San Francisco, California-based Core-Mark Holding Company, Inc. (CORE) recently posted third quarter 2011 adjusted earnings of $1.14 per share, significantly ahead of the Zacks Consensus Estimate of 99 cents and the year-ago performance of 91 cents. The better-than-expected results were driven by double-digit growth in the top line and margin expansion.
The company, which distributes packaged consumer products to the retail industry, reported net sales of $2.23 billion, up 11.6% year over year. The upside in revenue was attributable to strong contributions from Forrest City Grocery Company (acquired in May 2011) and Finkle Distributors, Inc. (acquired in August 2010). Quarterly sales also benefited from the rise in cigarette price and additional business obtained from a new Alimentation Couche-Tard contract.
Core-Mark experienced a dip of 2% in same-store sales during the quarter, but compared favorably with the 3.5% decline in the overall industry.
Sales at Non-cigarette category, including excise taxes, jumped 11.1%, due to a 4% growth in non-cigarette same-store sales.
During the quarter, adjusted gross profit expanded 11.1% to $121.1 million, as the company continues to benefit from cost-control measures.
Total operating expense climbed 9.3% to $101.1 million due to higher net fuel costs, as well as start-up and conversion costs for Forrest City and Couche-Tard, respectively, and new divisions in the southeast. However, as a percentage of net sales, total operating expenses fell 9 basis points.
Adjusted operating income surged 31.2% to $21.8 million in the reported quarter.
Financial Position
At the end of the quarter, the company had cash and cash equivalent of $20.1 million, long-term debt of $24.7 million and shareholders’ equity of $374.0 million.
Outlook
For fiscal 2011, the company reaffirmed its net sales outlook benefiting from expansion in the southeast due to Forrest City acquisition and the new Couche-Tard contract. The company continues to expect capital expenditure of $24 million.
Our Take
The company reported higher sales and margins in the recently concluded quarter and expects the trend to continue through 2012, based on the benefits from the acquisition of Forrest City and new Couche-Tard contract. Hence, we expect estimates to go up in the coming days. The Zacks Consensus Estimate is currently pegged at $2.58 for fiscal 2011 and $3.16 for fiscal 2012.
Core-Mark currently has a Zacks #3 Rank, which implies a Hold rating over the short term. We also reiterate our long-term Neutral recommendation on the stock.
