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SOUTH SAN FRANCISCO, Calif. -- Core-Mark Holding Co. Inc., one of the largest wholesalers of fresh and broad-line supply solutions to the convenience retail industry in North America, reported sales grew 10.7 percent for the fourth quarter ended Dec. 31, 2009 (8.3 percent excluding the effects of foreign currency fluctuations). Gross profit for the fourth quarter was up 4.1 percent to $94.1 million vs. the comparable period in 2008.
For the full year, net sales were up 8.1 percent to $6.53 billion (or 9.1 percent excluding foreign currency fluctuations). Gross profit for 2009 was up 11.8 percent to $401.6 million compared to 2008's profit.
"The political and economic dynamics of 2009 led to a very unusual year," said Core-Mark President and CEO Michael Walsh, who noted the year was marked by "extraordinary high cigarette holding gains, declining carton volume, generally flat food/non-food sales, overall respectable margins and positive momentum for our fresh initiatives."
Walsh described the convenience store industry as transitioning rapidly to more efficient ways of getting new products that the customer will buy to market. "We believe that Core-Mark is well positioned to support our retail customers as they migrate through this change," he said.
The largest contributor to the fourth quarter sales increase was approximately $157 million of cigarette price inflation related to the passage of the State Children's Health Insurance Program (SCHIP).
The gross profit gain excludes cigarette-holding profits, other tobacco product (OTP) tax refunds and LIFO expense. Also, the fourth quarter of 2008 included $4.3 million more in non-cigarette floor stock gains due to manufacturer price increases than in the fourth quarter of 2009.
Core-Mark's operating expenses for the fourth quarter of 2009 increased to $85.4 million compared to $80.8 million in the same quarter in 2008. This $4.6 million increase was due primarily to warehouse and delivery expenses, which included a $2.7 million increase in health care and workers compensation costs and a $0.7 million increase in net fuel expense. As a percentage of net sales, total operating expenses decreased 24 basis points.
Net income for the fourth quarter of 2009 was $8.5 million.
Approximately $534 million of the 2009 sales increase resulted from U.S. cigarette manufacturer price increases in response to the passage of SCHIP.
Cigarette inventory holding profits were $36.7 million, offset by $11.5 million of federal excise tax (FET), net of manufacturers' reimbursements, in 2009 compared to a gain of $3.1 million in 2008. Gross profit, excluding cigarette inventory holding profits, FET, OTP tax refunds and LIFO expense, grew to $382.5 million in 2009 compared to $365.6 million in 2008, a 4.6 percent increase. Gross profit improved despite non-cigarette floor stock income earned from manufacturer price increases being $8.1 million lower than in 2008.
The company's operating expenses increased to $336.6 million in 2009 compared to $329.0 million in the previous year. This $7.6 million increase was due largely to incremental expenses of $6.5 million from the New England division and a $3.6 million increase in healthcare and worker's compensation costs, offset by a $4.5 million reduction in net fuel expense. As a percentage of net sales, total operating expenses decreased by 29 basis points.
Net income for 2009 was $47.3 million. Pre-tax cigarette holding profits, net of FET, was $25.2 million and contributed significantly to the improvement in net income.
In its release yesterday, Core-Mark reiterated its annual guidance of $6.9 billion in net sales for 2010. This guidance contemplates a decline in cigarette carton volumes offset by higher cigarette taxes and manufacturers' price increases. The non-cigarette categories are expected to benefit from further progress in implementing key strategies including "Fresh" and the Vendor Consolidation Initiative. Management also reiterated its expected capital expenditures of approximately $20 million for 2010.
Core-Mark, Jamba Juice Sign Supply Agreement
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