SAN ANTONIO -- While coming short of providing the anticipated announcement of a sale of CST Brands Inc., chairman and CEO Kim Lubel sought to offer some encouragement and positive financial results to soothe continued investor anxiety over the company’s value and performance.
For the three-month period ending June 30, CST reported net income of $27 million compared to net income of $25 million for the same period in 2015. This improvement in net income was driven by an increase in both the U.S. and Canadian motor fuel and merchandise and services gross profit during the quarter, the company said.
As reported in a McLane/CSP Daily News Flash, Lubel said during the company’s second-quarter 2016 earnings call on Aug. 5 that although it is “top of mind,” she would not comment on the previously announced ongoing strategic review, widely expected to result in a sale of the chain.
- Click here to view CSP’s analysis of the environment surrounding a sale of CST Brands and thoughts on potential acquirers.
“With respect to the strategic review we announced in early March, the special committee of independent directors continues to work with both management and our advisers to explore and evaluate the strategic alternatives to maximize value for our stockholders. The process is active and continuing, and we are not in a position to provide any comments on it at this time,” Lubel said.
“The strategic review is top of mind for us, and we know it is for you, too,” she continued. “However, our management team, the employees here at the service center and those on the front lines at our stores continue to focus on the work at hand—managing costs, pushing for increases in sales and gross profit, creating and expanding our unique identity and leveraging our consumer experience by delighting more customers every day.”
Investor Anxiety
Several investors who talked to CSP Daily News on condition of anonymity ahead of the call say they are growing anxious about the state of the company.
“The company can’t just go as is,” one investor said. “The NTIs [new-to-industry stores] are positive, but it’s been five months since the company announced it would pursue strategic alternatives. That is sufficient time to have seen some traction.”
Another investor said the swirl of speculation concerning potential buyers—from traditional convenience-store chains such as 7-Eleven and Alimentation Couche-Tard to hedge funds like Blackstone and Apollo—makes it difficult to envision an independent path under the current leadership.
“CST has had its opportunity to prove itself. It has made some positive moves. We favor the Nice N Easy acquisition and the larger store formats,” another investor said. “But we believe it overpaid substantially for Flash Foods, mismanaged the MLP with CrossAmerica and has lacked a strategic direction for some time. It’s our belief that CST would benefit under new leadership or new ownership.”
Several sources were less critical, although every one interviewed cited what they described as an exorbitant G&A that tops $130 million. That said, these sources identified several positives about CST, including:
- Strong market position in Texas
- Sound infrastructure in the Northeast upon which to expand
- Improved retail performance with solid progress in new-to-industry, larger formats
“This is not The Pantry,” one equity analyst said. “CST is not hemorrhaging and their assets overall are better than The Pantry’s. But the leadership is suffering from a lack of confidence from the investment community.”
Strategic Review’s Effect
The strategic review is having little effect on the company and its employees, said Lubel.
“I think you can see by our results that it is not having an impact,” she said. “We continue to grow the company from a gross profit standpoint in particular, and growth of store count. There certainly has been now slowdown in our NTI process. We’ve got 39 under construction; by the end of next week, we’ll have three more added to that mix, so we’re on track for our NTIs to be open, for the most part, by November. We’re now working on the 2017 NTIs."
“Everyone has been laser-focused on the business,” she concluded. “We’ve got a great business, a lot of great employees and some very loyal customers that continue to grow with us. So I think it has had almost no impact on us; if anything, it’s probably gotten everyone working even harder to show we can do this.”
CST is one of the largest independent retailers of motor fuels and convenience-store merchandise in North America. Based in San Antonio, it has more than 2,000 locations throughout the southwestern United States, Georgia, Florida, New York and eastern Canada. In the United States, CST Corner Stores sell fuel and signature products such as Fresh Choices baked and packaged goods, U Force energy and sport drinks, Cibolo Mountain coffee, FC Soda and Flavors2Go fountain drinks. In Canada, CST is the exclusive provider of Ultramar fuel and its Dépanneur du Coin and Corner Stores sell signature Transit Café coffee and pastries. CST also owns the general partner of CrossAmerica Partners LP, a master limited partnership (MLP) and wholesale distributor of fuels, based in Allentown, Pa.
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