SOUTH SAN FRANCISCO, CA—(Marketwired - Mar 2, 2015) - Core-Mark Holding Company, Inc. (NASDAQ: CORE)
  • Record Annual Sales of $10.3 Billion and Diluted EPS of $1.83
  • Record Adjusted EBITDA of $122.7 Million for the year, a 12.1% Increase
  • Food Sales Increased 7.2% for the Quarter, Total Non-cigarette Sales Increased 5.6%
  • Expect Sales of $10.7 to $11.0 Billion & Adjusted EBITDA of $125 to $129 Million in 2015
  • Announced $0.13 dividend payable March 26, 2015
Core-Mark Holding Company, Inc. (NASDAQ: CORE), one of the largest marketers of fresh and broad-line supply solutions to the convenience retail industry in North America, announced financial results for the fourth quarter and year ended December 31, 2014. “Core-Mark had another good year in 2014. We have been able to accelerate our earnings by executing on the fundamentals and by leveraging some significant opportunities in the market place. Our non-cigarette comparable same store sales increased in the fourth quarter by 5.5% which was a very encouraging metric to end the year,” said Thomas B. Perkins, President and Chief Executive Officer. “We have seen healthy organic growth driven by the success of our core strategies and are looking forward to 2015.”  Fourth Quarter Results Net sales increased 4.7% to $2.6 billion for the fourth quarter of 2014 compared to $2.5 billion for the same period in 2013. Excluding the impact of foreign currency fluctuations, net sales increased 5.8%. Non-cigarette sales grew 5.6% while cigarette sales increased 4.3%. Non-cigarette sales were driven primarily by increases in sales to our existing customers through the successful implementation of our core marketing strategies. The increase in cigarette sales was due mostly to manufacturer’s price increases and a modest increase in cartons sold.  Gross profit increased 7.9% to $154.6 million during the fourth quarter 2014 compared to $143.3 million for the same period in 2013. Remaining gross profit increased 5.0% to $146.1 million. Non-cigarette remaining gross profit increased 6.5% compared to the same quarter last year while cigarette remaining gross profit increased 1.5%. The following table reconciles the components of gross profit.
   
RECONCILIATION OF GROSS PROFIT TO REMAINING GROSS PROFIT  
(Unaudited and $ in millions)  
                   
    For the Three Months Ended December 31,        
    2014     2013     % Change  
                   
Gross profit   $ 154.6     $ 143.3     7.9 %
Cigarette inventory holding gains     (4.2 )     (4.1 )      
Candy inventory holding gains     (0.8 )     -        
OTP tax items     (6.2 )     -        
LIFO expense (income)     2.7       (0.1 )      
Remaining gross profit   $ 146.1     $ 139.1     5.0 %
                       
The Company’s operating expenses for the fourth quarter of 2014 were $131.6 million compared to $119.5 million for the same quarter of 2013. As a percentage of sales, operating expenses increased about 20 basis points. This increase was due in part to a shift in sales to non-cigarette categories which have lower selling price points than cigarettes. Further, the addition of the new Ohio Division, a $1.7 million increase in employee incentive expense, $1.2 million of settlement and related legal costs, as well as increases in healthcare and professional fees associated with the OTP items, impacted fourth quarter operating expenses. Net income for the fourth quarter of 2014 was $14.6 million compared to $15.0 million for the same period in 2013. LIFO expense, before tax effect, was $2.8 million higher in Q4 this year versus 2013 driving net income lower. Excluding LIFO expense, net income increased 9.4%. Adjusted EBITDA increased 15.3% to $36.1 million in the fourth quarter compared to $31.3 million in the fourth quarter of 2013. The components of adjusted EBITDA are provided in the table below.
   
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA  
(Unaudited and $ in millions)  
               
  For the Three Months Ended December 31,        
  2014   2013     % Change  
               
Net income $ 14.6   $ 15.0     (2.7 %)
Interest expense, net (1)   0.4     0.5        
Provision for income taxes   7.9     8.2        
Depreciation & amortization   8.6     7.0        
LIFO expense (income)   2.7     (0.1 )      
Stock-based compensation expense   1.8     0.6        
Foreign currency transaction losses, net   0.1     0.1        
Adjusted EBITDA $ 36.1   $ 31.3     15.3 %
                   
Note (1): Interest expense, net, is reported net of interest income.       
 
Diluted earnings per-share were $0.62 for the fourth quarter of 2014 compared to $0.65 for the fourth quarter of 2013. Excluding LIFO expenses, diluted earnings per-share were $0.69 in this quarter compared to $0.65 for the fourth quarter of 2013, a 6.2% increase. In addition, per-share results were impacted by several other items, which are provided in the attached diluted EPS table following the financial schedules. 2014 Full Year Results Net sales were $10.3 billion for 2014 compared to $9.8 billion for 2013, a 5.2% increase. Excluding the impact of foreign currency fluctuations, net sales increased 6.2%. Non-cigarette sales increased 6.8% over the prior year benefiting from market share gains and the execution of our core strategies. Cigarette sales increased 4.5% driven by cigarette price increases and market share gains. Gross profit increased 6.8% to $573.7 million in 2014 compared to $537.1 million the previous year. Gross profit includes a large candy holding gain and a significant OTP tax refund. Remaining gross profit was $567.3 million in 2014 compared to $536.8 million in 2013, a 5.7% increase. Non-cigarette remaining gross profit grew 8.0% or 13 basis points as a percentage of sales, driven by sales growth in our Food category and the shift towards higher margin categories. Excluding the compressing effect of two large customers won in the second half of 2013, non-cigarette remaining gross profit increased 20 basis points. The following table reconciles the components of gross profit.
   
RECONCILIATION OF GROSS PROFIT TO REMAINING GROSS PROFIT  
(Unaudited and $ in millions)  
                   
    For the Twelve Months Ended December 31,        
    2014     2013     % Change  
                   
Gross profit   $ 573.7     $ 537.1     6.8 %
Cigarette inventory holding gains     (8.2 )     (9.0 )      
Candy inventory holding gains     (6.0 )     -        
OTP tax items     (8.5 )     -        
LIFO expense     16.3       8.7        
Remaining gross profit   $ 567.3     $ 536.8     5.7 %
                       
The Company’s operating expenses for 2014 increased 8.0% to $505.4 million compared to $468.1 million for 2013. Operating expenses as a percentage of sales increased 13 basis points, of which approximately 14 basis points were related to a shift in sales to non-cigarette categories which have lower selling price points than cigarettes. In addition, higher employee incentives and healthcare costs increased operating costs as a percent of sales by seven basis points. Net income in 2014 was $42.7 million compared to $41.6 million for the same period in 2013. LIFO expense, before tax effect, was $7.6 million higher in 2014 compared to last year, driving net income lower. Excluding LIFO expense, net income increased over 11%. Adjusted EBITDA increased 12.1% from $109.5 million in 2013 to $122.7 million this year, the components of which are provided in the table below.
   
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA  
(Unaudited and $ in millions)  
               
    For the Twelve Months Ended December 31,      
    2014   2013   % Change  
               
Net income   $ 42.7   $ 41.6   2.6 %
Interest expense, net (1)     1.8     2.2      
Provision for income taxes     23.7     24.4      
Depreciation & amortization     32.0     27.2      
LIFO expense     16.3     8.7      
Stock-based compensation expense     6.1     4.6      
Foreign currency transaction losses, net     0.1     0.8      
Adjusted EBITDA   $ 122.7   $ 109.5   12.1 %
                   
Note (1): Interest expense, net, is reported net of interest income.         
 
Diluted earnings per-share were $1.83 for 2014 compared to $1.79 last year, an increase of 2.2%. Excluding LIFO expense, diluted earnings per-share were $2.26 in 2014 compared to $2.02 in 2013, an 11.9% increase. These per-share results were impacted by several other items, which are provided in the attached diluted EPS table following the financial schedules. Dividend Core Mark also announced today its Board of Directors has approved a $0.13 cash dividend per common share. The dividend is payable on March 26, 2015 to stockholders of record as of the close of business on March 12, 2015. Guidance for 2015 The Company expects annual net sales in 2015 to be between $10.7 billion and $11.0 billion. This expected growth in sales is driven largely by continued market share gains as it assumes no new acquisitions or large customer wins, other than the Karrys acquisition announced today. Adjusted EBITDA for 2015 is expected to be between $125 million and $129 million. Diluted earnings per-share for the full year are expected to be between $1.84 and $1.91, which assumes $16 million of estimated LIFO expense. Our diluted per-share estimates, excluding LIFO expense, are between $2.26 and $2.33. EPS estimates assume a 38% tax rate and 23.4 million fully diluted shares outstanding. These projections assume that the 2014 candy holding gain of $6.0 million and the $7.5 million of OTP tax items, net of related expenses, do not recur, representing approximately $0.36 per diluted share. Capital expenditures for 2015 are expected to be approximately $35 million, which will be utilized for expansion projects and maintenance investments. Conference Call and Webcast Information Core-Mark will host an earnings call on Thursday, March 2, 2015 at 9:00 a.m. Pacific time during which management will review the results of the fourth quarter and full year. The call may be accessed by dialing 1-800-588-4973 using the code 38895909. The call may also be listened to on the Company’s website www.core-mark.com. An audio replay will be available for approximately one month following the call by dialing 888-843-7419 using the same code provided above. The replay will also be available via webcast at www.core-mark.com for approximately 90 days following the call. About Non-GAAP Financial Measures This press release includes non-GAAP financial measures including diluted earnings per share excluding LIFO expense, adjusted EBITDA, and remaining gross profit. We believe these non-GAAP financial measures provide meaningful supplemental information for investors regarding the performance of our business and facilitates a meaningful period to period evaluation. Management uses these non-GAAP financial measures in order to have comparable financial results to analyze changes in our underlying business. These non-GAAP measures should be considered a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The tables in this press release contain more details on the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliations between these financial measures. Forward-Looking Statements Statements in this press release that are not statements of historical fact are forward-looking statements. These statements include statements regarding our guidance for 2015 net sales, adjusted EBITDA, diluted earnings per share, capital expenditures and related disclosures. Forward-looking statements in some cases can be identified by the use of words such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “believe,” “could,” “would,” “project,” “predict,” “continue,” “plan,” “propose” or other similar words or expressions. Forward-looking statements are made only as of the date of this press release and are based on our current intent, beliefs, plans and expectations. They involve risks and uncertainties that could cause actual future results, performance or developments to differ materially from those described in or implied by such forward-looking statements.  Factors that might cause or contribute to such differences include, but are not limited to, challenging economic conditions; our dependence on the convenience retail industry for our revenues; competition in our distribution markets; the dependence of some of our distribution centers on a few relatively large customers; fuel and other transportation costs; the low-margin nature of cigarette and consumable goods distribution; our reliance on manufacturer discount and incentive programs and cigarette excise stamping allowances; our dependence on relatively few suppliers; risks and costs associated with efforts to grow our business through acquisitions; product liability claims and manufacturer recalls of products; unexpected outcomes in legal proceedings; our ability to achieve the expected benefits of implementation of marketing initiatives; failure or disruptions of our information technology systems; our dependence on our senior management; shortages of qualified labor; attempts by unions to organize our employees; declining cigarette sales volumes; legislation and other matters negatively affecting the cigarette and tobacco industry; increases in excise taxes or reduction in credit terms by taxing jurisdictions; potential liabilities associated with sales of cigarettes and other tobacco products; competition from sales of illicit and other low priced sales of cigarettes; changes in the funding of our pension plans; reduction in the payment of dividends; currency exchange rate fluctuations; our ability to borrow additional capital; changes to accounting rules or regulations; compliance with governmental regulations; and earthquake and natural disaster damage. Refer to the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 2, 2015 and Part II, Item 1A, “Risk Factors” of any quarterly report on Form 10-Q subsequently filed by us for a more comprehensive discussion of these and other risk factors. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Core-Mark Core-Mark is one of the largest marketers of fresh and broad-line supply solutions to the convenience retail industry in North America. Founded in 1888, Core-Mark offers a full range of products, marketing programs and technology solutions to over 35,000 customer locations in the U.S. and Canada through 29 distribution centers (excluding two distribution facilities the Company operates as a third party logistics provider). Core-Mark services traditional convenience retailers, grocers, drug, liquor and specialty stores, and other stores that carry convenience products. For more information, please visit www.core-mark.com.
   
   
CORE-MARK HOLDING COMPANY, INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(In millions, except share and per share data)