Core-Mark Hldg (CORE) 1 Mar 212020 Q4 Earnings call transcript

Welcome to the Core-Mark fourth quarter 2020 investor call. My name is John and I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session.

During the question and answer session, if you do have a question, press star then one on your touchtone phone. is conference the note being recorded. Please now will turn the Lawrence. David to over call I

good Today’s Executive morning led and Officer. you Thank everyone. McPherson, Miller, Chief President Chris by call our and and Chief Officer, our Financial Scott be will

include over Private the I Scott, Act, the noted materially may statements remember Securities intends and by that Litigation indicated call our subject we risk that Safe which or Harbor earnings will filed of this in take Reform to today advantage Before the are out morning. Please release actual comments results provisions from implied Core-Mark forward-looking and uncertainties, to turning statements. point to of may the as such differ those

detail our does filings, Some the in to of any these annual on company The company’s such including risks not XX-K. undertake update Form duty in described statements. report SEC forward-looking are

financial this we certain during call. will measures non-GAAP to refer Additionally,

to of discussion You directly now of can a release I’ll useful reconciliation consider measure a why including call report comparable the to to find financial over we these annual our Form these on the other information, and earnings in GAAP turn XX-K. measures most and related investors, Scott. measures our non-GAAP

communities, showed drivers, their dedication I work staff provide services us safety Core-Mark. fourth of to productivity, to want customers perseverance exclamation and throughout Not levels. fourth our but courage quarter to point incredible attendance sales and essential Thanks this thank today put pandemic. they members team improved display on everyone did for and quarter warehouse again for delivering and only goods frontline Core-Mark our an successful and but on joining our call. and family year The a our challenging

the full remains XXXX demonstrated representing outlook We also on and retail Reflecting performance These strong delivered and beyond, efforts the in to we set worked produced with to very fourth we and fourth what billion, strong partners by today. the quarter results our year continue for supply disruptions $X.X fractured a chain. our quarter, as Core-Mark minimize in foundation provided over of revenues driven year, $XX.X strength tobacco delivered perspective, of XX.X% from year. basis million, The our behavior. network X.X% by pandemic-related From a was EBITDA leverage the of improvement. prior across prior profit continued a by outperformance a consumer ability cigarette resulting quarter our points over trends for improvement we leverage of increase continued sales costs XXX with the and the cost highlighted to closely

resiliency EBITDA million. a demonstrated impacts perspective, pandemic. of the year with for along of outperformance remaining continued business segment record-setting billion delivered uncharacteristic in resulted pressured strong continues to be model the the retail the profit increase last margin finishing with saw fourth the a from [indiscernible] improvement In gains price significant fourth at during the Also than recovery we quarter sales From gross quarter full higher $XX anticipated. two in was of the all, X.XX%, also quarter the that We our of quarters. benefiting by $XXX the holding which cigarette over a

Our was there related causing growth. tobacco key margin retail significant accelerating compression by decade-long other top cigarette was categories consumer throughout decline and of buoyed pandemic declines reversing certainly trends Conversely, year. the the line on consumption behaviors, significant

timing organization, companies, from XX of and actions mentioned. of recovery previously forced I decisions allowed a cutting to and the gross across the perspective. cost were year our to a did cost us make performance we achieve decisiveness those year remaining our throughout perspective, profit many tough reflected strong leverage see basis we points, full continued but margins For a decline Like as

year non-tobacco warehouse a and for levels, year, guidance at gross delivering strong XXXX, for level the details and into below reflects performance. prior profit but our remaining will our full outlook both offset that administrative, sales deliver positioned were go and Core-Mark of high is selling, of percent general savings compression. our pandemic-related cost the meaningful more another well our to and than margin For both as Chris confidence a that delivery

we on heels and growing the Presidents entire As strategic of XXXX to and retail on growth the is Meeting, sales would drive hosting industry, will meaningful leading and partners and positioning I’m for From to pandemic in transformation faster as this of growth a our in enter share our cost growth leverage. priorities Core-Mark. the market year XXXX, growth pandemic reflect our comprehensive to driving moment for confident behaviors, accelerate than a management solutions, restructuring compensation our to the like significant a Core-Mark the we acceleration of of organization our scenes, the achievements an our the the focused margin obviously acutely aligning sales I impacts standpoint, category the future. executing and take logged and margins drive opportunities. consumer of were disruption retreat. organization, same store sales and our both complete and caused on Behind to compressing margins able wins

our we continued creating technology capabilities pricing our structure, enhance also optimal have pricing its initiative. Core-Mark which algorithms refer to benefit around we sales to customers, strategic and as that Beyond

and which the successful earnings XX is growth for been acquisitions, of past a over the driver years. revenue and Another of critical pillar have company

acquisitions much to of Although distributors over XX continue pandemic next optimistic adjacent XX the looking to while meaningful months accomplishing paused the be acquisition has at pursuit. activity parallel in the of we opportunities convenience in also about the space,

for of continue innovation food the headwinds our growth. arrangements, Foods and network. actively partnerships, Ready recently and agreement potential exclusivity our XXXX I’m in to As and customers, offering experience I’ve Despite the Fresh leadership our capabilities. differentiated food in with past for the position explore into our the a existing the supply our and half to national programs, exclusive to acquisitions with enhance product confident meaningful management chain of through headliner discussed creating our year ability previously, that will drive solidify on changing being redistribution preferences company’s we focused & We a given sourcing the in fresh first of category our XXXX, fresh partnerships continuing advanced and importance announced hyper consumer in the

We’re couples capitalize this in excited XXXX to of lower objectives end, initiative wholesale nationally payment exclusive increasing preference food alliance. the Skip to our fresher excellence across on customers solution Core-Mark’s bring with about partnerships our growing with our the QX Starting will a frictionless XX These fresh strategic profits. consistent builds loyalty customers bringing to scheduled for PDI, completion our for on center on this agreement existing to items. is states. a offer enable consumer the to which distribute sales Technologies’ opportunity by year along healthier focused providing exclusive and three a convenience with Also partner our value their Core-Mark nationwide customers future and and which differentiated retailers of and well

As of results. a our as demonstrated have despite world business by the we resilience final element our in the strategy, in model, proof cost pandemic, XXXX recessionary our XXXX served achieved that leverage

I able and levers workforce discussed the of fluctuations. these our meaningful effectively were to portion As past, a with in flex we is volume variable, have the

longer centralize opportunities to seeing continue levels as term with of are cost our business, Additionally, million. consistent transactional communicated many approaching our savings we we previously aspects $X

to and Omnitracs voice and driver our warehouses. efficiency solutions to invested in fleet technologies optimize like We have X and robotics selection deployed efficiency, in gain also our

beyond. We leverage deploy aspects transactional work technologies to in continued will meaningful have and are centralize and continue business and we XXXX of to cost a the confident to our pathway

us ninth has did, XXXX the dividend allocation robust, strategy, of capital in our $XX profits. repurchases, balance impacts repurchase supports $XXX increase the to our our sheet, announcement capital to and $XX and growth repurchase, We conversations. more and spending in resiliency in our long of Core-Mark the consecutive a acquisition with aggressive shareholders move of both and our business, program to the Moving the plan, to share dividend, million delivering by share confidence strength of enter our many balance history year, has more Unfortunately, in board our We business ability tremendous buyback continued the XXXX, plan growth dividends. year. of were that existing the successful COVID-XX strength replacement drive three Entering business, X% the acquisitions. continued acquisitions, our value pause of through our share with our our with share of and the and we in of reinvesting a buybacks a for forward million, approved the of of directors growth With million pursuit dividend. that share the only confident disrupted demonstrated perspective, and shareholder of return a forced sheet, however, our

flexibility sufficient driving provides to shareholder priorities We strong are on returns. allocation our confident our approach execute strategic while capital to

commitment XXXX our the family back, by Looking and of I XXXX. course for shown the proud Core-Mark as set am we in

been Our work incredible the differentiation and throughout value year. will and customers have bring to them we partners increased

very am of optimistic convenience supplier build future retail priorities and choice we look as industry our to us the about of the forefront Core-Mark’s propelling upon I to strategic space. the Finally, our in

color Now I financial XXXX will turn performance on who guidance. Chris, and provide to our some will over additional the call

of for XXXX. compared covering income and our Thanks commentary million in in Diluted thoughts start million some increased good quarter prior wrap our per the strategy, share to quarter. morning with $XX Scott, our and up year capital quarter to quarter guidance off increased the fourth by quarter earnings $X.XX fourth $X.XX fourth allocation everyone. share Net $XX.X I’ll on performance, to for on the the per share from for XXXX.

of for per X.X% growth operational led buying We continued cigarette COVID-XX, earnings the effective inflation quarter. were decreased on sales in continued quarter consumer carton trends the efficiency margins, behavior approximately increased reflects the in of and Total increase and XX% to LIFO outperform in throughout billion. change significantly total the of Non-cigarette shift by to In quarter a increased in trends. mix management. third COVID-XX in cigarette $X.X sales deliver result on the quarter to strength sales X.X% decrease Cigarette sales. of XXXX. share of historical we a the expense, sales $X.XX the the with Total this saw the third quarter in solid in increased X.X% a X.X% continued primarily consistent to cost and quarters. by of as price spite the sales compared EPS quarter second Excluding to for a slight carton pleased versus diluted believe we $X.XX impact and fourth benefit

third in reflecting categories drove from in In and beauty the logged addition in respectively, strong rates grocery points. OTP, sales basis total points points sales of sales for basis Total food, with From compressed of non-cigarette quarters year-over-year remaining with a on and by margin The improvement Consistent quarter, third sales sequential in relation gross the health, third basis trends XX trend for to the in shift which improving growth majority quarter general overall a our XX dairy, the quarter. increased mix. QX however, quarter, non-cigarette sales the in and vapor within mix OTP for rates points to largely a category. to our decline XX.X% profit the the cigarette the fourth XXX mix sales recovery decline and the beverage X.XX%, mix; sales non-cigarette other overall gross declines the and for driven margins. decline was consistent by and products basis the basis our of total XX XX continued points categories; driven candy of sales quarter, basis to the continued X.XX% in profit in however, compares saw a second margin by we decline the and in due declined by to perspective, lower point remaining remainder margin largely basis the categories XX of the to

margins year-over-year mix. to be impacted XXXX in nicotine in in Our sales of to the volumetric shifts alternative continued tied vendor benefit growth incentives by and targets

were inventory compared the period holding $X.X with in $XX.X XXXX. fourth million quarter gains for same Our cigarette the million in

quarter is increases we in XXXX. announced Reynolds third RJ benefited had quarter that quarter, year fact the a we in fourth that cigarette last quarter. Also anticipated As given the third candy during lower the from gain I holding of increase $X.X discussed the noting price fourth worth million of the price their

quarter reduction $X.X in warehouse million have in As every I’ve Total XX.X% expenses to remaining of remaining fourth QX to our in by increases three quarter, operating $XXX.X XX.X% four offsetting candy historically expenses price in and our a XXXX The a in large operating Total gross to of the the operating reduction only expenses of profit by X.X% mentioned impact X.X% for the past, a as SG&A. the X.X% decrease percentage years. decline occurred profit. and declined in in includes X% the or of delivery declined gross expenses XXXX. million

delivery While the higher on the warehouse a in leverage in resumption strength decline the performance match primarily and full a and quarter basis in leverage was our cost fourth consistent our the of saw performance. cost and third in our of quarter we of bonus sequential with XXXk impact due SG&A expense on the quarter, year to

to Turning capital continue management liquidity. to increasing the we working sheet, focus tight balance and on

$XX.X year. For cash flow ended compared December year the same was million in from net activities $XXX.X to last XX, period operating million the

reduction in more fund $XXX accounts inventory elevated $XXX share million million a used was operating cash repayment million, which was inventory levels primarily to drawn of on to generated facility $XXX.X of primarily million We credit than the build. $XX.X with cash flow of dividends our impact and of increased by available our strategic improved offset year-end associated ended repurchases working Our flow which $XX.X free year borrow. management driven and receivable cigarette debt. payables, capital the due with and in to We million, largely

above operating had financing debt million of growth Our times excluding priorities to at maintenance target of over to and additional years. reflect X.X the to Scott’s with last the this leverage capital the to risen the leases. want cash was and recognize EBITDA. XXXX provide that of X.X I to Since that on activities. our company $XXX heels the compared flow over balance important allocation in times It’s two which XX% end the comments follow repayments, X.X our to XXXX, point, to deployed follows: acquisitions, adjusted at generated debt of has times large the on company’s expenditures, three the capital end capital time, few to debt its capital XXXX allocation XX% other as of was and investing XX% repurchases, impact dividends, XX% At EBITDA a in share and and comments, on up strategy adjusted leverage

flow dividend. capital allocation on our our and more return generated remained given support uncertainty of While we $XXX the we paused plan, to committed pandemic, we to dividend aggressive increases and XXXX strong three-year, significant to are our shareholder free continued repurchases share in related committed COVID new cash the in Through pursuing in growing million our more revised repurchases strategy. share

reflects to being to three-year leverage approach our meaningful ability staying our of support capital which short, times As leverage a still I to in acquisition of we increases to guidelines. our financial able about our In allocation target execute leverage X.X opportunities up capital more and are mentioned, confident M&A times we EBITDA financial of to or but opportunities. short-term with return on plan shareholders while on execute adjusted within in of below aggressive our feel X.X comfortable

cost costs for our will benefit anticipate XXXX. efficiency gains operational from we XXXX, initiatives profit the enter headwinds XXXX, some we savings and as outlook partially but in to and realized we offsetting Turning

in was algorithm tough profit and leading $XX.X sales the of front driven our impacted by On cigarette communications, From positioned COVID-XX $XX.X same perspective, cartons, billion holding throughout flat From all some pantry performance to significantly for anticipate the as gains as overall. guidance. a XXXX, of increases comparables face we’re XXXX manufacturers we with strong we anticipate expenses margin costs benefit included increases the have caused with major returning trends. XX guided consistent given actually quarter pandemic. not XX inflation. the in of expected historical the we by first to million deliver pent-up perspective, prior of in quarter cost consistent have the prior in three points loading the first We and XXXX basis to that a XXXk along anticipate and course and by we declining $XX store will demand improvement the aforementioned margin gains, as due XXXX be between with pandemic. and to in regain our Despite from share healthcare work headwinds, non-cigarettes to travel into growth reflected We height believe X basis billion growth, and to by XX and of historical our revenues to we continued to market points XXXX we

in leverage million of range to cost work supply the coupled adjusted drives and chain guidance million EBITDA to with continued expansion XXXX. $XXX achieve $XXX Our sales throughout our growth margin

impact the normal quarters, to steady to reflect improvement over with QX Our and trends. related overarching consumer returning assumptions similar largely showing pandemic pandemic-related prior QX QX impacts, experiencing QX of historical and

wins, approximately Our for will large well as lastly relocation will for upgrades everyone. be comments. customer no capital back new to I closing XXXX Thank $XX of assumes turn maintenance expected one as or some which are XXXX you acquisitions expenditures technology guidance over facilities and be and to utilized the the primarily to now for and facility. distribution certain initiatives call million, Scott

Thanks highlight call this from want three Chris. main morning. summarize, To I takeaways to our

outset a we the drive performance took business action First, solid across reducing to of in in challenging order in at environment. costs the pandemic, XXXX the decisive

Second, our is business strong.

to back we I optimism We and value drive dividend beyond. operator are allocating and for drive clear begin Q&A for to that and growth XXXX us expanded are executing repurchase generating turn we the it are significant priorities that, the that shareholders; cash will now our to flows third, gives towards share to increases strategic With session.

Stephens Inc. with is Our first from instructions] Bienvenue Ben [Operator question

morning good everybody. Hey,

Hey Ben.

$XXX I million return on plan. want the to shareholder ask first

willingness leverage a Could you load subset meaningful support and as between sheet balance also talk of share that oscillating to go about on up two you an opportunistic the if support M&A or a to plan, presented M&A you? higher to would think the to your you M&A, about is repurchase but mentioned You M&A. deal

Yes do Ben, think absolutely I both. we can

bandwidth of that in meaningful that clearly multiple and million about you think and in we our period and the acquisitions I three-year dividends, that still about if the plan the in and think fulfill talking and year cash way balance $XXX to the buyback share would approached dividend. range, we’re it, we with a flows acquisitions or have $XXX,XXX free repurchase the make

Okay, great. warehouse robotics you capabilities and your the of made in My second distribution - of question mention and investments technology Scott, business.

talked You variable you contribution cost When think and you improvement leverage contribution those would well, think yield back, and also about largely you’ve imagine in XXXX capabilities should margin structure. do improvement forward, going making I as two been with sales pieces? a to variable should about forward. about you margin think about coming well the how cost in but as Obviously that back the come investments going

Yes, the of see year from both year. from cost of progresses, but back fair, those of things get performing is enhance mix Ben. this run so the productivity big transportation, a over a part rate I also some I to the we’ll variable combined this of continue will increased to fourth revenue a course standpoint, then creating improvement will just margins this the which definitely labor and think as That help. us margin more not both by think workforce. definitely that’s a quarter, normal was our year, the anticipate productive help eliminating definitely We year warehouse have We we’ll and in in a standpoint,

pretty we main that behind I XXXX. guide was the a really what think aggressive consider for driver

Thanks. best results, Okay, Congratulations the luck on and XXXX. of great. for

Thanks Ben.

from Matt question is Fishbein Jefferies. next from Our

and congrats Hey, for a on Thanks good great quarter. morning. question the

Matt. Thanks

a going to buckets, inflation ’XX touch particularly food into on as and the inflation the how to beyond, costs products cost year, cost you guess, year wanted I the raw this wage you’re in suppliers impact to this type relates understand end, we go labor on, in wanted as you have that I half. thinking that talking and couple maybe year, back it impact what guys maybe of an particularly. could of I about just about the are then minimum on into material may

with you interact how you, just works puts relative that’s just I could Just benefit that a remind costs, on and color and anything. to be that’d last us your on lastly great. if believe year, those to give potentially transportation the now higher each fuel piece through with any other, takes distribution how Then costs P&L if -

Yes, absolutely. We’ll start off with product inflation.

with see I chain consistent definitely the to some the in this I we’ve this be a lot product challenges manufacturers back think at year, of the would think over and seen. know, caused I all inflation heard the that’s with not we’ve and surprised that’s seen we--you challenges half of year, and supply what

there, rates those mitigates comes to a the our impact--even an a guidance. material this over labor sliding federal surcharges and see that that definitely some some that to we if of the impact and some inflation. increases, years. have inflation date for is rises, a We there declines, we anticipate built of We outside thing it haven’t increases. some us inflation any have also of one wage most couple definitely out, built to impact We’ve so as so our pricing lot fuel obviously pass. as scale on definitely wage is all holding standpoint, we we’ve we one gains to I seen fuel we modeled not into would fuel has fuel From think we minimum modeled to increases. cost-plus The anticipate labor, with that year surcharges; get gains, we a see but so cigarettes, me. seen inventory definitely benefit scenario The were but a a on out perspective, fuel last surprise of customers that have algorithms get it decline, our I in it when navigate of when last From fuel benefit plan inflation it have on is a we a $XX, if would into are definitely holding and we see price mark-up customers

Great, thanks.

give on the vaccines Just and helpful, be of a normalization as the frequency, I kind consumer to be maybe and behavior that’d if to can color truck normalizes thinking you’re shape delivery it follow-up utilization that the how relevant or as customers, of XXXX end, about whether guess you on drops distribution normalized well. any maybe and levels, your

Yes, we so this of benefited on environment efficiency sales. average year one hard the and we’ve truck is up things this so that really especially utilization and drop worked from non-cigarette size was routing, an where our sales down, our year, even in were

expect year. I think we that into will that next continue

I job with done think efficiency. fleet that we’ve great a utilization and

in think around does I going face challenge and and the a biggest position anticipate think think year issues this ourselves next historically, that availability. is warehouse what I forward, chain hard that course challenge the we’re think for to from strong in be and challenge, with business. how supply just availability we we working transportation a we we’ll challenges over the That’s think to vaccines be and I year, to summer of is this driver driver workforce affect going been a

again. pass you Thank I’ll it. very Got on. much. it Congrats

Thanks Matt.

Once again phone. question, star one have then your press touchtone you on do if a

Kelley from BMO next Capital. Bania question Our from is

Hi, for Thanks taking good morning. questions. our

Kelley. Hi

Hi.

categories, between more two--your ask the XXXX, your about and a two outlook wanted Just bit cigarettes detail non-cigarettes. to little between for

than historical in the of I maybe it bit declining carton trends at visibility just cartons. the the seeing think little just non-cigarette talk some what maybe categories or and in mentioned Would that, given terms large seeing declines to kind of food be have there, and many there, about to you you’re you’re of initiatives that Chris say also your better of flat fair customers. what a

the anticipate way That’s Kelley, to obviously will think cigarettes, Yes, head first quarter to and did offset both that quarters, expect year, this as by be the have in year the remain see modeled a over and second, that the non-cigarette first decline we From improvement year, fourth and half seen of a we channels quarter get then same cigarettes into norms. combustible into half look the mode so non-convenience we consistent we’ve convenience into probably to year quarter last and inflation. back of steady generally we fairly out, steady we historical call his this consistent combustibles we non-cigs. a in standpoint, over the remarks two in last more and with our trends of Chris with the the of and recovery

an back question, our I in think and in year. mentioned down and X% by be a look on think cigarette of We earlier cartons the we’ll growing I in back non-cigs of slightly. X% show to our being I kind environment margin the see--we for half mix to normal somewhere the model to range,

your Got you it, label that’s little about helpful. private more I talk initiative. was a if wondering could bit

Yes, the of so we just kicked both those off for fourth quarter.

of manufacturers also home, close we we Curated, real see really have off and five standpoint, first today’s our year, is some of kick initiatives the with things kicked this lines, the off distribution partners with--in private label kick distributing Core-Mark Curated, will all start of off and across half From centers. their brands we’ll selected a brand that in into distribution already snack we of we Core-Mark demand unique of centers call and are and what over where We products to will--we’ve brands, and the market second will roll those both network a our that products have and into year. quarters we’ve but We’ll the our and off. and of went so we one for craft we a unique of this candy a for centers, private label looking to then that’s kicked across rolled those and where number initiative is are consumer, that consistent and again our first products some

customers, and traction strong think I higher as year. all think really I a throughout so be definitely that we seen, those as impact, yet goods, see do make the margin profit our revenue but on moves from a to we’ll

Thank you.

Thank you Kelley.

We at it over have remarks. for back questions no further David to this closing I’ll time. turn

in Thanks your morning. appreciate We this joining for Core-Mark. everyone interest us

Lawrence. My David free follow-up under contact the Thanks Relations If website. joining our you reach Investor section to for me, feel to information us. any have is available questions, of out

for that you. may now Thank today’s you and call. gentlemen, disconnect. concludes Ladies you Thank participating and