Core-Mark Holding Company, Inc. (CORE)

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Core-Mark Holding (CORE)

Q4 2012 Earnings Call

March 14, 2013 12:00 pm ET


Milton Gray Draper - Director of Investor Relations

Thomas B. Perkins - Chief Executive Officer, President and Director

Stacy Loretz-Congdon - Chief Financial Officer and Senior Vice President


Andrew E. Gadlin - CJS Securities, Inc.

Benjamin Brownlow - Raymond James & Associates, Inc., Research Division

John R. Lawrence - Stephens Inc., Research Division

Christopher McGinnis - Sidoti & Company, LLC

Nelson J. Obus - Wynnefield Capital Inc.



Welcome to the fourth quarter investor call. My name is John, and I'll be your operator for today's call. This call is scheduled for 60 minutes in length. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ms. Milton Draper. Ms. Draper, you may begin.

Milton Gray Draper

Thank you, John, and welcome, everyone. I would now like to read the statemenst about the use of forward-looking statements and non-GAAP financial measures during this call. Statements made in the course of this call that state the company's or management's hopes, beliefs, expectations or predictions of the future are forward-looking statements. Actual results may differ materially from those projections. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in our SEC filings, including our 10-K, our 10-Q and our press releases. We undertake no obligation to update these forward-looking statements.

We are holding this call to review our fourth quarter results and to answer any questions you might have. If you have additional questions after this call, you may call me at (650) 589-9445.

Joining me today is the Chief Executive Officer of Core-Mark, Thomas Perkins; and our Chief Financial Officer, Stacy Loretz-Congdon. Also in the room is Chris Miller, our Chief Accounting Officer, and Greg Antholzner, our Vice President of Finance and Treasurer.

Our lineup for the call today is as follows: Tom Perkins will discuss the state of the business, our strategies and opportunities ahead, followed by Stacy Loretz who will go into some details about the financials. We will then open up the call for your questions.

Now, I would like to turn the call over to our CEO, Tom Perkins.

Thomas B. Perkins

Good morning, everybody. Before I get to the results, I want to say a few words. I feel very fortunate to have been promoted to CEO at a time when the company is in such a healthy position as we enter our 125th year in this business. I am very thankful to Mike Walsh, our former CEO, for all that he has done for this organization, and I think the shareholders feel the same way. It is now my responsibility to continue this legacy and take it to the next level. I embrace that challenge.

Now, a brief review of the 2012 financial results. First and foremost, we achieved our EBITDA guidance of $102 million after backing out conversion and start-up costs for our recent acquisition. Both sales and EBITDA increased by roughly 10% and were record results. A significant portion of 2012 revenue growth was generated from the new contract we won in our largest customer in the Southeast from Forrest City acquired in May 2011. Overall, our strategies are working well, resulting in healthy growth and very sharp increases in certain targeted non-cigarette categories.

Our non-cigarette sales grew at about 15%. And excluding our expansion activities, non-cigarette sales grew 6.4%. Remaining gross profit for our non-cigarette categories increased over $32 million.

[Technical Difficulty]

I'll just go back over the last sentence. Remaining gross profit for our non-cigarette categories increased over $32 million or 11% for the year despite an almost $4 million reduction in inventory holding gains. Cigarettes remaining gross profit increased about $12 million and excludes cigarette holding gains, which were relatively flat. The earnings improvement was driven by healthy sales growth in the higher-margin categories.

Operating expenses as a percentage of sales were essentially flat excluding onetime items. We did experience higher operating expenses during the summer ramp-up in business. However, we corrected those trends as the year progressed. We continue to concentrate on operating expenses relative to gross profit earned at the division level, and we expect divisions to reduce operating costs whenever gross profit falls below expectations. We call this the iron bar. While certain divisions in 2012 did not fully implement the iron bar, I am encouraged to see the division absorb a 19% increase in cubic feet of product, or cubes, while decreasing the cost per cube by 6%. This tells me that we have been able to efficiently absorb the increased volume from the higher-margin categories. You can bet that we will be focused on leveling labor requirements as we prepare for the 2013 summer season.

Our FIFO EBITDA, which is a key metric we monitor internally and guide to externally, grew to record levels in 2012 as we delivered our guidance of $102 million excluding the impact of the acquisition. The largest contributor, by far, was the increase in remaining gross profit from our non-cigarette categories. We believe our VCI, Fresh and FMI strategic initiatives will continue to drive future growth in these categories.

We closed out the year with the acquisition of J.T. Davenport, an organization extremely well regarded in the industry with a stellar reputation for customer service. I am very excited about this acquisition and expect their sales volumes and earnings to be accretive to our 2013 results. We believe we can learn from this organization and they will also benefit from our unique marketing programs and strategies.

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