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| 8-K - 8-K - CST BRANDS, INC. | cst20141q10qform8-kearning.htm |
CST Brands, Inc. Reports First Quarter 2014 Results |
-U.S. Fuel Gross Margin Dollars Increased 19% |
-U.S. Merchandise Gross Margin Dollars Increased 6% |
-Nine New Stores Opened Year-to-Date |
San Antonio, Texas, May 13, 2014 – CST Brands, Inc. (NYSE: CST), one of the largest independent retailers of motor fuels and convenience merchandise in North America, today reported financial results for the first quarter ended March 31, 2014.
Three Months Results
For the three month period ended March 31, 2014, the Company reported net income of $11 million, or $0.14 per diluted share. Net income was $23 million, or $0.30 per diluted share, for the comparable period in 2013. During the first quarter of 2013, the Company was still a wholly-owned subsidiary of Valero and, as such, the first quarter of 2013 results do not include all of the expenses associated with being a public company.
For the first quarter of 2014, the U.S. motor fuel gross margin (cents per gallon or CPG), after deducting credit card fees, was $0.10 compared to $0.08 in the first quarter of 2013. The increase in CPG was driven by less volatility in crude oil and wholesale motor fuel prices as well as the Company's marketing strategy, subsequent to the spin-off, as an independent retailer of motor fuel. U.S. merchandise gross margin, net of credit card fees, increased from 29.7% for the first quarter of 2013 to 30.6% for the same period in 2014, driven by the contribution of higher-margin merchandise items sold at the Company's new stores, such as proprietary brand and fresh food offerings, and an increase in gross margin percentage in the cigarette category during the quarter.
During the first quarter of 2014, the Canada motor fuel gross margin (cents per gallon or CPG), after deducting credit card fees, was $0.21 compared to $0.22 in the first quarter of 2013, due to weakness of the Canadian dollar relative to the U.S. dollar. The decrease in the value of the Canadian dollar resulted in an $8 million decline to overall gross margin. Canada merchandise gross margin, net of credit card fees, increased from 27.5% for the first quarter of 2013 to 28.1% for the first quarter of 2014.
Revenues totaled $3.0 billion for the first quarter of 2014 compared to $3.2 billion for the same period of 2013. Motor fuel revenues in the U.S. segment declined $136 million, driven by a 5% decline in motor fuel gallons sold and a 4% decline in the Company’s per gallon average motor fuel selling price. Motor fuel revenues declined $56 million in the Canada segment, primarily attributable to the foreign currency effects mentioned earlier. Overall revenues in the Canadian segment declined approximately $104 million due to foreign currency effects of the Canadian dollar relative to the U.S. dollar.
Operating income was $25 million for the first quarter of 2014 compared to $32 million for the first quarter of 2013. Adjusted EBITDA (the non-GAAP measures, including Adjusted EBITDA, are described and are reconciled to the corresponding GAAP measures in the Supplemental Disclosure section of this release) was $57 million for the three month period ended March 31, 2014 compared to $63 million for the same period in 2013. The decrease in operating income and Adjusted EBITDA was due primarily to an increase in operating and general and administrative expenses due to higher expenses as a stand-alone, publicly traded company, including additional corporate personnel and associated benefits and stock-based compensation, expenses associated with additional stores, increased health care costs in the U.S., and the impact from foreign exchange.
“We delivered solid results in the first quarter, despite a challenging environment,” said Kim Bowers, chairman and CEO of CST Brands. “We grew U.S. gross margin dollars over 9% compared to last year and, while we did face challenges in Canada, the 4% decline in gross margin was primarily attributable to weather and the effects of foreign exchange impacting our fuel cents per gallon earned in the period.”
Bowers went on to say, “As we celebrate our one year anniversary as a separate company, we are making tremendous strides on the initiatives we outlined following our spin. We have significantly increased our new store builds, our fuel margin capture continues to improve and our focus on food and overall inside margin is positioning us for a solid year in 2014.”
New Store Openings
Year to date, the Company has opened eight new stores in the U.S. and one in Canada. The Company currently expects to build 30 new stores in the U.S. and eight new stores in Canada during 2014. These new stores provide a much larger footprint, more product variety and enhanced food service offerings.
Network Optimization
In April, NRC Realty & Capital Advisors released additional details regarding the 117 properties included in the Company’s previously announced sales process. As has been stated previously, the Company conducted a thorough market review across its U.S. system last year. As a result of this review, stores were identified as candidates for sale, the majority of which could potentially be added to the Company’s wholesale distribution business in the U.S. Stores were identified based on several criteria, and while many of them are smaller in square footage, and below the overall store average from an inside sales and EBITDA perspective, these locations average over 3,000 gallons of fuel sold per store per day, which the Company believes makes them attractive locations for potential buyers and good dealer candidates for the Company’s wholesale business.
Liquidity and Capital Resources
For the three month period ended March 31, 2014, cash flow provided by operating activities totaled $44 million. Cash flow used in investing activities was $43 million, related to capital expenditures. Cash flow used in financing activities was $12 million, due primarily to payments of long-term debt and dividends. The effect of foreign currency exchange rate changes was a reduction in cash of $2 million. Overall, cash decreased by $13 million.
Conference Call
The Company will host a conference call on May 13, 2014 at 9:00 a.m. Eastern Time (8:00 a.m. Central Time) to discuss first quarter earnings results. The conference call numbers are 800-697-5978 or 630-691-2750 and the passcode for both is 5854571#. A live audio webcast of the conference call and the related earnings materials, including reconciliations of any non-GAAP financial measures to GAAP financial measures and any other applicable disclosures, will be available on that same day on the investor section of the CST Brands website (www.cstbrands.com). To listen to the audio webcast, go to http://www.cstbrands.com/en-us/investors/eventsandpresentations. After the live conference call, a replay will be available for a period of sixty days. The replay numbers are 888-843-7419 or 630-652-3042 and the passcode for both is 5854571#. An archive of the webcast will be available on the investor section of the CST Brands website at http://www.cstbrands.com/en-us/investors/eventsandpresentations within 24 hours after the call for a period of sixty days.
CST BRANDS, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(Millions of Dollars, Except per Share Amounts)
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
Operating revenues(a) | $ | 3,001 | $ | 3,188 | ||||
Cost of sales | 2,756 | 2,952 | ||||||
Gross margin | 245 | 236 | ||||||
Operating expenses: | ||||||||
Operating expenses | 164 | 159 | ||||||
General and administrative expenses | 25 | 15 | ||||||
Depreciation, amortization and accretion expense | 31 | 30 | ||||||
Total operating expenses | 220 | 204 | ||||||
Operating income | 25 | 32 | ||||||
Other income, net | 1 | 1 | ||||||
Interest expense | (10 | ) | — | |||||
Income before income tax expense | 16 | 33 | ||||||
Income tax expense | 5 | 10 | ||||||
Net income | $ | 11 | $ | 23 | ||||
Earnings per common share | ||||||||
Basic earnings per common share | $ | 0.14 | $ | 0.30 | ||||
Weighted-average common shares outstanding (in thousands) | 75,397 | 75,397 | ||||||
Earnings per common share - assuming dilution | ||||||||
Diluted earnings per common share | $ | 0.14 | $ | 0.30 | ||||
Weighted-average common shares outstanding - assuming dilution (in thousands) | 75,494 | 75,397 | ||||||
Dividends declared per common share | $ | 0.0625 | $ | — | ||||
Supplemental information: | ||||||||
(a) Includes excise taxes | $ | 470 | $ | 499 | ||||
Comparative financial statements of prior periods were adjusted to apply the weighted-average cost method of valuing the Company’s Canada motor fuel inventory retrospectively. See Note 2 of the Company’s consolidated and combined financial statements included in its Report on Form 10-K for the fiscal year ended December 31, 2013.
CST BRANDS, INC.
SEGMENT OPERATING RESULTS
(Millions of Dollars)
(Unaudited)
U.S.
The following tables highlight the results of operations and certain operating metrics of the U.S. segment (millions of dollars, except number of convenience stores, per site per day and per gallon amounts):
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
Operating revenues: | ||||||||
Motor fuel | $ | 1,483 | $ | 1,619 | ||||
Merchandise | 301 | 293 | ||||||
Other | 15 | 16 | ||||||
Total operating revenues | $ | 1,799 | $ | 1,928 | ||||
Gross margin: | ||||||||
Motor fuel | $ | 44 | $ | 37 | ||||
Merchandise | 92 | 87 | ||||||
Other | 15 | 14 | ||||||
Total gross margin | 151 | 138 | ||||||
Operating expenses | 105 | 99 | ||||||
Depreciation, amortization and accretion expense | 22 | 21 | ||||||
Operating income | $ | 24 | $ | 18 | ||||
Company operated retail sites at end of period | 1,041 | 1,033 | ||||||
Average company operated retail sites during the period | 1,038 | 1,033 | ||||||
Total system operating statistics: | ||||||||
Motor fuel sales (gallons per site per day) | 4,797 | 5,048 | ||||||
Motor fuel sales (per site per day) | $ | 15,866 | $ | 17,428 | ||||
Motor fuel gross margin (CPG): | ||||||||
Motor fuel margin, before credit card fees | $ | 0.139 | $ | 0.116 | ||||
Credit card fees | (0.041 | ) | (0.040 | ) | ||||
Motor fuel gross margin, net (CPG) | $ | 0.098 | $ | 0.076 | ||||
Merchandise sales (per site per day) | $ | 3,221 | $ | 3,158 | ||||
Merchandise gross margin, net (percentage of merchandise revenues): | ||||||||
Merchandise gross margin, before credit card fees | 31.5 | % | 30.5 | % | ||||
Credit card fees affect on margin | (0.9 | ) | (0.8 | ) | ||||
Merchandise gross margin, net | 30.6 | % | 29.7 | % | ||||
U.S. (continued)
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
Company Operated Retail Sites: | ||||||||
Beginning of period | 1,036 | 1,032 | ||||||
NTIs | 6 | 1 | ||||||
Acquisitions | — | — | ||||||
Closed | (1 | ) | — | |||||
End of period | 1,041 | 1,033 | ||||||
Average company operated retail sites during the period | 1,038 | 1,033 | ||||||
Same Store Information(a): | ||||||||
Company operated retail sites | 1,002 | 1,002 | ||||||
Motor fuel sales (gallons per site per day) | 4,720 | 5,079 | ||||||
Merchandise sales (per site per day) | $ | 3,165 | $ | 3,168 | ||||
Merchandise gross margin percent, net | 30.5 | % | 29.7 | % | ||||
Merchandise sales, ex. cigarettes (per site per day) | $ | 2,197 | $ | 2,141 | ||||
Merchandise gross margin percent, net ex. cigarettes | 36.1 | % | 36.0 | % | ||||
Merchandise gross profit dollars | $ | 87 | $ | 85 | ||||
Other services operating revenues(b) | $ | 14 | $ | 14 | ||||
NTI Information(c): | ||||||||
Company operated retail sites at end of period | 54 | 34 | ||||||
Company operated retail sites (average) | 50 | 34 | ||||||
Motor fuel sales (gallons per site per day) | 9,268 | 9,787 | ||||||
Merchandise sales (per site per day) | $ | 6,134 | $ | 5,960 | ||||
Merchandise gross margin percent, net | 33.6 | % | 32.4 | % | ||||
Merchandise sales, ex. cigarettes (per site per day) | $ | 4,870 | $ | 4,618 | ||||
Merchandise gross margin percent, net ex. cigarettes | 37.7 | % | 36.4 | % | ||||
(a) | The same store information consists of aggregated individual store results for all sites in operation substantially throughout both periods presented. Stores that were temporarily closed for a brief period of time during the periods being compared remain in the same store sales comparison. If a store is replaced, either at the same location or relocated to a new location, it is removed from the comparison until the new store has been in operation for substantially all of the periods being compared. |
(b) | Other services include revenues from car wash and commissions from lottery, money orders, air/water/vacuum services, video and game rentals and access to ATMs. |
(c) | New to Industry Convenience Stores (“NTIs”) consist of all new stores opened after January 1, 2008, which is generally when the Company began operating the larger formatted stores that accommodate broader merchandise categories and food offerings and have more fuel dispensers than the Company's legacy stores. |
Canada
The following tables highlight the results of operations and certain operating metrics of the Company's Canada segment (millions of U.S. dollars, except number of retail sites, per site per day and per gallon amounts):
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
Operating revenues: | ||||||||
Motor fuel | $ | 966 | $ | 1,022 | ||||
Merchandise | 53 | 59 | ||||||
Other | 183 | 179 | ||||||
Total operating revenues | $ | 1,202 | $ | 1,260 | ||||
Gross margin: | ||||||||
Motor fuel | $ | 49 | $ | 53 | ||||
Merchandise | 15 | 16 | ||||||
Other | 30 | 29 | ||||||
Total gross margin | 94 | 98 | ||||||
Operating expenses | 59 | 60 | ||||||
Depreciation, amortization and accretion expense | 9 | 9 | ||||||
Operating income | $ | 26 | $ | 29 | ||||
Retail sites (end of period): | ||||||||
Company operated | 276 | 262 | ||||||
Dealers / Agents (fuel only) | 498 | 501 | ||||||
Cardlock (fuel only) | 75 | 78 | ||||||
Total retail sites (end of period) | 849 | 841 | ||||||
Average retail sites during the period: | ||||||||
Company operated | 273 | 262 | ||||||
Dealers / Agents (fuel only) | 499 | 504 | ||||||
Cardlock (fuel only) | 75 | 79 | ||||||
Average retail sites during the period | 847 | 845 | ||||||
Total system operating statistics: | ||||||||
Motor fuel sales (gallons per site per day) | 3,095 | 3,118 | ||||||
Motor fuel sales (per site per day) | $ | 12,673 | $ | 13,502 | ||||
Motor fuel gross margin (CPG): | ||||||||
Motor fuel margin, before credit card fees | $ | 0.229 | $ | 0.245 | ||||
Credit card fees | (0.021 | ) | (0.021 | ) | ||||
Motor fuel gross margin, net (CPG) | $ | 0.208 | $ | 0.224 | ||||
Company operated retail site statistics: | ||||||||
Merchandise sales (per site per day) | $ | 2,166 | $ | 2,502 | ||||
Merchandise gross margin, net (percentage of merchandise revenues): | ||||||||
Merchandise gross margin, before credit card fees | 29.0 | % | 28.3 | % | ||||
Credit card fees affect on margin | (0.9 | ) | (0.8 | ) | ||||
Merchandise gross margin, net | 28.1 | % | 27.5 | % | ||||
Canada (continued)
Company Operated(b) | ||||||||
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
Retail Sites: | ||||||||
Beginning of period | 272 | 261 | ||||||
NTIs | 1 | — | ||||||
Acquisitions | 2 | — | ||||||
Conversions, net(a) | 1 | 1 | ||||||
Closed | — | — | ||||||
End of period | 276 | 262 | ||||||
Average company operated retail sites during the period | 273 | 262 | ||||||
Average foreign exchange rate for $1 CAD to USD | 0.91218 | 0.99075 | ||||||
Same Store Information(c),(d): | ||||||||
Company operated retail sites | 260 | 260 | ||||||
Motor fuel sales (gallons per site per day) | 3,324 | 3,420 | ||||||
Merchandise sales (per site per day) | $ | 2,413 | $ | 2,536 | ||||
Merchandise gross margin percent, net | 28.3 | % | 27.5 | % | ||||
Merchandise sales, ex. cigarettes (per site per day) | $ | 1,215 | $ | 1,257 | ||||
Merchandise gross margin percent, net ex. cigarettes | 37.4 | % | 37.5 | % | ||||
Merchandise gross profit dollars | $ | 16 | $ | 16 | ||||
Other services operating revenues(e) | $ | 5 | $ | 4 | ||||
NTI Information(c),(f): | ||||||||
Company operated retail sites at end of period | 24 | 16 | ||||||
Company operated retail sites (average) | 23 | 16 | ||||||
Motor fuel sales (gallons per site per day) | 5,070 | 5,370 | ||||||
Merchandise sales (per site per day) | $ | 2,646 | $ | 2,837 | ||||
Merchandise gross margin percent, net | 28.5 | % | 28.6 | % | ||||
Merchandise sales, ex. cigarettes (per site per day) | $ | 1,456 | $ | 1,500 | ||||
Merchandise gross margin percent, net ex. cigarettes | 36.3 | % | 38.6 | % | ||||
Canada (continued)
Dealers/Agents(b) | ||||||
Three Months Ended March 31, | ||||||
2014 | 2013 | |||||
Retail Sites: | ||||||
Beginning of period | 499 | 507 | ||||
New dealers | 2 | 1 | ||||
Conversions, net(a) | (1 | ) | (1 | ) | ||
Closed or de-branded | (2 | ) | (6 | ) | ||
End of period | 498 | 501 | ||||
Average retail sites during the period | 499 | 504 | ||||
Same Store Information(d): | ||||||
Retail sites | 469 | 469 | ||||
Motor fuel sales (gallons per site per day) | 2,497 | 2,554 | ||||
(a) | Conversions represent stores that have changed their classification from dealers/agents to company owned and operated or vice versa. Changes in classification result when the Company either takes over the operations of dealers/agents or convert an existing company owned and operated store to dealers/agents. |
(b) | Company operated retail sites sell motor fuel and merchandise and the Company only retains the gross margin from motor fuel sales at dealers/agents. |
(c) | All amounts presented are stated in Canadian dollars to remove the impact of foreign exchange and all fuel information excludes amounts related to cardlock operations. |
(d) | The same store information consists of aggregated individual store results for all sites in operation substantially throughout both periods presented. Stores that were temporarily closed for a brief period of time during the periods being compared remain in the same store sales comparison. If a store is replaced, either at the same location or relocated to a new location, it is removed from the comparison until the new store has been in operation for substantially all of the periods being compared. |
(e) | Other services include revenues from car wash and commissions from lottery, money orders, air/water/vacuum services, video and game rentals and access to ATMs. |
(f) | NTIs consist of all new stores opened after January 1, 2008, which is generally when the Company began operating the larger formatted stores that accommodate broader merchandise categories and food offerings. NTIs exclude dealers/agents. |
Supplemental Disclosure Regarding Non-GAAP Financial Information
Adjusted EBITDA represents net income before income taxes, interest expense, asset impairments, depreciation, amortization and accretion expense. EBITDAR further adjusts Adjusted EBITDA by excluding minimum rent expense. The Company believes that Adjusted EBITDA and EBITDAR are useful to investors and creditors in evaluating its operating performance because (a) they facilitate management’s ability to measure the operating performance of the business on a consistent basis by excluding the impact of items not directly resulting from the retail operations; (b) securities analysts and other interested parties use such calculations as a measure of financial performance and debt service capabilities; and (c) the financial covenants in the Company’s debt agreements use Adjusted EBITDA and EBITDAR in calculating the total lease adjusted leverage ratio and fixed charge coverage ratio. Adjusted EBITDA and EBITDAR are not recognized terms under U.S. generally accepted accounting principles (“GAAP”) and do not purport to be alternatives to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Adjusted EBITDA and EBITDAR have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the results of operations as reported under GAAP.
The following table presents the Company’s Adjusted EBITDA and EBITDAR for the three months ended March 31, 2014 and 2013 and reconciles net income to Adjusted EBITDA and EBITDAR (in millions):
Three Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
Net income | $ | 11 | $ | 23 | ||||
Interest expense | 10 | — | ||||||
Income tax expense | 5 | 10 | ||||||
Depreciation, amortization and accretion | 31 | 30 | ||||||
Adjusted EBITDA | 57 | 63 | ||||||
Minimum rent expense | 7 | 6 | ||||||
EBITDAR | $ | 64 | $ | 69 | ||||
CST BRANDS, INC.
CONDENSED BALANCE SHEETS
(Millions of Dollars)
March 31, | December 31, | |||||||
2014 | 2013 | |||||||
ASSETS | ||||||||
Cash | $ | 365 | $ | 378 | ||||
Other current assets | 427 | 388 | ||||||
Total current assets | 792 | 766 | ||||||
Property and equipment, net | 1,328 | 1,326 | ||||||
Other long-term assets | 202 | 211 | ||||||
Total assets | $ | 2,322 | $ | 2,303 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY / NET INVESTMENT | ||||||||
Current portion of debt and capital lease obligations | $ | 38 | $ | 36 | ||||
Other current liabilities | 470 | 427 | ||||||
Total current liabilities | 508 | 463 | ||||||
Debt and capital lease obligations, less current portion | 997 | 1,006 | ||||||
Deferred income taxes and other long-term liabilities | 204 | 207 | ||||||
Total stockholders’ equity | 613 | 627 | ||||||
Total liabilities and stockholders’ equity | $ | 2,322 | $ | 2,303 | ||||
About CST Brands, Inc.
CST Brands, Inc. (NYSE: CST) is one of the largest independent retailers of motor fuels and convenience merchandise in North America. Based in San Antonio, Texas, CST employs nearly 12,000 Team Members at approximately 1,900 locations throughout the Southwestern United States and Eastern Canada offering a broad array of convenience merchandise, beverages, snacks and fresh food. In the U.S., CST Corner Stores proudly sell Valero fuels and signature products such as Fresh Choices baked and packaged goods, U Force energy and sport drinks, Cibolo Mountain coffee, FC Soda and Flavors2Go fountain drinks. In Canada, CST is the exclusive provider of Ultramar fuel and its Dépanneur du Coin and Corner Stores sell signature Transit Café coffee and pastries. For more information about CST, please visit www.cstbrands.com.
Contacts
Investors: Randy Palmer, Director – Investor Relations, 210-692-2160
Media: The DeBerry Group, Melissa Ludwig or Trish DeBerry, 210-223-2772
Safe Harbor Statement
Statements contained in this release that state the Company’s or management’s expectations or predictions of the future are forward-looking statements intended to be covered by the safe harbor provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The words “believe,” “expect,” “should,” “intends,” “estimates,” and other similar expressions identify forward-looking statements. It is important to note that actual results could differ materially from those projected in such forward-looking statements. For more information concerning factors that could cause actual results to differ from those expressed or forecasted, see CST Brand’s Form 10-Q or Form 10-K filed with the Securities and Exchange Commission, and available on the CST Brand’s website at www.cstbrands.com. The Company undertakes no obligation to publicly update or revise any statements in this release, whether as a result of new information, future events or otherwise.