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San Francisco, California-based Core-Mark Holding Company, Inc. (CORE - Snapshot Report) recently posted first quarter 2012 adjusted earnings of 39 cents per share, comfortably ahead of the Zacks Consensus Estimate of 23 cents as well as the year-ago earnings of 13 cents per share. The better-than-expected results were 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 $2.10 billion for the quarter, up 22.0% year over year. The upside in revenue was attributable to strong contributions from Forrest City Grocery Company (acquired in May 2011) and expansion in the southeast, driven by the new Couche-Tard contract in the third quarter of 2011.

Quarter Highlights

Sales at Cigarette category rose 18.8% year over year to $1.2 billion due to an 18.1% rise in carton volume. However, excluding the contribution from Forrest City, the new contract and an extra day in this quarter, cigarette sales rose only 1.6%, due to a dip of 4% in Cigarette same store sales.

Sales at Non-cigarette category jumped 30.0% to $499.5 million. Excluding the new contract and Forrest City contribution, non-cigarette sales rose 13.2% on the back of same-store sales growth of 6.5% and additional customers.

During the quarter, adjusted gross profit expanded 19.7% to $111.9 million, attributed to an increase in cigarette and non-cigarette profit.

Total operating expense climbed 14.2% to $104 million due to higher warehousing and distribution expense, fuel costs and selling, general and administrative expense.  However, as a percentage of net sales, total operating expenses fell 34 basis points, benefiting from increased leverage on higher net sales.

Adjusted EBITDA surged 59% to $16.7 million in the reported quarter, driven primarily by new business from the FCGC acquisition and the new contract.

Financial Position

At the end of the quarter, the company had cash and cash equivalent of $16.9 million, long-term debt of $1.4 million and shareholders’ equity of $378.6 million.

During the quarter, the company repurchased shares of $0.7 million and presently has $10 million remaining under the existing share repurchase program.

Outlook

The company retained its outlook for 2012. For fiscal 2012, the company continues to expect net sales of $9.0 billion, up 11.0% year over year, benefiting from the FCGC acquisition, new contract win, market expansion and vendor consolidation initiative. Earnings per share is anticipated in the range of $2.75 to $2.90 and adjusted EBITDA between $102 million and $105 million. The company expects capital expenditure to be $30 million.

Our Take

The company reported better-than-expected results and also reaffirmed its outlook; hence we expect estimates to go up in the coming days. Moreover, the company remains focused on opportunities, both in acquisitions, and in market share gains. Though fuel prices presently are in control, the company plans to invest in natural gas as an alternative fuel source.

Core-Mark, which competes with United Natural Foods, Inc (UNFI - Analyst Report), currently has a Zacks #2 Rank, implying a Buy rating over the short term. We also reiterate our long-term Neutral recommendation on the stock.

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