Core-Mark Holding (CORE)
Q2 2013 Earnings Call
August 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
Benjamin Brownlow - Raymond James & Associates, Inc., Research Division
John R. Lawrence - Stephens Inc., Research Division
Christopher McGinnis - Sidoti & Company, LLC
Nelson Jay Obus - Wynnefield Capital, Inc.
Previous Statements by CORE
» Core-Mark Holding Management Discusses Q1 2013 Results - Earnings Call Transcript
» Core-Mark Holding Management Discusses Q4 2012 Results - Earnings Call Transcript
» Core-Mark Holding Company, Inc., Q4 2008 Earnings Call Transcript
Milton Gray Draper
Thank you, Chris, 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 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 second 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, everyone. I would like to begin with a brief overview of the quarter and then discuss the industry and our strategies.
We have generated solid sales momentum in the second quarter with the addition of Turkey Hill, which rolled out in the middle of May. Sales for the quarter increased 10% driven by a 14% increase in non-cigarette sales. I was particularly pleased to see the robust sales for the non-cigarette products that are such a critical component of our key strategy and tactics. The same-store non-cigarette sales increased 6.8% on healthy demand by the consumers and by the positive impact of our FMI, VCI and Fresh programs. The sales momentum continues with the recent win of Rutter's, which we began delivering from our Pennsylvania division a few days ago. In their press release, Rutter's indicated that we were chosen as their supplier because of our capacity to deliver more frequently, with shorter fulfillment times and superior category management skills. As you can imagine, we were very pleased to see that public endorsement, and we will do everything we can to service this important retailer to the best of our abilities.
The healthy pace of the growth in sales in the second quarter generated 11.7% increase in our gross profits. Non-cigarette remaining gross profits, which grew 14%, was the primary driver. Non-cigarette margins were up 4 basis points or 12 basis points excluding the compressing effects of the new Turkey Hill business. As we move our organization towards selling of higher margin non-cigarette items, we are going to incur additional operating costs, particularly as measured as a percent of sales. That being said, we continue to monitor these metrics, which did increase 6 basis points in the second quarter.
We also watched cubic feet data to measure operational efficiency. We saw a 6% increase in the total number of cubes handled and a 2% decrease in the cost per cube in the second quarter. So operational leverage is occurring at the warehouse and delivery level. Some aspects of what appears to be operational inefficiency is driven by the constant change we have been undertaking as necessary to support our growth. As a fast-growing company, we almost never have a static period. We are either on-boarding the large chain or merging and integrating a new division. There are onetime costs in any sort of ramp-up like these, and it can take time to convert a new division to the Core-Mark systems, process and culture. And over time, we expect and demand greater efficiencies. In addition, we are investing in our sales force as we focus the organization on assisting our important independent retailers grow their sales and profits. We need to ensure we are generating the return we expect on this investment. I thought this perspective might be helpful to consider.
The bottom line is our adjusted EBITDA grew over 9% for the quarter. I am pleased with that and feel that we are well-positioned to post record results for 2013. We are pleased to be in an industry as healthy as a convenience store industry. As we expected, the consumer demand returned to the normal levels we see as we entered our high season. It is always nice to see your positive expectations confirmed. The industry continues to grow, and we expect to outreach the growth rate of the industry because we take market share and sell deeper into our existing customer base every year.