Core-Mark Holding Company, Inc. (CORE)

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Core-Mark Holding (CORE)

Q1 2013 Earnings Call

May 07, 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 P. Wolf - BB&T Capital Markets, Research Division

John R. Lawrence - Stephens Inc., Research Division

Peter F. Black - Wynnefield Capital, Inc.

Christopher McGinnis - Sidoti & Company, LLC

John Jay Koller - Oppenheimer & Close, Inc.

Nelson Jay Obus - Wynnefield Capital, Inc.



Welcome to the first quarter investor call. My name is Adrianne and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I'll now turn the call over to Ms. Milton Draper. Ms. Milton Draper, you may begin.

Milton Gray Draper

Thank you, operator, and welcome, everyone. I would now like to read the statements 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 and 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-Ks, our 10-Qs and our press releases. We undertake no obligation to update these forward-looking statements. We are holding this call to review our first 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 line-up 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 the call for your questions. Now I would like to turn the call over to our CEO, Tom Perkins.

Thomas B. Perkins

Good morning, everyone. I'm sure that most of you have seen this morning's announcement of our new distribution agreement with Turkey Hill. This is a great win for us, and we are very excited to expand our partnership with Kroger. Turkey Hill is the largest of the Kroger convenience brands with 268 stores in Pennsylvania, Ohio and Indiana, which we started shipping this week. This is an important market share gain for us, and it's critical to our sales growth goals for the year. With the addition of the Davenport sales, our market share gains are looking pretty good for the year. The addition of the Davenport acquisition is going quite well, and I anticipate the rollout of Turkey Hill to go well, too. As I indicated in the last call, retail sales were soft in the early part of the year due, we believe, to the increase in payroll taxes and the sharp increase in fuel prices. This hit cigarette consumption particularly hard. In addition, as many of the retailers in the industry have indicated subsequent to our last call, we all face tough comps in-store because of the mild winter in 2012. That being said, we continue to believe that normal purchasing patterns will return as we head into the high season where comps ease.

To give you more insight into the industry, I would like to discuss the recently released 2012 data from the National Association of Convenience Stores or NACS. This data indicated that C-Store count continues to rise, growing to almost 150,000 store locations. This number of retail locations equates to an impressive 36% of all retail locations in the U.S. It looks like the C-Store is here to stay. Single-store operators continue to dominate the industry, representing 63% of all those locations. Inside sales increased a modest 2.2% in 2012 across the industry, while pretax profits rose 3%. These are rather slow growth rates, and our goal is to help our customers grow their sales and their profits at much faster rates. We have an enormous opportunity to impact those growth rates in the next several years, but it's critical that we become business consultants where the -- our independent retailer in order to maximize that impact and help them become more profitable and more relevant to the customers. With over 75% of our sales coming from the C-Store space and with only a 4% market share, this presents a compelling market share opportunity. We estimate the total in-store C-Store opportunity to be about $170 billion. We believe we have the right strategies to help the C-Store operators improve their business and financial results, and the recent NACS State of the Industry Summit reaffirms our beliefs.

At this event, the retailers concluded that the 3 pivotal business objectives that determine the relative success of the retailer were how well that retailer executed on the following: one, rationalizing assets; two, growing Foodservice; and three, growing profitability by knowing what the shopper wants. Our key strategic initiatives address these 3 objectives head on. Our VCI strategy rationalizes assets and reduces cost in the supply chain. Our fresh program is vital to helping our customers grow their Foodservice in the areas that the customer are demanding, not to mention the 15 other marketing programs we have designed to assist our customers to grow their Foodservice sales in their stores. And finally, our FMI strategy provides a critical and analytic approach to ensure our retailers are selling the right items at the right prices. Our fourth strategy is to grow our geographic footprint through acquisitions, which will continue to be an important strategy for us as well. We want to take our business model to where more people are located.

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