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Circle K owner Alimentation Couche-Tard grows profits to US$757 million

Alimentation Couche-Tard Inc.’s profits increased from last year in the three months ending Oct. 11, as shoppers consolidated shopping trips to convenience stores amid the COVID-19 pandemic.

The Circle K parent company says it earned US$757 million, or 68 cents U.S. per diluted share, compared with US$578.6 million, or 51 cents U.S. per diluted share, in the same period last year.

The Laval, Que.-based brand says revenues were US$10.66 billion during the quarter, down from US$13.68 billion during the same quarter last year.

Analysts surveyed by Refinitiv expected net income of US$559 million, or 50 cents U.S. per share, on sales of US$11.17 billion.

The company says its same-store merchandise sales grew 4.4 per cent in the U.S., 8.6%  in Europe and 11.4% in Canada.

Couche-Tard’s quarterly report says traffic was soft during the quarter as many people worked from home, but it sold more fuel this summer than in the spring in Europe, thanks to sunny weather.


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Couche-Tard aims to double its size

couche-tard2-780x520Alimentation Couche-Tard will continue to focus on growing its U.S. footprint despite proposing an acquisition in Australia it hopes will be a springboard for expansion in Asia Pacific, the convenience store operator’s CEO said.

Brian Hannasch told analysts last week that the company remains focused on consolidating the large American market despite seeking opportunities in a new global geography.

“Despite our size, it’s a massive market, a healthy economy, healthy consumers, and it’s probably the market where we can achieve the greatest synergies,” he said during a conference call.

Hannasch said Asia Pacific is where more of the GDP growth over the next two decades is going to come for.

“So really, for the last three or four years, we’ve looked pretty hard in that market. And you all saw the press release about our offer to Caltex in Australia, which we think is very consistent with the strategy.”

Australia and New Zealand are stable, promising markets that resemble North America and Europe, he said.

“We see Caltex as a potential springboard to expand our presence in Asia Pacific should the Caltex Board choose to engage with us on a proposal.”

The retailer was proposing the largest acquisition in the company’s history with a $7.7 billion bid for Australia’s largest retail fuel and convenience chain, which operates about 2,000 service stations. Couche-Tard had raised its offer for Caltex to AU$34.50 per share after being rebuffed in October when it made a offer of AU$32 per share.

In breaking news, Caltex this week rejected the latest takeover offer, however it is giving the Canadian company a chance to increase its bid.

The Australian company says the current proposal undervalues the company and “does not represent compelling value for Caltex’s shareholders.”

However, the Caltex board has offered Couche-Tard access to selected non-public information to allow the Canadian company to come up with a revised offer. Couche-Tard already owns about 2% of Caltex shares.

Purchasing Sydney-based Caltex Australia Ltd. would allow the Quebec-based retailer to expand beyond North America and Europe as it aims to double the company’s size.

Derek Dley of Canaccord Genuity said the Caltex acquisition is far from complete with talks in the preliminary phase. He believes Couche-Tard is interested in purchasing Caltex’s entire business, which includes a refinery and wholesale fuel division, along with the company’s retail network. But he foresees it selling the non-retail network over time as the proposal multiple is on the higher end of deals that include a refinery.

“Therefore, while we believe Couche-Tard has a solid track record as an acquiror, we are not quite convinced on the strategic rationale of purchasing the entire asset at a high single-digit multiple,” he wrote in a report.

Keith Howlett of Desjardins Capital Markets says the offer has likely come to light because Caltex recently announced that it was planning to spin off a 49% interest in 250 retail sites into a REIT. In addition, Caltex shares have performed poorly and the current CEO has announced his plan to retire.

Alimentation Couche-Tard said last week that its net income surged by 21.5% to US$579.4 million in its fiscal second quarter, up from US$477 million a year earlier.

Excluding one-time items, adjusted profits for the three months ended Oct. 13 were US$571 million or 51 cents per diluted share, compared with US$466 million or 41 cents per share in the year prior. The retailer benefited from a 27.7% boost in U.S. fuel margins even though fuel revenues dipped nearly eight%.

Revenues decreased to US$13.68 billion from US$14.7 billion in the second quarter of 2018 with merchandise revenues increasing 2.3% to US$3.5 billion and network fuel revenues decreasing 8.8% to US$9.9 billion.

Merchandise same-store sales grew 3.2% in the U.S., 2.1% in Canada and 3.3% in Europe.

Couche-Tard was expected to earn 48 cents per share in adjusted profits on US$14 million of revenues, according to financial markets data firm Refinitiv.

Its convenience store network includes nearly 9,800 stores throughout North America and 2,700 in Europe. It employs almost 133,000 people and has licensing agreements for about 2,250 stores operated under the Circle K banner in 16 other countries and territories.


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Imperial takes Q3 in stride

Imperial Oil Ltd.’s recent Q3 report shows a tough quarter behind them as they move ahead with good performance on the upstream side in 2019.

Rich Kruger is retiring at the end of December.

Rich Kruger is retiring at the end of December.

Imperial achieved its highest third-quarter production in 30 years. This performance demonstrates the results of the companys focus on upstream reliability,says Rich Kruger, outgoing chairman and CEO. Overall, upstream gross oil-equivalent production averaged 407,000 barrels per day (BPD), up from 393,000 barrels per day in the third quarter of 2018.

Cash flow generated from operating activities was $1.376 billion in the third quarter, up from $1.207 billion in the corresponding period in 2018, primarily reflecting favourable working capital effects, partially offset by lower earnings.

 However, Imperial was not so fortunate with other aspects of the quarter. Crude-by-rail shipments were off by 8%, refinery through-put decreased 25,000BPD, product sales declined 28,000BPD and net income for the quarter was down more than $300 million compared to the same period last year. Even chemical income declined, with numbers revealing sales declines of about half compared to last year’s Q3 totals.

 The company reports that margin pressures and turnaround activities cost some $300 million in lost revenue in Q3. As a result, net income for downstream activity was written as $221 million in the third quarter, compared to $502 million in the third quarter of 2018.

 Big picture remains bright

 While some numbers in Q3 were less than optimum, 2019 looks like a good exit point for Kruger, who will retire this year and will be replaced by Brad Corson, who will take on the CEO mantle January 1, 2020. Corson was appointed president and director in September.

“Imperial’s people and assets provide a solid foundation for continued growth and leadership within the Canadian energy industry,” says Corson, adding he looks forward to building on Imperial’s strengths to deliver long-term shareholder value.

As Kruger hands over the reins, Imperial’s strengths look good moving forward despite challenges in the downstream side where income was $736 million for the first nine months of 2019, compared to $1.224 billion for the same period in 2018. Earnings were negatively impacted by lower margins of close to $430 million, reliability events of about $140 million, including the fractionation tower incident at Sarnia, and lower sales volumes of about $100 million.

 Challenges aside, Imperial’s management was able to increase net income in the first nine months of 2019. During this period income was $1.929 billion, or $2.51 per share on a diluted basis, up from net income of $1.461 billion or $1.79 per share in the first nine months of 2018. Behind this gain is a 4% decrease in Alberta’s corporate income tax rate.

Cash flow generated from operating activities is also up. The company reports earnings of $3,405 million in the first nine months of 2019, up from $3,051 million in the same period of 2018, primarily re