Q1 2020 Earnings Call
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Hello and welcome to the core Mark first quarter 2020 investor call. My name is Michelle and I will be the name for your conference at this time. All participants are in a listen-only mode later. We will conduct a question-and-answer session and during the question-and-answer session. If you have a question, please press * then 1 on your touchtone phone. Please note. The discomforts is being recorded. I will now turn the call over to mister David Lawrence sir. You may begin.
Suck suck suck ladies and gentlemen. Thank you for holding for the first quarter conference. Please continue to hold off. Your conference will begin in just a few moments. Once again, thank you for holding for the core Mark first quarter conference. Please continue to hold the call Will begin in just a few moments.
Thank you and good morning. Everyone. Today's call will be led by Scott McPherson our president and chief executive officer and Chris Miller our Chief Financial Officer before turning the call over to Scott. I will point out the core Market tends to take advantage of the Safe Harbor provisions of the private Securities litigation Reform Act as noted in the earnings release. We filed this morning. Please remember that our comments today may include forward-looking statements which are subject to risk and uncertainties and actual results May differ materially from those indicated or implied by such statements. Some of these risks are described in detail on the cup SEC filings, including our quarterly report on form 10-q. The company does not undertake any duty to update such forward-looking statements. Additionally. We will refer to certain non-gaap Financial measures during this call. You can find a Reconciliation of these non-gaap Financial measures to the most directly comparable gaap measure and other related information including a discussion of why we consider these birth
There's useful to investors in our earnings release and our quarterly report on form 10-q. I'll now turn the call over to Sky. Thanks everyone for joining us today on our first quarter call before I provide my comments on the quarter. I want to take a moment to reflect on how Core-Mark is maneuvering through the impact of covid-19.
Today we assembled our covid-19 task force in February. Our Mantra has been family and Community when referring to family. I'm talking about the amazing employees that make up the core Mark family with ensuring their health and safety is our first priority and allows Core-Mark to maintain the Integrity of our essential supply chain servicing over 40,000 customers across North America.
To that end. Our vendor Partners have done a great job fighting through the supply and demand challenges and our valued customers have been nothing short of spectacular as they provide essential goods and services to their communities daily.
Turn on cigarette categories and cost leverage and our transportation in general expenses revenues for the quarter were driven by strong performance and curtain sales with your over your same storm Curtains Down approximately 2% in January and February and 6% in March non. Cigarette sales also showed solid growth through the quarter despite the disruption caused by Vape regulation and the late March impacts of covid-19.
$0.04 to $10 for the quarter diluted earnings per share for the quarter was $0.09 an increase of $0.06 per share over the first quarter last year, excluding life expense diluted EPS increased $0.08 to $0.22 for the quarter.
As we indicated on our April 14th, press release regarding the impact of covid-19. Our company is certainly faced volume challenges with sales spikes in the first weeks of March followed by a significant sales declines in late March through the month of April. We also outline the steps we've taken to address these headwinds including elimination of our 401K match modification a vacation policy and material headcount and work our reductions in an effort to mitigate the impact of volume shortfalls. Despite the chance.
Total sales in the first quarter increased 4.9% the 3.9 four billion dollars. We started the quarter strong. This year was cigarette sales up 1.5% off on cigarette sales growth of nearly 6% through February year-over-year and the first three weeks of March. We saw a significant increase in sales volume propelled by cigarette package with sales up over 6% and non cigarette sales trending better than the first two months of the year in late March. We saw a Slowdown in cigarette sales growth in a high-rise single digit Decline and non cigarette sales, excluding the benefit of one extra sales day in the first quarter of this year. Cigarette sales were up about 3% and non cigarette sales were up about 4% for the quarter.
Overall gross profit margins finish slightly below prior-year cigarette margins finished the quarter consistent with our expectation growing on a cents per carton basis and non cigarettes also improved. Although below expectations due to mix changes related to covid-19 from an expense leverage standpoint. We saw strong performance in the quarter selling General and administrative costs decline on a year-over-year basis on the operations front. We saw solid progress and our transportation expenses with cubes per route increases throughout the quarter warehouse and see was impacted by the initial effects of covid-19, including lower productivity increased sick time and cost associated with cleaning and personal protective equipment. In fact, we saw solid leverage with total operating expenses down as a percentage of remaining gross profit by over two hundred basis points.
In short the benefit of the strong growth and cigarette sales and early March help to lift overall cigarette sales for the quarter while the benefit of non cigarette sales growth in early. March was offset by the late March decline. It is worth noting that are non cigarette sales for the quarter were impacted by approximately $19 on a customer returns of flavor, e-cigarette merchandise following the flavor ban.
Moving off the quarter results and in the spirit of transparency around the impact of covid-19. I would like to provide an update on our sales Trend so far in the second quarter an additional color on our continuing to mitigate the pandemics impacts on the company consistent with our April 14th update. We have seen continued downward pressure on revenues and margins thus far in the second quarter pack. That's a non cigarette sales for the month of April were down approximately 3% and 20% respectively on a year-over-year basis margins in April continue to be impacted by both higher up mix relative to Total margins and higher tobacco mix relative to non cigarette margins. The combined impact has caused a total margins to decline in the range of 40 basis points in April.
Summer remaining gross profit margin perspective cigarette margins were in line with our expectations with a profit per carton increase of 1.6% which offset approximately half of the negative margin impact caused by Price inflation.
Non cigarette and remaining gross profit margin finished at 12.34% slightly above prior-year of the lower 10 to 20 basis-point growth expectations driven by the material Mix Change related to covid-19 Justin for that change in mix. Our non-cigarette margins would have been fifteen basis points higher than prior year with a Scott mentioned. We saw a good leverage and operating expenses as a percentage of remaining gross profit in the quarter sg&a expenses improved to 29.4% of remaining gross profit compared to 32% last year driven mainly by a reduction in salaries and other General expenses, including bad debt and bonus expense.
From a labor perspective Core-Mark reduced headcount by approximately a thousand employees in response to volume declines due to covid-19. These actions were taken beginning in early April with most of the headcount savings realized by early may we are achieving further labor savings by minimizing overtime costs and reducing work hours of non-exempt employees to better off to the reduce the volumes. And finally we continue to preserve our liquidity position through our cost reduction efforts discipline around inventory management reduced Capital expenditures survey and a particular focus on accounts receivable which pose a risk to every business operating in today's environment. Chris will provide additional color on our financial performance and liquidity.
Warehouse and distribution expenses as a percentage of remaining gross profit increased by sixty basis points for the quarter.
And distribution expenses in the quarter driven by higher Fleet utilization was more than offset by higher warehousing expenses resulting from a decrease in productivity and other impacts related to covid-19.
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Of business as usual our leadership team remains focused on moving the business forward despite the complexity of operating during the crisis on the technology front. We have greatly Advanced our utilization of birth across our business leveraging the technology for real-time operational metrics customer data analytics and as the intelligence backbone for our business continuity plan related to covid-19 from a sales and marketing perspective. We are prepared to relaunch our smart Stock Program providing a wider range of service offerings and business growth opportunities for our customers and our vendors Thursday. We are temporarily converting our Center of Excellence into a virtual customer experience leveraging the vast Camera and Video capabilities allowing us to bring value to our Retail Partners remotely. And finally she continued to make meaningful progress on increasing the productivity of our finance and sales organizations.
Now turning to the balance sheet.
We ended the first quarter with $313 drawn on our credit facility and 408 million available to borrow the availability at the end of March was impacted by a strategic decision to build incremental inventory in March during the initial Surge and cigarette sales at the onset of the crisis and the temporary closure of an Altria manufacturing facility.
Or 750 million dollar credit facility does not mature until March of 2022 and we have only a fixed-charge covenant of One X Box Springs into place. If our availability Falls below 10% of the total capacity under the facility. We are substantially above the One X level and the 10% threshold given the significant excess availability under our facility as of May first availability under the credit facility was two hundred and eighty million dollars Choice reduced by a short-term incremental build a cigarette inventory of approximately $150 in anticipation of manufacture price increases sometime in the second quarter.
From a girl's perspective. We were pursuing independent retailers a meaningful number of sizeable chain opportunities along with wholesaler Acquisitions before covid-19 struck.
We have continued to maintain these dialogues and believe we have a robust pipeline in place. Once the business environment settles. We are working hard to move these and other business initiatives forward position to assist our customers and optimizing their retail offering is volumes return and providing Core-Mark a springboard for growth in closing. I want to again thank the entire Core-Mark fact, it's your commitment to working safely and providing great service to our customers and communities that will ensure the success of this company far into the future. I want to thank our customers for working side-by-side with us every step of the way and proving what strong Partnerships can accomplish to our vendor Partners who have fought to keep our channel in stock during a period with unprecedented supply and demand curves. I appreciate your efforts and finally based on our first quarter results. We were well-positioned to deliver another solid year. But obviously, we like every company in North America have had to fight through this unprecedented world.
we are vigilantly monitoring our working capital and actively engaging with customers and vendors to minimize our cash conversion cycle while the majority of our customers. He needs retailers that continue to operate as essential business has a small percentage of our customers have had to temporarily shut down or otherwise have been more significantly impacted by the crisis Thursday we are working closely with this customer group to mitigate exposure that's far we have not seen a material deterioration in the quality of our accounts receivable portfolio however the wage does represent a potential risk for us going forward
In terms of inventory, we've reduced our non-cigarette inventory levels to align with the reduced sales volume. We're experiencing in the second quarter. However, we're taking a more balanced approach. It was cigarette inventory while our cigarette sales have been impacted in a
Health pandemic while we cannot be certain of the duration or magnitude of this crisis and its impact on our business. I am confident that we have taken the right steps to preserve the health of the company and to position Core-Mark to emerge quickly and Lead our industry. I will now turn the call over to Chris for additional color on the quarter.