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Core-Mark Lags Zacks Estimate

Zacks Equity Research

Core-Mark Holding Company Inc. (CORE) recently posted second quarter 2012 adjusted earnings of 94 cents per share, substantially lagging the Zacks Consensus Estimate of $1.04. However, reported earnings were better than the year-ago earnings of 81 cents per share. The results were driven by double-digit growth in the top line and margin expansion.

The company, which distributes packaged consumer products to the retail industry, reported net sales of $2.29 billion for the quarter, up 12.1% year over year. The upside in revenue was mainly attributable to expanded presence of the company in the southeast, driven by the Couche-Tard contract in the third quarter of 2011 and contributions from the Forrest City Grocery Company (acquired in May 2011).

Quarter Highlights

Sales at the Cigarette category rose 10.3% to $1.4 billion due to an 8.8% rise in carton volume. However, excluding the contribution from Forrest City and the new contract, cigarette sales rose only 1.2% due to a dip of 2.2% in Cigarette same store sales.

Sales at the Non-cigarette category crept up 16.5% to $710 million. Excluding the new contract and Forrest City contribution, non-cigarette sales rose 6.7% on the back of same-store sales growth of 6% and additional customers.

During the quarter, adjusted gross profit expanded 11.7% to $123.7 million, attributed to an increase in cigarette and non-cigarette profit.

Total operating expenses climbed 10.2% to $104.8 million due to the Forrest City acquisition start-up costs, higher warehousing and distribution expenses, and selling, general and administrative expense.  However, as a percentage of net sales, total operating expenses fell 8 basis points, benefiting from increased leverage on higher net sales.

Adjusted EBITDA surged 14.2% to $29.8 million in the reported quarter, driven primarily by new business from the FCGC acquisition and the new contract.


The company retained its outlook for 2012. For fiscal 2012, the company continues to expect net sales of $9.0 billion, up 11.0% year over year, owing to the benefits from the FCGC acquisition, new contract wins, market expansion and vendor consolidation initiatives. Earnings per share are expected to be in the range of $2.75 to $2.90, and adjusted EBITDA is expected between $102 million and $105 million. The company expects capital expenditure to be $30 million.

Our Take

The company remains focused on opportunities, both in acquisitions and in market share gains. However, cost inflation and intense competition remains a headwind. Core-Mark, which competes with Farmer Brothers Co. (FARM), currently has a Zacks #3 Rank, implying a Neutral rating over the short term. We also reiterate our long-term Outperform recommendation on the stock.

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