Couche-Tard comes out on top in bet on fuel
MONTREAL • The Alimentation Couche-Tard Inc. convenience store chain has been doubling down on its fuel business, picking up gas stations across Europe and North America that include its biggest ever acquisition, of Texas- based CST Brands, announced last week.
The result in the first quarter of fiscal 2017 was mixed: revenues took a hit due in part to lower fuel prices, while U. S. fuel retail margins were largely responsible for the company’s higher- than- expected earnings per share.
The tally came out on the Laval, Que.- based company’s side in the Q1 report released Tuesday, with a nearly nine per cent increase in earnings compared to the same period last year, despite a decrease in revenue of more than six per cent.
“A lower fuel-selling price usually works in our favour as customers tend to travel more in this context — buying more fuel — while also leaving them with more cash for their discretionary spending,” the company said in a news release Tuesday.
“We’re setting ourselves up to compete very effectively in either a higher or lower price environment,” added Couche-Tard chief executive Brian Hannasch on an investor conference call Tuesday afternoon.
Earnings were US$ 324.4 million for the first 12 weeks of fiscal 2017 ended July 17, compared to US$ 297.8 million for the first quarter of fiscal 2016.
However, the company that runs Couche-Tard, Mac’s and Circle K convenience stores wasn’t able to match last year’s first quarter revenues, due largely to lower fuel prices and a higher U. S. dollar that impacted its Canadian and European operations.
Couche- Tard reported road transportation and fuel revenues of US$ 5.66 billion in the first quarter of fiscal 2017, compared to US$ 6.37 billion the same period a year ago. Total revenues were US$ 8.4 billion, lower than the US$ 8.97 billion it brought in Q1 2016.
Chief financial officer Claude Tessier said the slowed economy in Western Canada caused by forest fires also played a role in the softness of same-store sales in the merchandise side of the business.
The company’s 58 cents per share adjusted diluted earnings came in above BMO analyst Peter Sklar’s estimate of 54 cents, which he says can mostly be attributed to a positive U.S. fuel margin of 20.86 U. S. cents per gallon, higher than his forecast 18 U.S. cents.
Many of t he massive changes that are coming for Couche-Tard are not reflected in the company’s Q1 report.
Last week, Couche-Tard made a US$ 4.4- billion deal to buy San Antonio, Tex.-based CST Brands, allowing it to acquire more than 2,000 stores in the U. S. and Eastern Canada.
Tessier says the pricey acquisition will put pressure on the company’s balance sheet. As of the end of the first quarter, the company has $ 620.9 million in cash and $ 2.5 billion available through revolving credit facilities, he said.
“( We) will continue to balance debt structure, manage cash flow efficiently and make investment decisions using our usual discipline,” said Tessier on the investor call.
On Monday, the company, which runs the largest number of company- operated convenience stores in the U.S, also announced an acquisition of 53 stores and fuel retailers under Louisiana’s Cracker Barrel banner for an undisclosed price.
“Although market perception is that ( Couche-Tard’s) earnings growth is primarily acquisition- driven, acquisitions contributed 30 per cent to reported EBITDA growth of 12.3 per cent, with the balance — 70 per cent — from continuing operations,” wrote RBC Capital Markets analyst Irene Nattel.
Last year, Couche-Tard acquired The Pantry Inc. chain for about $1.7 billion, including debt, adding more than 1,500 U.S. stores.
In connection with The Pantry integration, current cost reduction reached US$ 71 million by the end of the first quarter, on track with Couche-Tard’s 24-month US$85-million objective.
“As a growth- oriented company, we know every acquisition is only as good as its successful integration, especially when it comes to anticipated synergies,” Tessier said.
Tessier says that although Couche-Tard’s plan is to deleverage the company over the next 18 to 24 months in order to get back to a place where it can start making sizable acquisitions, he would not rule out the possibility of making smaller tuck-ins.
Excluding the CST and Cracker Barrel acquisitions, Couche-Tard’s network includes 7,863 convenience stores throughout North America and 2,708 stores in Europe.
70% (OF EBITDA GROWTH CAME) FROM CONTINUING OPERATIONS.