Fresh sales increased approximately 14%; while total non-cigarette sales increased 13.5%.
Core-Mark Holding Co. Inc. announced financial results for the first quarter ended March 31, 2017.
“Core-Mark showed solid revenue and store growth in the first quarter as well as continued progress with our core strategies, but we have more work to do to improve productivity on newly-acquired business and better leverage our fixed costs,” said Thomas Perkins, president and CEO. “I’m confident we’ll get there; we have a strong organization and are focused on our goal of driving enhanced profitability as we capitalize on our momentum in the marketplace.”
First Quarter Results
Net sales increased 16.4% to $3.5 billion for the first quarter of 2017 compared to $3 billion for the same period in 2016.
Cigarette sales increased 17.6%, while non-cigarette sales increased 13.5% from net market share gains and the acquisition of Pine State. In addition, cigarette sales benefited from manufacturers’ price increases. Non-cigarette sales to our existing customers also increased through the success of our core strategies.
Gross profit increased 15.2% to $174.0 million for the first quarter of 2017 compared to $151.1 million for the same period in 2016. Gross profit for the first quarter of 2017 benefited from an increase in cigarette inventory holding gains of $5.6 million resulting from cigarette price increases.
Cigarette manufacturers in the U.S. raised prices in the first quarter of 2017. These price increases in the U.S. typically occur in the second and fourth quarters of each calendar year and there were no such price increases in the first quarter of 2016. Remaining gross profit, a non-GAAP financial measure, increased 11.8% to $171.6 million from $153.5 million driven by market share gains, including the addition of 7-Eleven and Murphy U.S.A., the acquisition of Pine State, and Core-Mark’s core strategies.
The Company’s operating expenses for the first quarter of 2017 were $171.8 million compared to $141.9 million for the same period in 2016. Primary contributors to the increase of operating costs were incremental expenses from Pine State, incremental deliveries made, and costs related to the onboarding and servicing of 7-Eleven, which were substantially higher than expected. Operating expenses as a percentage of net sales were 4.9% for the first quarter of 2017 compared to 4.7% for the first quarter of 2016. Operating expenses in the first quarter of 2016 benefited from a gain of $2.0 million related to the settlement of a legacy lawsuit.
Net income was $2.1 million for the first quarter of 2017 compared to $5.7 million for the same period in 2016. Adjusted EBITDA, a non-GAAP financial measure, was $19.6 million for the first quarter of 2017 compared to $24.1 million for the first quarter of 2016.
Diluted EPS were $0.05 for the first quarter of 2017 compared to $0.12 for the first quarter of 2016. Diluted EPS excluding LIFO expense, a non-GAAP financial measure, were $0.11 for the first quarter of 2017 compared to $0.17 for the first quarter of 2016.
Dividend
Core-Mark also announced that its Board of Directors approved a $0.09 cash dividend per common share. The dividend is payable on June 22, 2017 to stockholders of record as of the close of business on May 25, 2017.
Guidance for 2017
The Company reiterated its net sales, diluted EPS and Adjusted EBITDA guidance for the full year of 2017. Annual net sales for 2017 are expected to be between $15.2 billion and $15.5 billion.
Adjusted EBITDA for 2017 is expected to be between $166.0 million and $173.0 million. Diluted EPS for the full year are expected to be between $1.18 to $1.25. Estimates of Diluted EPS excluding LIFO expense are expected to be between $1.42 and $1.49.
Key assumptions remain unchanged and include $18 million of LIFO expense, a 37.5% tax rate and 46.5 million fully diluted shares outstanding. In addition, these projections include cigarette inventory holding gains, but do not include any other significant holding gains, nor any pension settlement expenses.
Capital expenditure estimates for 2017 are expected to be approximately $50 million, which will be utilized for expansion projects, including expenditures associated with a supply agreement with Walmart and maintenance investments.
Conference Call and Webcast Information
Core-Mark hosted an earnings call on Tuesday, May 9, 2017 that reviewed the results of the first quarter of 2017. An audio replay will be available for approximately one month following the call by dialing (888) 843-7419 and using the code 44824439. The replay will also be available via webcast at www.core-mark.com for approximately 90 days following the call.