Opens 25 new stores year-to-date.
CST Brands Inc., one of the largest independent retailers of motor fuels and convenience merchandise in North America, reported financial results for the third quarter ended Sept.30, 2014.
Three Months Results
For the three-month period ended Sept. 30, 2014, the company reported net income of $63 million, or $0.83 per diluted share. Net income was $42 million, or $0.56 per diluted share, for the comparable period in 2013.
Included in net income are certain asset impairment charges, acquisition, legal and professional related expenses of $5 million, net of tax, for the three-month period ended Sept. 30, 2014. Asset impairment charges of $2 million, net of tax, were recorded for the three-month period ended Sept. 30, 2013.
Excluding these items, net income would have been $68 million, or $0.90 per diluted share, and $44 million, or $0.58 per diluted share, for the three-month periods ended Sept. 30, 2014 and 2013, respectively.
Operating revenues totaled $3.2 billion for the third quarter of 2014 compared to $3.3 billion for the same period of 2013. The decrease in operating revenues was due to a decrease in the per gallon average selling price for the U.S. segment and sales volumes of motor fuel during the period. Additionally, a decline of $76 million due to the weakness of the Canadian dollar relative to the U.S. dollar contributed to the decrease in operating revenues.
Motor fuel gross profit (per gallon) in the U.S. for the third quarter of 2014, after deducting credit card fees, was $0.25 compared to $0.16 in the third quarter of 2013, which was primarily caused by a declining crude oil and wholesale gasoline pricing environment combined with the company’s fuel pricing strategy. U.S. merchandise gross profit increased 5% when compared to the third quarter of 2013, primarily driven by improved food, beverage and snack categories across the company’s network of stores.
In Canada, the motor fuel gross profit (per gallon) for the third quarter of 2014, after deducting credit card fees, was $0.26 compared to $0.24 in the third quarter of 2013. Excluding the effects of foreign exchange, the motor fuel gross profit (per gallon) increased $0.04.
Operating income was $104 million for the third quarter of 2014 compared to $69 million for the third quarter of 2013. Adjusted EBITDA was $139 million for the three month-period ended Sept. 30, 2014 compared to $102 million for the same period in 2013.
The increase in operating income and Adjusted EBITDA was due primarily to an increase in motor fuel gross profit of $40 million in the U.S., as discussed above, partially offset by increases in operating expenses and general and administrative expenses of $3 million and $10 million, respectively, when compared to the same periods in 2013.
The increase in operating expenses was due to an increase in the number of company operated convenience stores during 2014 and an increase in health care costs in the U.S. The increase in general and administrative expenses was the result of acquisition, legal and professional related expenses and new costs associated with being an independent, stand-alone, public company, including additional corporate personnel and associated benefits and stock-based compensation.
Nine Months Results
Net income for the nine months ended Sept. 30, 2014 was $106 million, or $1.40 per diluted share. For the same period in 2013, net income was $105 million, or $1.40 per diluted share. Included in 2014 net income are asset impairment charges, acquisition, legal and professional related expenses of $5 million, net of tax. Asset impairment and deferred tax charges of $9 million, net of tax, are included in net income for the nine-month period ended Sept. 30, 2013.
Excluding these items, net income would have been $111 million, or $1.47 per diluted share, and $114 million, or $1.51 per diluted share, for the nine months ended Sept. 30, 2014 and 2013, respectively. During the first four months of 2013, the company was still a wholly-owned subsidiary of Valero and, as such, the nine months ended Sept. 30, 2013 results do not include all of the expenses associated with being a stand-alone public company.
For the nine month period ended Sept.30, 2014, revenues were approximately $9.5 billion compared to $9.7 billion for the nine months ended Sept. 30, 2013. The decline in revenues was driven by a decrease in both the retail price and gallons sold of motor fuel in the U.S. and a decline of $249 million in operating revenues in Canada due to the weakness of the Canadian dollar relative to the U.S. dollar.
Motor fuel gross profit (per gallon) in the U.S., after deducting credit card fees, was $0.16 in the first nine months of 2014 compared to $0.13 for the nine months ended September 30, 2013. U.S. merchandise gross profit percentage, net of credit card fees, increased to 30.2% for the nine months ended Sept. 30, 2014 compared to 29.7% for the same period of the prior year.
In Canada, the motor fuel gross profit (per gallon), after deducting credit card fees, was $0.24 for the nine months ended September 30, 2014 and $0.24 for the same period of the prior year. Excluding the effects of foreign exchange, the motor fuel gross profit (per gallon) increased $0.02. Canada merchandise gross profit percentage, net of credit card fees, decreased to 27.5% for the nine months ended September 30, 2014 compared to 27.9% for the same period of the prior year.
Operating income was $186 million for the nine months ended Sept.30, 2014 compared to $178 million for the nine months ended Sept.30, 2013. Adjusted EBITDA was $284 million for the nine months ended Sept. 30, 2014 compared to $273 million for the same period in 2013.
The primary reasons for the declines were increases in operating expenses and general and administrative expenses of $13 million and $27 million, respectively, when compared to the same periods in 2013. The increase in operating expenses was due to an increase in the number of company-operated convenience stores during 2014 and an increase in health care costs in the U.S. The increase in general and administrative expenses was the result of acquisition, legal and professional related expenses and new costs associated with being an independent, stand-alone, public company, including additional corporate personnel and associated benefits and stock-based compensation.
“We delivered strong results this quarter and finalized preparations for successful closings of the CrossAmerica and Nice N Easy transactions in October and November, respectively,” said Kim Lubel, chairman and CEO of CST Brands. “We executed well, posting year-over-year operating income growth in both our U.S. and Canadian businesses, while further benefiting from a favorable fuel environment.” Lubel went on to say, “We also continue to move forward toward our goal of opening thirty-eight new stores this year, as we have now opened 25 new sites in the U.S. and Canada during 2014.”
New Store Openings
The company has opened 19 new stores in the U.S. and six stores in Canada. The company currently expects to open a total of 28 new stores in the U.S. and 10 new stores in Canada during 2014. These new stores provide a much larger footprint, more product variety and enhanced offerings such as foodservice.
Liquidity and Capital Resources
For the nine-month period ended Sept. 30, 2014, cash flow provided by operating activities totaled $293 million. Cash flow used in investing activities was $198 million, primarily related to capital expenditures. Cash flow used in financing activities was $42 million, due to payments of long-term debt and dividends. Overall, cash increased by $49 million. Cash, as of Sept. 30, 2014, was $427 million.
Total capital expenditures for the three and nine months ended Sept. 30, 2014 were $104 million and $192 million, respectively.