Alimentation Couche-Tard Reports Earnings
The company reporting today was Alimentation Couche-Tard (ANCUF) which fell short with its Q3 results. It reports in US dollars because of its US operations are key. For some reason trading was suspended in Canada early this morning but resumed at 9:06 am. It reported $287 mn in net earnings, up 4.7% from $274 mn in the prior Q3, or a diluted 50 cents in Q3, vs 48 cents. The quarter ran to Jan. 29, 2017. The profits were below the consensus from Thomson-Reuters of 53.1 cents.
It also restated earlier quarters and their cash-flow by an accelerated depreciation and amortization schedule affecting Q1 and Q2, for tax reasons, related to its global brand initiatives. These measures created a cost (before tax) for acquisitions of $6 mn, an expense for European restructuring also of $6 mn, and a $2.7 mn curtailment gain on its defined pension benefit plan obligations. It also took a $3 mn charge for foreign exchange losses. For the record, there were similar write-offs a year ago for Q3 2015 for $155.1 mn (including one that did not repeat, for early termination of fuel supply contracts.)
A fitting report for this Pi day and I have my calculator at the ready. ANCUF then offered a new net earnings figure for Q3 in both years, this time $303 mn or 53 cents/sh, and last year $301 mn or 53 cents/sh. So there was a 0.7% rise in profits in the current fiscal Q3 which the Quebec company attributed to its acquisitions, its organic growth, and a lower income tax, all of which were positive, and the negative impact of lower fuel margins in the US and Canada. Big whoop.
ANCUF also said it had beaten its fuel synergy and rebranding target at 1000 The Pantry outlets in the US southeast while cutting its supply costs for non-fuel merchandise and services. The region was hit by floods and power outages from Hurricane Matthew which cost ANCUF an estimated $3 mn in stores totaled, and probably as much as $7 mn for ones which merely lost business during the storm.
ANCUF also adjusted the fiscal 2016 full year and Q4 operating and net income for its Topaz acquisition to revalue the assets, liability, and goodwill—downward, along with the Q1 and Q2 figures for the current FY. It reads better in French but is still an astonishing restatement.
In addition to these accounting changes, in the last quarter Alimentation acquired 278 mostly Ontario service station sites from Imperial Oil (XON sub) for $1.286 mn which complicate matters further, as it leases or owns the land or the buildings or both, and there is a complicated split between the two over fuel (which ANCUF owns but on which it pays a commission to Imperial or Exxon) and to other parts of the site where it gets fees. If that is not complex enough, ANCUF also acquired 23 sites in Estonia from Sevenoil some of which are full-service stops and some of which are unmanned. It also sold its Dansk Fuel shares to a sub of DCC Holdings for $65.8 mn It is also building 61 stores. The result is that nothing is comparable between FY 2016 and 2017.
Here are the revenue data. Q3 2017 revenues were $11.4 bn, up 22.3% from Q3 2016, mostly from acquisitions. For whatever it is worth in the 16 weeks of its Q3 US merchandise and service revenues by ANCUF, its leading business, merchandise and services revenue (M&S) rose 1.5% to $2.189 bn while fuel revenues rose 11.9% to $4.821 bn. European M&S sales rose by 43.6% to $364.9 mn and fuel sales by 43.3% to $3.028 bn. Good old Canada accounted for $519.9 mn in M&S and services, up 6.2%, and for $1.235 bn in fuel sales, up 103%. It also reported worldwide other revenues of $369 mn, mostly in Europe. And they declined 12% from a low level in les Etats-Unis.
Profits don't come with the territory, however. In the USA ANCUF M&S gross profits rose a half percent to $720.7 mn while gasoline sales produced a 6.8% decline in profits to $404.6 mn. In Europe, M&S profits rose 39% to $155 mn and gasoline ones by 15.6% to $255.8 mn. In Canada, M&S profits rose 10.9% to $175.9 mn and fuel ones by 139% (not a misprint) to $100.9 mn.
That along with some bits and pieces of other revenues produced operating income of $418.6 mn, down 1.7% y/y. It also produced net earnings and basic net EPS at the levels given at the top of this note. Return on equity this year was 11.6% in the quarter vs 27% last year and return on capital employed fell to 15.6% from 19.2%. It now expects to complete the CST acquisition early in FY 2018 (which begins in May.)
Here is my commentary. The disparity in returns from different global markets is a result of the shift in exchange rates with the US dollar, ANCUF's reporting currency. In the last quarter, the C$ rose against the Greenback and the result was a negative impact.
The real issue is first whether ANCUF's US expansion can pay off. It had some one-off problems with hurricane Matthew last autumn but this appears to be continuing too long. Its cost containment efforts are worthy but implementing them in a multiplicity of formats and regions is not always easy. The Circle K re-branding effort may help its future marketing, but as noted yesterday, it is fighting against oil majors like BP plc with new jv's in Mexico. Its very modest gains in the quarter which required this monstrous edifice of detail on sales and profits are worrying, and of course with the blizzard here today none of the analyst experts has yet weighed in.
I have opted not to quote the commentary by the company this morning because I want to write about something else. I don't want to be handcuffed by ANCUF. I also sold half my holdings at $46.3035 mainly because of mistrusting this kind of complicated report.
Disclosure: None.