11.5 billion, an increase of $3.6 billion compared with the corresponding quarter of fiscal 2017, attributable to the contribution from acquisitions, which amounted to approximately $2 billion, as well as to the impact of a higher average road transportation fuel selling price, which had a positive effect of approximately $821 million.
Excluding Holiday, same-store road transportation fuel volumes in the U.S. decreased by 0.4%. In the CST U.S. network, which has a strong presence in Texas, same-store road transportation fuel volumes decreased by 0.8%, with stores recovering from Hurricane Harvey during the first few months of the quarter.
8. Gross Profit
Couche-Tard’s gross profit was $2.3 billion for the third quarter of fiscal 2018, up by $439.5 million, an increase of 23.4% compared with the corresponding quarter of fiscal 2017, mainly attributable to the contribution from acquisitions, as well as to the contribution from CrossAmerica, partly offset by lower fuel margins in the United States.
In the third quarter of fiscal 2018, merchandise and service gross profit was $1.3 billion, an increase of $262.2 million compared with the corresponding quarter of fiscal 2017, attributable to the contribution from acquisitions, which amounted to approximately $211 million, and to organic growth. Gross margin increased by 0.2% in the United States to 33.1%. Excluding the CST and Holiday stores networks, which have a different revenue mix and cost structure, merchandise and service gross margin in the United States was 33.3%, an increase of 0.4%.
In the third quarter of fiscal 2018, road transportation fuel gross profit was $927.4 million, an increase of $166.1 million compared with the corresponding quarter of fiscal 2017. Road transportation fuel gross margin was 15.66 cents per gallon in the United States, a decrease of 2.67 cents per gallon, mainly driven by the volatility created by the “rapid and significant” rise of crude oil prices during the quarter.
9. EBITDA
During the third quarter of fiscal 2018, earnings before interest, taxes, depreciation and amortization (EBITDA) increased from $637.1 million to $724.1 million, a growth of 13.7% compared with the same quarter last year, mainly through the contribution from acquisitions, partly offset by lower U.S. fuel margins.
As of Feb. 4, 2018, Couche-Tard's network included 10,020 convenience stores in North America, including 8,698 stores offering fuel. Its North American network consists of 19 business units, including 15 in the United States covering 48 states and four in Canada covering all 10 provinces. Through CrossAmerica, the company supplies road transportation fuel under various brands to more than 1,300 locations in the United States.
Couche-Tard also operates a broad retail network of 2,730 stores in Europe and Russia and licenses more than 1,900 stores in 14 other countries, which brings its worldwide total network to more than 15,900 stores.