Alimentation Couche-Tard Inc. is reporting net earnings of US$670.7 million for its fourth quarter ended April 30, 2023, compared with US$477.7 million for the corresponding quarter of fiscal 2022.
The increase is primarily driven by organic growth in the convenience activities, as well as by higher road transportation fuel gross profit in Europe and other regions and the favourable impact of the share repurchase program, partly offset by higher expenses. In addition, the quarter included an extra week compared to Q4 2022.
"We are pleased to announce an exceptional fiscal year as well as strong fourth quarter results. Even more so, we are proud to share that we have hit our five-year Double Again strategic goal. This is a particularly amazing achievement as during three of those five years we faced historic global challenges including a pandemic, inflation, labor and supply shortages, and war bordering our European markets," said president and CEO Brian Hannasch. "While many organizations chart ambitious strategic plans, they can lose momentum along the way. We were able to march forward – growing, innovating, and producing remarkable financial results – because of our award-winning engaged team members and customer-centric culture. I want to thank all team members, customers, and shareholders for their commitment to the business and supporting us on this journey to Double Again."
Hannasch pointed to the positivity of recent acquisitions, including approval of the TotalEnergies deal.
READ: Acquisitions spur 2023 growth for ACT
"We are excited by the recent progress and positive environment for growth through acquisitions after many years of inflated multiples and assets, which were not the right fit for our business. At the beginning of the quarter, we announced our proposed acquisition of certain assets from TotalEnergies SE in four European markets and we are looking to close on that transaction by the end of the calendar year," says Hannasch. "We also reached an agreement to acquire 112 convenience retail and fuel sites to be carved out from MAPCO Express Inc., which includes a strong network of modern, well-located sites in attractive and desirable markets predominantly in Tennessee and Alabama. We closed the acquisition of 55 high-quality locations in Arkansas and Florida and 65 express tunnel car wash sites, primarily in Arizona and Illinois. In each case, we see significant opportunities to bring value to the business as we learn more about their operations, team members and customers."
CFO Claude Tessier, who steps down from the role when Filipe Da Silva takes over July 1, said: "Our results for both the fourth quarter and fiscal 2023 have exceeded our expectations on many fronts, allowing us to significantly surpass our Double Again ambitions, bringing our adjusted EBITDA for fiscal 2023 to almost $5.8 billion. Adjusted diluted net earnings per share increased by 29.1% compared to the fourth quarter of fiscal 2022, driven by strong results on all our key metrics, including a decelerating normalized growth of expenses which was below inflation for the fourth quarter when normalized for the estimated impact of the additional week in this quarter. Our balance sheet continues to be particularly strong and our key return metrics are also healthy, with return on equity and return on capital employed reaching 24.7% and 17.5%, respectively, all contributing to a recent ratings upgrade to Baa1 from Baa2. As we look ahead to fiscal 2024, we are excited to hold our investor day in October where we will discuss our new strategic plan in greater detail, including the renewed focus around cost optimization."
Tessier addressed his pending departure: "As I will be retiring from my CFO role in the next few days, I leave with a great sense of pride and accomplishment, and could not be prouder of all the growth we've achieved during my seven years with Alimentation Couche-Tard. I want to wish my friend and colleague, Filipe Da Silva, the best as he takes on the role of CFO starting July 1, 2023. We expect the transition to be seamless as Alimentation Couche-Tard continues its exceptional and disciplined growth."
Highlights from Q4:
- Net earnings were $670.7 million, or $0.68 per diluted share for the fourth quarter of fiscal 2023 compared with $477.7 million, or $0.46 per diluted share for the fourth quarter of fiscal 2022. Adjusted net earnings were approximately $698.0 million compared with $573.0 million for the fourth quarter of fiscal 2022. Adjusted diluted net earnings per share were $0.71, representing an increase of 29.1% from $0.55 for the corresponding quarter of last year.
- Total merchandise and service revenues of $4.2 billion, an increase of 11.0%. Same-store merchandise revenues increased by 3.3% in the United States, by 3.0% in Europe and other regions, and by 5.9% in Canada.
- Merchandise and service gross margin increased by 1.0% in the United States to 34.1%, by 2.6% in Europe and other regions to 40.9%, and by 1.7% in Canada to 34.1%, all impacted favourably by a change in product mix.
- Same-store road transportation fuel volumes increased by 0.8% in the United States, by 6.0% in Canada, and decreased by 2.4% in Europe and other regions.
- Road transportation fuel gross margin of 45.34¢ per gallon in the United States, a decrease of 0.78¢ per gallon, and of CA 12.13¢ per litre in Canada, a decrease of CA 1.28¢ per litre. In Europe and other regions, the road transportation fuel margin1 was US 10.60¢ per litre, an increase of US 3.09¢ per litre, due to the geopolitical context and difficult supply conditions during the comparable quarter. Fuel margins remained healthy throughout the network due to favourable market conditions and the continued work on the optimization of the supply chain.
- Growth of expenses for the fourth quarter of fiscal 2023 was 8.8%, while normalized growth of expenses, when factoring in the estimated impact of the 13th week in the fourth quarter of fiscal 2023, remained lower than the average inflation observed throughout our network of 5.8%.
- On April 21, 2023, the company amended its operating credit facility to increase the maximum amount available from $2.5 billion to $3.5 billion. The maximum amount available includes a first tranche of $1.0 billion and a second tranche of $2.5 billion, maturing in April 2026 and April 2028, respectively.
- During the quarter, the Corporation concluded the acquisition of 65 express tunnel car wash sites and 55 company-owned and operated convenience and retail fuel sites in the United States. The Corporation also entered into a binding agreement to acquire 112 company-owned and operated convenience retail and fuel sites in the United States.
- During the quarter, the Corporation agreed to a firm and irrevocable offer to acquire 2,193 sites located in Germany, Belgium, Netherlands, and Luxembourg.
Fiscal year 2023
- Net earnings per diluted share of $3.06 compared with $2.52 for fiscal 2022, an increase of 21.4%, while adjusted diluted net earnings per share were $3.12 compared with $2.60 for fiscal 2022, an increase of 20.0%.
- During the fourth quarter and fiscal 2023, the Corporation repurchased shares for amounts of $434.5 million and $2.3 billion, respectively, for a total of 52.0 million shares repurchased under the program ended April 25, 2023. Subsequent to the end of fiscal 2023, the Corporation renewed its share repurchase program which allows it to repurchase up to 5.0% of the shares outstanding as at April 20, 2023. Under the renewed program, shares for an amount of $204.1 million were repurchased.
- Increase in the annual dividend declared for fiscal 2023 of 26.9%, from CA 41.75¢ to CA 53.00¢.
- Strong improvement on return on capital employed, moving from 15.4% to 17.5% driven by robust earnings for fiscal 2023. Following the end of the fiscal year, the Corporation's long-term senior unsecured rating was upgraded to Baa1, from Baa2, by Moody's Investors Service.
Acquisitions Q4 2023
- On February 8, 2023, ACT acquired all of the memberships interests of True Blue Car Wash LLC ("True Blue"). True Blue operates 65 express tunnel car wash sites under the brands Clean Freak and Rainstorm, in the Midwest and Southwest regions of the United States. The transaction was settled for a consideration of $302.2 million and is subject to post closing adjustments. The transaction was financed using borrowings available under our United States commercial paper program and available cash.
- On March 16, 2023, ACT agreed to a firm and irrevocable offer to acquire 2,193 sites from TotalEnergies SE for a total cash consideration of approximately €3.1 billion ($3.4 billion). The retail assets included in the proposed acquisition cover 1,195 sites located in Germany, 566 sites in Belgium, 387 sites in Netherlands, and 45 sites in Luxembourg, of which 1,495 sites are company-owned and 698 sites are dealer-owned. For the same sites included in the proposed acquisition, 12% are company-operated and 88% are dealer-operated. The proposed acquisition would comprise 100% of TotalEnergies SE's retail assets in Germany and Netherlands, as well as a 60% interest in the Belgium and Luxembourg entities. Subsequent to the end of the quarter, and following the completion of the information and consultation process involving TotalEnergies SE employee representative bodies at European level in Belgium, Netherlands and Luxembourg, TotalEnergies SE has accepted our offer, which will lead to entering into definitive agreements. We expect the transaction to be completed before the end of calendar year 2023 and it remains subject to customary closing conditions and regulatory approvals. The transaction would be financed using our available cash, existing credit facilities, United States commercial paper program, and new term loans.
- To mitigate the currency fluctuation risk associated with the Euro, ACT entered into currency forward contracts with financial institutions for a portion of the consideration, representing €1.6 billion. On April 21, 2023, ACT obtained commitments for new term loans of €1.5 billion and $1.75 billion. The term loans are available exclusively to finance the proposed acquisition of certain assets from TotalEnergies SE.
- On April 17, 2023, ACT acquired 45 company-owned and operated convenience retail and fuel sites operating under the Big Red Stores brand and located in the state of Arkansas, United States. The transaction was settled for a consideration of $285.7 million, and is subject to post closing adjustments. The transaction was financed using our available cash and existing credit facilities.
- On April 21, 2023, ACT acquired 10 company-owned and operated convenience retail and fuel sites operating under the Dion's Quik Chik brand and located in the state of Florida, United States. We settled this transaction using our available cash and existing credit facilities.
- On April 27, 2023, ACT entered into a binding agreement to acquire 112 company-owned and operated convenience retail and fuel sites operating under the MAPCO brand and located in the states of Alabama, Georgia, Kentucky, Mississippi and Tennessee, in the United States. The agreement also includes surplus property and a logistics fleet. The transaction would be financed using our available cash, existing credit facilities, including United States Commercial Paper Program. We expect the transaction to close in the second half of calendar year 2023 and is subject to customary closing conditions and regulatory approvals.
- ACT also acquired one company-operated store, reaching a total of seven company-operated stores through various transactions since the beginning of fiscal 2023. ACT settled these transactions using our available cash.
- ACT completed the construction of 29 stores and the relocation or reconstruction of seven stores, reaching a total of 127 stores since the beginning of fiscal 2023. As of April 30, 2023, another 42 stores were under construction and should open in the upcoming quarters.
- On March 1, 2023, in connection with obtaining the Competition Bureau (Canada) approval for the Wilsons network acquisition, ACT divested 34 company-owned and operated convenience retail and fuel locations, one company-owned and dealer-operated location, and 17 dealer-owned and operated locations in Atlantic Canada for a consideration of $59.2 million. In addition, the consideration includes a contingent consideration receivable based on the future performance of the divested locations and which can go up to a maximum amount of $8.5 million. ACT assessed that the fair value of the contingent consideration receivable was not significant.