MONTREAL - Convenience store operator Alimentation Couche-Tard missed expectations even though acquisitions helped its revenues and profits to soar in its fiscal 2013 second quarter.
The Quebec-based retail and fuel station operator earned US$175.2 million, or 94 cents per diluted share for the period ended Oct. 14.
That compared with US$113.5 million or 61 cents per share in the same quarter a year earlier, prior to a major acquisition that gave Couche-Tard its first presence in Europe. The company is already one of North America's biggest operators of convenience stores and gas bars.
Couche-Tard, which reports in U.S. dollars, said Tuesday that revenues surged to US$9.31 billion from $5.15 billion in the prior year.
Adjusting for one-time items, including foreign exchange gains and acquisition costs, it earned $167.6 million or 90 cents per share, up $53.3 million from the year-ago period.
Couche-Tard (TSX:ATD.B) was expected to have 94 cents per share of adjusted earnings on $8.9 billion of revenues in the second quarter of its fiscal year, according to analysts polled by Thomson Reuters.
Chief executive Alain Bouchard said recent acquisitions "contributed nicely" to its results despite the challenge of uncertain economic conditions, the competitive tobacco category in the United States and relatively high fuel prices.
"As we did for the previous quarters, we were nonetheless able to grow merchandise and service sales while improving our margins through our various initiatives, including our increased fresh food offering," he said in a statement.
In Europe, progress is going as planned with opportunities being identified for synergies and growth following the $2.9-billion acquisition of Statoil Fuel & Retail.
"But we want to take our time to make sure we do things right and that each opportunity is implemented in the most appropriate way," he added.
Chief financial officer Raymond Pare added that Couche-Tard increased its financial flexibility after the end of the quarter by spreading the maturities on a portion of its debt over ten years by issuing $1 billion of senior secured notes, at an average interest rate of 3.33 per cent.
It also entered cross-currency swap agreements to better manage its currency risk.
"Our strategy for the remainder of fiscal year 2013 and the upcoming fiscal years is to favour a reduction of our indebtedness level to allow us the flexibility to seize opportunities that lie ahead," he stated.
Revenues increased by $4.2 billion or nearly 81 per cent, mainly due to acquisitions, higher fuel prices and a growth of merchandise sales in the U.S. and Canada.
Merchandise sales grew by $344.6 million, with sales for stores open at least a year increasing by 0.4 per cent in both countries, the lowest level in four years. Excluding tobacco sales, same-store sales in the U.S. increased by 2.7 per cent.
Fuel revenues increased by $2.9 billion or 81.5 per cent, due to $2.8 billion from acquisitions. Same-store fuel volume decreased by 0.5 per cent in the U.S. and increased by 0.2 per cent in Canada as fragile economic conditions and high pump prices put pressure on volumes sold.
Higher average fuel prices generated $154 million in additional revenues.
Fuel gross margins decreased to 15.20 cents per gallon in the U.S. from 17.04 cents last year, but increased to C5.85 cents per litre from 5.56 cents per litre last year.
Martin Landry of GMP Securities said the results were "slightly below" expectations due in part to higher amortization and financial expenses.
He said same-store sales in the U.S. were weaker than the historical average of four per cent, mainly due to the ongoing price war among cigarette manufacturers. But even excluding tobacco, these sales were below the approximate six per cent range of recent quarters.
Europe merchandise sales were $284 million, below Landry's forecast of $347 million. Couche-Tard didn't provide same-store sales growth in Europe.
Landry said investors should be attracted by Couche-Tard’s growth prospects and geographic exposures "which are better than most of the Canadian large-cap consumer universe on the S&P/TSX, and thus could lead to a multiple expansion for the company’s valuation," he wrote in a report.
"While the Statoil Fuel & Retail acquisition adds a level of risk to an investment in Couche-Tard given the increased debt levels, in our view, the quality of the asset targeted (market leader) and the significant accretion potential could outweigh added risks. Couche-Tard’s management has had an excellent track record of creating shareholder value through acquisitions, which should reassure investors."
Canada's largest convenience store chain is the second largest in North America. Its network is comprised of 6,172 convenience stores, 4,590 of which include motor fuel dispensing in 43 U.S. states, the District of Columbia and all Canadian provinces. It also operates 2,301 stores in Europe.
The company employs 78,500 people, including more than 60,000 in North America.
On the Toronto Stock Exchange, Couche-Tard's shares were down 72 cents, or 1.5 per cent, at C$46.55 in afternoon trading Tuesday.