Acquisitions, U.S. tax cut help Couche-Tard offset hurricane impact

Acquisitions, U.S. tax cut help Couche-Tard offset hurricane impact
MONTREAL—Alimentation Couche-Tard Inc. says acquisitions and a boost from the U.S. corporate tax cut in the third quarter helped to offset the lingering impact from last fall’s Texas hurricane and lower U.S. fuel profits.

The Quebec-based convenience store retailer, which keeps its books in U.S. dollars, said its net earnings attributable to shareholders surged about 62 per cent to $463.9 million (U.S.).

That equalled 82 cents per diluted share, compared with 50 cents per share or $287 million a year earlier.

Couche-Tard benefited from acquisitions and a $182.2-million net tax benefit attributable to shareholders recorded following U.S. federal income tax decreases.

Excluding the tax benefit and other one-time items, its adjusted profit increased marginally to $304 million or 54 cents per share, up from $303 million or 53 cents per share in last year’s third quarter.

Revenue for the 16-week period ended Feb. 4 totalled $15.79 billion, up from $11.42 billion.

Analysts on average had expected a profit of 74 cents per share and revenue of nearly $15.63 billion, according to Thomson Reuters.

President and CEO Brian Hannasch said its network in Europe, Canada and the acquired CST Brands sites experienced improving trends from higher same-store fuel volumes, merchandise revenues and in-store gross margins.

“While we are seeing solid U.S. fuel margins year to date, this quarter’s results were negatively impacted by volatility in the crude oil market, particularly in the southwest US,” he said in a news release.

Same-site fuel volumes declined 0.4 per cent in the U.S. as Texas was impacted by stores still recovering from Hurricane Harvey. Increased pre-tax expenses caused by hurricanes totalled $1.8 million.

The U.S. fuel margin decreased 17 per cent to 15.66 cents per gallon driven mainly by the volatility from a rapid rise in crude oil prices in the quarter. Fuel margins increased 14 per cent to 9.33 cents per litre in Canada with the addition of CST and 5 per cent in Europe.

Derek Dley of Canaccord Genuity attributed 17 of the 19 cents per share earnings miss in the quarter to softer-than-expected fuel margins.

He estimates that the decrease in the 2019 U.S. corporate tax rate to between 17 and 19 per cent could add four to eight cents per share to its full-year EPS estimate.

While tepid U.S. gas volumes and margins were the biggest surprise in the quarter, Irene Nattel of RBC Capital Markets remains positive about Couche-Tard, “particularly given the tailwind of recently closed CST and Holiday Station stores acquisitions.”

Couche-Tard increased its target for expected cost savings from the CST Brands acquisition to $215 million over three years, after achieving $103 million in nine months.

It also aims to realize $50 million to $60 million over three to four years from the Dec. 22 Holiday stores purchase for $1.6 billion.

The company said it has converted more than 2,500 stores in North America and more than 1,450 in Europe to its new Circle K brand. The brand will be featured everywhere except Quebec, where the Couche-Tard name will remain.

Alimentation Couche-Tard has 12,750 stores and 15,970 locations, including those licensed under the Circle K brand and those that are part of last year’s merger with wholesale fuels distributor CrossAmerica Partners LP.
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