CORE - Earnings call transcript Q4 2019

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Operator

Welcome to the Core-Mark, Fourth Quarter 2019 Investor Call. My name is Hilda and I'll be your operator for today. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session. [Operator Instructions] Please note, that this conference is being recorded.

the to turn now will call Mr. over I Lawrence. David Mr. Lawrence, you begin. may

David Lawrence

Chief led Today's Officer; McPherson, our call you. by and Officer. will Miller, Executive Thank Chief be Scott and our Chris Financial President

Core-Mark the this call the over earnings noted the I out advantage Before turning morning. Litigation intends provisions Reform to take of the to Harbor in filed Securities will release Scott, point we that Private Safe as of Act

to by subject and Please from forward-looking our statements actual remember may uncertainties comments include results are that and may those today which indicated such risks differ materially or implied statements.

these forward-looking Annual detail in Report statements. of duty does the our XX-K. are Form any including company The filings, Some described on not risks such company's update in undertake SEC to

will during certain we refer measures call. financial non-GAAP this to Additionally,

can investors, our we of a directly discussion XX-K. GAAP non-GAAP measure to including on Report measures these other consider and reconciliation measures of comparable Form financial in a the related earnings to information, release most and our Annual why find You these useful

now to Scott. the over I'll call turn

Scott McPherson

cigarette In growth, profits company allowed solid fourth year. year and joining records expansion that and on proud our pre-tax year and deliver the accomplished. today XX% a and headline the non-cigarette margin in and what on for was was strategic to declines growth growth sales leading carton I'm EBITDA. by to priorities revenues and cost regulatory XX% XXXX unprecedented profits disruption, Thanks everyone us we Core-Mark a catalyst for in leverage our certainly accelerated us industry of and our quarter. of dynamic a executed Strong

comments year priorities and start details our finish results, and fourth strategic will quarter our I on morning XXXX out with around by guidance. and providing This full

our continued in driven of drive that expectations, EBITDA. Our the in with X.X% growth accompanied by in growth expansion non-cigarettes. strong by growth X.X% fourth quarter growth was helped margin sales showing results in line for were Sales

growth quarter, is flat retail sales average during store the X% disruption same due our alternative flavor and by load year-to-date experienced of quarter caused eliminations of regulatory down Our for from the quarter. year-over-year the sales manufacturer to nicotine third

we were headwinds, quarter delivered in bonus and the higher stock and margin. continued drove pricing improvement growth. our initiatives through given expenses Operating the profit margin in Adjusted improvement gains another We of compared XX mix year XXXX. we expansion basis delivered sales gains, from of the in gross excluding EBITDA Despite holding revenue accruals non-cigarette still difference XX%. strategic quality impacted that remaining employee for growth of performance inventory stronger with comp, and delivered these by the for point benefit

and pleased quarter, meaningful are drive aforementioned our year-over-year declines by XXXX. which of in perspective, earnings the results our year million manufacturer and full elevated ability flat over regulatory face industry we with a summary, the growth disruptions in carton the growth caused we XXX.X a demonstrate growth to vapor XX% for the present in From EBITDA, during category In the quarter. delivered

holding gains and was shareholders. our inventory than $XXX on original EBITDA a end Excluding guidance. to approximately have the would profit greater by at of been upper it our the us cigarette strong are delivered candy commitments putting gains our unplanned benefit performance guidance the the and have company proud Overall, of XXXX million we to

pricing Our of the of a costs we've and top way. cost We initiatives and of continue sales growth initiatives, fresh focused modest results In proven on food, meaningful and leverage of X.X% the in declines. for have growth, pressure we sales profits to growth the despite higher rollout year carton the of to in year our ability our on XXXX downward strategic strategic elevate line leverage. reflect nicotine margin categories, execution delivered for alternative successful a

In food, attributable closer the is nicotine of management our strength and to non-cigarettes, same commitment leading to on categories. of alternative X% we to growth X% to our industry the average year delivered sales fresh directly this industry category providing store the customers. The solutions above delivered outperformance we

a As in Chris came timing urine flow more will detail, price lower XXXX. in result year discuss a our of our cigarette of in certainly in bit as a the for cash free than early guidance, increase of buys the anticipation

under the financial year leverage with leaving our we approximately availability ended facility. times, of X However, significant ABL

structure allocation for positioned well as capital beyond. our evaluate XXXX are priorities we and liquidity capital Our and

on thoughts ban want comments Before vapor up I on legal the the vapor result with likely XX additional will led The category which where tobacco last shift consistent to flavors heavily expectations. FDA by a menthol in continue The our a approval turn FDA NJOY to channel. as flavors. to the will run long in our believe JUUL, upcoming few the systems and a market, call. We than strategic C-store increase in I other deadline and the minimum our relies the share and are focus, follow open consumers sales my were to to by age to on XXXX guidance decision like closed contraction and tank vapor pre-market Vuse meaningful to

should from the back category. the recommendations CDC moderate safety broad-based their the or to against health which Further, help recently overhang stepped vaping,

near term we to While well adapt dominant we the be positioned users longer and vapor term the may are category be to grow over some this as to expect believe continue the in channel. will category market choppiness sales continue C-stores the to there changes,

our some guidance and gears, provide share our insights want to Changing I of the highlights into strategic focus. XXXX then

sales X.X% growth elevated customer continued acquisitions or declines, carton ranging wins to year cigarette from in Our and guidance no on approximately modest predicated major growth X.X%, this e-cigarettes. reflect

XXXX. for income in XXXX earned of the Our XX% holding XX is EBTDA cigarette at versus XX gains to to expected X growth not reoccur increase X% from ranges approximately after adjusting million, price candy million forecasted million which the and

strategic category potential management cost refine with in a leader of driving the growing and From opportunities number a along throughout profitably serving existing to relationships customers. organization. with we are customers the our on actively solutions to perspective, continue more working new as priorities the leverage and expand industry faster growth industry, around We than

We continue the XXXX on share sales with pace churn focus in alignment, capabilities. of while have structure our reduction, gains accelerating in incentive the and investments force to around made category market specific management we focus leveraging meaningful

C-store to the to pleased through very collaborative customers and am had am and short is positive analytics we for margins. Core-Mark. grow data growth designed to drive the with in of about in experience incredible opportunities strategies COE the leave Center feedback. come earnings along and an our customers same-store January the sales latest actionable evolve to and industry, enables innovation sales and that facility already Excellence and and in the I provides I several The excited report to and opened the with immersive that or have customers and COE in The explore provide COE our for

a intelligence to level our We are also data platforms. provide real-time as and platform to real-time customers launched actionable to to analytics the mobile initiatives our sales online with able organization access we recently sales. and provide our This to our next through customers drive focused takes profitable to help access marketing rollout

progress framework our margin ahead. growth, with mix improved in through in to profitably I'm sales opportunities pricing growing to profile. pleased see addition strategic our XXXX our enhancing significant and continue will play In and role a

expense and SG&A a leverage, Driving remains distribution and top operating in both in focus. warehouse

have accounting efficiency. investments to improve our we activities to transactional functions, investments business. continue distribution as process to to tech our make includes capabilities driver in driver finance We warehouse technology and to This smart our in well automation drive robotic made voice and in efforts our and as efficiency consolidate efficiency improve handheld and the in

continue organization. our to are leverage ability to in the cost confident drive We throughout

to up my want our I allocation with comments prepared remarks a capital priorities. wrap few on

C-store to wholesale to to and meet continue our profitable that our pathway distributors requirements. scale actively provide pursue capabilities We and enhance opportunities growth traditional to return acquire

arrangements industry hyper given our and expectations fresh consumer exclusivity the of in enhance and we potential the partnerships, offering that innovation acquisitions and actively Additionally, are importance and also food changing programs, our capabilities. and exploring will the in preferences

finally, share that XX committed We we're outstanding repurchase And We our and program. our XXX,XXX. reduced leverage, price, current repurchases. also million stock new approved in XXXX share our almost completed cash Board recently announced given in flow by and generation repurchases share shares million free to $XX

share strategically execute our and the We in accordance repurchases Board plan will approved objectives. with return

to X,XXX I over In a closing, the want details results. hand to thank more XXXX on it provide made Core-Mark I our employees to Chris will whose commitment now success. financial

Chris Miller

off Thank and morning, close then good on the you, our everyone. providing commentary XXXX additional insights with full by Scott, I'll guidance. quarter on highlights, and start provide year some

and $X.XX diluted XX.X% increased income $XXX.X net per year, XX.X% to full to increased the share earnings increased to million, $XX.X million. XX.X% For EBITDA

expense X.X%, In short, margin expansion the on operating successful overall of our results and XX profit of of year full operating key X.X%, our strategic growth results mix, earnings strength led of sales by reflect delivered margin The growth We year. improved the are expense gross non-cig non-cig the initiatives, execution we leverage. expansion for and proud remaining sales growth through benefit double-digit leverage. points sales of basis of

$XX approximately year. benefited earned the of also during floor We million inventory non-recurring from stockings

fourth net quarter EBITDA results, and the $XX.X $X.XX million. increased to EPS XX.X% $XX.X XX.X% to For XX.X% diluted million, increased increased income to

and growth, X.X% same reflect strong sales gains. approximately net increase profit X% primarily remaining in quarter for increased sales expansion of margin increase Non-cigarette non-cigarettes quarter, by driven of gains. billion. over the for and primarily higher $X.XX inventory results XXXX to holding sales strong QX Our the sales Total benefit market store the share X.X% an in gross non-cigarette

declined the XXXX, and in and margin primarily profit, of excludes non-cigarette carton price X%, X Total decline remaining X.X% remaining gross X.XX%, The for quarter. to sales share by gains driven The gross driven strong increased by store $XXX.X gains. compared gross inflation offset LIFO profit holding cigarette XX approximately which significant points expansion profit basis XX% margin the of inventory quarter basis to sales QX remaining with million fourth expense, market by same points. increased fourth in

XX our declined However, cigarette by gross margin remaining about points. profit basis

by QX in amounts versus incentives the timing quarter. impacted inflation vendor and year margins were and higher prior of Cigarette

and of full is We were the For year, our higher reflective inflation remaining was cigarette XXXX points, due to compared cigarette X primarily to forward. going which the more XXXX. basis profit margins by this believe margins down gross in level only

inventory for cigarette for higher $XX.X average million historical our total certain holding exceeded guidance resulting holding for than from and that increase of Our the price our in price brands gains $XX expected, million exceeding quarter year. in the came the gains resulted of cigarettes increases

the through sell of were the align had the candy the QX also with inventory. manufacturing in price deferred from that in gains corresponding $X.X We quarter increase to million

Our gross profit remaining the percentage operating of expenses quarter as were year-over-year. a in flat

included compared $X of expense SG&A performance million of mentioned, QX in due a incentives to As XXXX. is The to accruals incremental us QX somewhat which large weaker incentives. compared performance QX Scott XXXX spread XXXX, resulted having employee in with combination in with lower for stronger

delivered of $XXX cash the next We cash million Turning approximately prepayments. million due end-year timing to in expectation year, of flow cigarette flow. for our the free below $XX to

anticipation we of first chose year. our resulted inventories the inventory to early building This cigarette expected. in quarter, the the the Given at price of contributed higher December loan than increase to in a balance higher late also cigarette end in

for our million, expenditures in approximating of at total $XX the capital $XX year Our million. came guidance

paid million XXXX. in $XX approximately also in dividends We

This $XX.X in this billion our earnings large is does expectation outlined not or guidance XXXX morning, incorporate business wins top billion. acquisitions. release we As to any $XX.X our customer line

gains. to excluding is be candy million non-reoccurring flow do a X% $XXX is million, million and is and to $XX growth and excluding excess diluted over EPS which and represents expected million. for to to holding between to per benefit Diluted share be $X.XX the of cigarette $XXX $X.XX. between Free is $X.XX guidance XXXX, expected EBITDA XXXX inventory of $X.XX Our expected $XXX and EPS LIFO between expense XX% cash

gains. significant Our guidance assumes $XX holding million no other and holding of gains cigarette inventory

We per in was $X.XX three assumptions factors fully cigarette $XX and $XX substantial same shares in include key inflation certain driven see price totaling XXXX LIFO carton, tax expense It’s Other million in the market to level a saw rate which the do XXXX. per in worth of a was price higher to believe our XX% cigarette increase XXXX over in by elevated $X.XX million, carton we not diluted outstanding. guidance expect the increases mentioning and inflation XXXX.

for relocation guidance our the and in expenditure capital of the includes Our for certain $XX maintenance distribution million, XXXX for a and facility normal other was funds addition budget CapEx. upgrades to

and revenues significant the opportunities are growth on earnings drive about to In this excited summary, year multiple we in fronts.

Scott market as We to we are in growth. place that gain quality resources traditional accelerate believe And as are share and growth revenue adjacent customer the and delivering in churn. and exploring opportunities to reduce initiatives have committed M&A, well to our we actively right as help industries discussed,

now Operator, the you open questions. line may for

Operator

you. Thank

We begin question and will answer the now [Operator Instructions]. session

Ben from We Bienvenu Stephens. question from a have

Ben Bienvenu

we possible for just increases and same we pricing be out the generally to cigarette the generally how think Starting level increases we a get of that price pricing a kind of could how Is on believe on XXXX? similar cigarette you quarter. the prove first pricing of the your in think to got in you increase outlook, consumption incremental XXXX that guiding cartons a that part just there as then XXXX. are I And guidance? in magnitude about And Is move? relative it increases, there you in XXXX, to guys

Scott McPherson

off From with seen range, that's the X Altria, the and range I it two a as from range. think we've to well. in or mean a more price three increase our a guidance carton with and that's price decline others the coming we of $X consistently to had last about guidance carton $X.XX Reynolds $X.XX year standpoint, standpoint, in of consistent inflation I years X From

a Altria, in by an place making drove took driven kind of that the companies. inflation that was I think dynamics a with call investment I’d exceptional kind That what three significant lot rate. of different of

$X for the $X it year. range this about think low I to in more range

see it’s quite last we we think why moved quite and saw the as likely down to as guidance $XX million. price we’ll one that's don't increase as million I high So $XX year, from

Ben Bienvenu

is sheet, CapEx sequentially bit you fourth as XQ How you be working XQ leverage On should your XXXX. for free CapEx guys? of What guys you but that's about similarly, CapEx seasonal a Let's How elevated thinking an level we on like XXXX? facility you past in little some then higher a cost? capital, ahead just deal? even the be normal did a you're say expect of we though cash M&A you flow de-lever of quarter to absent the outlook, balance onetime a relocating you’ve would still in working the got to have I increase. XXXX, And in kind of thinking the consummate deal, do pricing should capital from know

Scott McPherson

the with Well, let's start normal CapEx.

the do a moderate we run $XX capital. for of the rate relocation. have includes a couple maintenance think years. another and in normal is range million in I capital us that We building relocation growth some have likely year Obviously, this next building

likely flow we times year a at range a look sheet in the of clearly, decision From at last strategic buying see X.X again of see cigarette in hit end, we made the could a next the in leverage we Ad free the year off, to next of start which two in cash the times but think paid easily year, a to decision the million balance that obviously inventory time at after. the you're your So we our increase we price to to range. because a end the or had in point have X $XXX made February. standpoint, year, weeks I XX very in

build the time And needed we be to inventory up. that to able so

there? questions touch I your did all So

Operator

from Christopher question a have Jefferies. We Mandeville from

Blake Anderson

make the What say is flat right sure alternative the on quarter? for I just they -- sales I have believe you Blake for on was Chris. were those that did fourth nicotine, want the comment This you I said year. for to one were

Scott McPherson

the They definitely so year. flat up. not were for were for fourth quarter, They flat the

Blake Anderson

size way expense alternative out are you impacts is could kind you And you you us about benefits any any can the there from we you Those could of rate any higher break there? can guide, kind size the of up On the maybe little expected. XXXX there? Could operating than EBIT talk nicotine, growth then give anyway leverage? from headwind

Scott McPherson

from planned So that we've up alternative standpoint, nicotine slightly. an

next single C-store in to a we there's the we'll think over but over towards months, see So of consolidation the there's going three digits. the course really just regulation. as the you channel that We to choppiness be, some probably the year, low see going be the also think definitely continued

impact have deadline tank sell the we’ll until a flavors who think sellers of are big I open to on continuing May.

Copenhagen which So nicotine, that other definitely continued like to is for continues things alternative play we growth which alternative and and on! like see substitute in ZYN, that. other then items, like items is and nicotine a

have So there. is of the cost EBITDA the rest our year. of we Those that drivers the are for built then really nicotine. the component three for see definitely in year. continued from alternative growth of a gain our leverage definitely We And contribution off a of

Blake Anderson

about Can on you your know update, focusing obviously us sales more I force, you talked give last quarter an chains. reorganizing midsize

included haven't any maybe you us, next on traction so? the provide insights early your six talk that pipeline Any any in you for months said front? about You the in And can yet. conversation guidance or

Scott McPherson

the have chain a a large to -- definitely team, that's small team completed -- it's size out mid build small a we mid focused that size not on So of going grouping. it's to kind of be

pursuing and discussions group now the So and that across they are leads, country. with having actively conversations

And as dialogs impact are those -- chain say three, half handful couple, this far the the bids organization sales a back or two a a and as as have that are then year guidance. nothing I'd obviously We now, but just larger of would right opportunities whole. current those in

in and we our continue grow at how structure to to positioned are looking definitely mentioned I are comments, compensation, we and As share. my

perspective as that making the definitely we'll some so from year changes And be progresses.

Blake Anderson

way how you think it the up pending and flavor and odds wondering gets what walk president, are you from ban the anyway one Any me by just and us us for senate flavors you're also last about passed your of through sales? as size HR XXXX. both menthol the menthol you -- could percentage and then could the thinking And a

Scott McPherson

Well, But last vapor, there's been part of menthol in is and small a of consumption, a cigarette months very choppiness flavors. total about sales. flavors now five in of our the lot XX% over

it's piece. this it's we sum all that the not likely pass. with the point president that current I up hard see will do bill kind vape at at of So to think

bill and was overreaching. it think that think I recognized minors was think that what on I see to that the bill be of us bill -- intent think But age was I The as I they real focused vote. far was original outreach, and in a XX. intent you that moving will

Operator

Thank you.

comes Our question from from Kelly Markets. Bania BMO Capital next

Kelly Bania

what to help modeling margin, sales just up at ask you the you for that that Just may I was the in if wanted XXXX. as us e-cigarette look e-cigarette can up have Where for and it. on that? gross year dollar did where non-cigarette impact missed end profit ended And

Scott McPherson

break Kelly. So basis non-cigarette kind ended up XX points, of into profit year-over-year. up three margin gross was that buckets, I will

of to we year think though, XX growth forward point e-cigs non-cigarettes. about We of and I also it of third I've had think strategic we area. a out a you third number initiatives a obviously mix of place from that was e-cig growth. that, pricing had exceptional that other had about across times the XX You When was about I called had categories. basis look an on in obviously

our it's pretty look think merchandise I about e-cigs, simple the look been that's as specifically at called the but last the growth. of kind to I years, of literally So our not year. general next out towards over driver three that We've

for volume gives what year. insight a the that into you pretty So good was this

Kelly Bania

you your what sales that? some mentioned compensation, force on and the and Can then that And and elaborate of the in you're compensation just with to in is guidance evaluating changes. you respect alignment, maybe the terms

Scott McPherson

store wouldn't what I anything obviously is specifically in independent mean, the is say in guidance. guidance growth I in continued account.

our company plans at to And and compensation structure. as any effectiveness continue, so of we the look does,

independent continue drive to count to store able growth. we're So

Kelly Bania

that’s And I what through in, do you move you pricing, what are opportunities as guess on inning strategic XXXX? the

Scott McPherson

that to low-hanging two up or runway we've pretty fruit probably to would think any and next years few cut things year, we're some good three. continue I that I Kelly, a to three the in margin this but evolve pick continue number We of initiative. over watch through a got say two the or

Kelly Bania

seems tone one And I'll then me last I'm for change little just terms a catching in bit like that maybe just, one M&A, of if in correctly. of

looking. terms that of in just of outside normal you area the So thinking kind traditionally bit little a were

you just understand can what you're about So us there? help talking

Scott McPherson

the for a off, on first trying space. would our up number priority resources, in So drum the those myself and included one working number say of we those acquisitions And wholesale convenience is company. have I still opportunities discussions to

Core-Mark the Beyond of fresh up feel food not like just and game to industry that, we but needs in arena. our its kind

us working So of potential I farther looking that, opportunities pace to in kind like and a so we or branding it that into fresh have we to around in some opportunities, much we'd our some and because co-branding opportunities acquisitions internally. get competitors folks on exclusivities even that's accelerate listen help on food don't at game. strategy would obviously than work want have and too the

Operator

you Instructions]. [Operator Thank

further Mr. turn We have to the over to call questions. final Lawrence for would no now like remarks. I

David Lawrence

this for interest. morning. the everyone We you appreciate your Thank joining call

you any our site. questions, Investor Relations directly. for to information reach Web contact out My me section joining. the have If available Thanks you can on of is

Operator

and this today's thank you We participating. for conference. Ladies gentlemen, concludes

You may disconnect. now

Core-Mark Hldg (CORE) 2 Mar 202019 Q4 Earnings call transcript