Couche-Tard comes out on top in bet on fuel sales

MONTREAL —TheAlimentation 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 Texasbased 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-thanexpected 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 with the same period last year, despite a more than six per cent decrease in revenue.

“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.

Earnings were $324.4 million US for the first 12 weeks of fiscal 2017 ended July 17, compared with $297.8 million US 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 $5.66 billion US in the first quarter of fiscal 2017 compared to $6.37 billion US the same period last year. Total revenues were $8.4 billion US, lower than the $8.97 billion US it brought in Q1 2016.

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 US cents per gallon, higher than his forecasted US18 cents.

“While a beat on U.S. fuel margins is transitory, as it is volatile from quarter to quarter, we believe the strong margin in (the first quarter of 2017) will be positively received,” Sklar wrote in a note Tuesday.

Many of the massive changes that are coming for Couche-Tard are not reflected in the company’s Q1 report.

Last week, Couche-Tard made a $4.4-billion US deal to buy San Antonio, Texas-based CST Brands, allowing it to acquire more than 2,000 stores in the U.S. and Eastern Canada.

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 in a note to clients.

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 $71 million US 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,” said Couche-Tard chief financial officer Claude Tessier in a company news release.

Excluding the CST and Cracker Barrel acquisitions, CoucheTard’s network includes 7,863 convenience stores throughout North America and 2,708 stores in Europe.