San Francisco, California-based Core-Mark Holding Company, Inc. (CORE) recently posted second quarter 2011 adjusted earnings of 81 cents per share, below the Zacks Consensus Estimate of 91 cents per share, but better than the year-ago performance of 76 cents per share. The year-over-year upside was driven by double-digit growth in the top line and margin expansion.
The company, which distributes packaged consumer products to the retail industry, reported net sales of $2.04 billion, up 11.2% from the prior-year quarter. The upside in revenue was attributable to strong contributions from the newly-acquired Finkle Distributors, Inc. (in August 2010) and Forrest City (in May 2011). Quarterly sales also benefited from higher same-store sales and higher revenue from the non-cigarette category.
During the quarter, adjusted gross profit expanded 12.6% to $110.7 million, as the company continues to benefit from cost-control measures.
Total operating expense inched up to 4.66% from 4.63% in the year-ago quarter, attributed to higher fuel cost and increase in employee bonus expense. However, adjusted operating margin enhanced 12.6% to $110.7 million in the reported quarter.
Financial Position
At the end of the quarter, the company had cash and cash equivalent of $19.4 million, long-term debt of $76.8 million and shareholders’ equity of $373.7 million.
Outlook
For fiscal 2011, the company raised its net sales guidance to $8.2 million from $8.0 billion due to the recent acquisition of Forrest City Grocery Company. The company continues to expect capital expenditure of $24 million.
Our Take
The company reported higher sales and margins in the recently concluded quarter and expects the trend to continue through 2012, benefiting from the recent acquisition of Forrest City. Moreover, Core-Mark is experiencing product inflation, which is expected to boost results going forward. However, the company missed our expectations in the reported quarter, hence we expect estimates to go down in the coming days. The Zacks Consensus Estimate is currently pegged at $2.73 for fiscal 2011 and $3.36 for fiscal 2012.
Core-Mark currently has a Zacks #3 Rank, which implies a Hold rating over the short term. We also reiterate our long-term Neutral recommendation on the stock.
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