Core-Mark Holding Company, Inc.
Q1 2016 Earnings Call Transcript

Published: 10 May 2016

[Operator:]

Welcome to the 2016 First Quarter Investor Call. My name is Cynthia, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ms. Milton Draper. Ms. Draper, you may begin.

[Milton Draper:]

Thank you, Cynthia, and welcome everyone. I would now like to read the statements about the use of forward-looking statements and non-GAAP financial measures during this call. Statements made in the course of this call that state the Company's or management's hopes, beliefs, expectations or predictions of the future are forward-looking statements. Actual results may differ materially from those projections. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in our SEC filings including our Form 10-K, our 10-Qs and our press releases. We undertake no obligation to update these forward-looking statements. We are holding this call to review our first quarter results and to answer any questions you might have. If you have additional follow-up questions after the call, please call me at 650-589-9445. Joining me today is the Chief Executive Officer of Core-Mark, Thomas Perkins; and the Chief Financial Officer, Chris Miller. Also in the room is Matt Tachouet, our Corporate Controller. Our line-up for the call today is as follows. Tom will discuss the state of our business and our strategy going forward, followed by Chris who will review the financial results for the first quarter. We will then open up the call for your questions. Now, I'd like to turn the call over to our CEO, Tom Perkins.

[Thomas Perkins:]

Good morning, everyone. Thanks for joining today's call. I want to start out staying our thoughts and prayers are with the residents of Fort McMurray, Alberta where the forest fire continues to rage. Living true to our values, it is amazing to see the dedication our Core-Mark Alberta family has put into assisting the residents, customers and volunteers of the Fort McMurray and its surrounding areas. I am sure most of you are aware of our recent announcement regarding our acquisition of Pine State Convenience. This is a very exciting development for both of our organizations and is one that will broaden Core-Mark’s geographic footprint in the Northeast. We're thrilled to welcome all the Pine State employees into the Core-Mark family. We share very similar values and philosophies with Pine State Convenience, so I believe this will be an easy cultural transition. We are also very excited to welcome Pine State's customers and look forward to bringing them a new spectrum of products and marketing programs that have brought success to our retailers. As disclosed in the press release, we estimate the purchase price will be approximately 112 million and we expect to establish payables within the first 30 to 60 days of approximately 20 million after we close the deal, which is subject to regulatory approvals. Start up costs are expected to be approximately 3 million, we plan on spending about 50% of this year for normal due diligence and transaction costs, and the other 50% during the systems conversion process currently scheduled for early 2017. The returns from this acquisition with and without realizing certain synergies will range between 15% to 18% .After the deal closes, we will update our guidance for the year to reflect the impact of this new business in any of the developments we see. Moving onto the first quarter, I am very proud of our employees in this organization for on-boarding the more than 1,300 Murphy USA stores across 24 states. This was a tremendous accomplishment for both organizations and has established a strong foundation for what will be a long and strong partnership. This alliance is a very good match for our infrastructure and operations, and we look forward to assisting Murphy USA in supporting their to go-to-market and growth strategies. During the first quarter, we were also able to on-board an additional 1,400 stores representing the pool of additional new customer wins. As I mentioned in our last call, we have won a number of regional customer bids totaling more than 800 stores. In addition, our divisions have added close to 600 independent stores. This year is going to be a great year for growth and we're off to a very good start. During the first quarter, sales grew approximately 23% and only reflect a partial quarter of volume for the Murphy USA business. Cigarette sales increased 29%, driven by 26% increase in cartons sold. The additional volume from both Murphy USA and Rite Aid were the primary drivers to this very large increased in the cigarettes business. In addition, same-store carton sales had a slight decline of only 0.1% which is more favorable than anticipated. Non-cigarettes sales grew about 11% driven by market share financings and same-store sales growth of 3%. The U.S. same stores non-cigarettes sales grew 4.3% while Canadian same-store sales were down 8.3%. Canada's economic condition particularly in Alberta continues to have a compressing effect on that region driven impart for the downturn in the oil industry due to low fuel prices. Our core strategies continue to drive our growth in non-cigarette sales with the Fresh Category sales up over 16% for the quarter. The new business we have added also helped to drive traditional center store sales above previous growth trends. We delivered on our commitment our new customers in the first quarter and now are focused on improving productivity and preparing for the upcoming summer months. Operating expenses in the first quarter grew about 12% on a 23% increase in sales. As a percentage of sales, OpEx decreased approximately 48 basis points primarily driven by the shift in our product mix. It is important to keep in mind that during the first quarter, the division hired and trained over 300 new employees, handled 11% more cubic feet, increased deliveries by 17% and drove 17% more miles. What we have accomplished is really rather spectacular. The bottom line is, our EBITDA was up over 5% despite all the start-up activity to on-board so many new customers and all the due diligence activity to make our acquisition possible. 2016 is off to a good start and my confidence in this company and the industry we service continues to grow. The 2016 NACS State of the Industry Conference was held recently and the results show the industry continued to grow in 2015. There are now over 154,000 same C stores in the U.S. and approximately 1% growth over 2014 and in-store merchandise sales grew by 5.8% to $226 billion. The results continue to show the importance of food service in our industry to increase both foot traffic and profit. Food service grew about 10% compared to traditional merchandise which grew about 5%. Within the food service categories, the fastest-growing sub-commodity was fresh commissary categories which grew 14%.The best C store operators differentiate themselves by focusing on food service and emulating the activities of QSRs as they target the same consumer. This updated information confirms that our strategy is to grow fresh and food service is in line and absolutely essential to our customers’ success. We also learned that the number of single store operators continues to grow at a faster pace than C stores as a whole and they continue to dominate the industry representing 63% of all U.S. C stores. This makes our strategies to partner with them and help them become better category managers and operators even more imperative to support their success. With that, let's update where we are with our core strategies for growth. Our vendor consolidation and fresh initiatives are off to another great start. For the first quarter we had about 42 million in incremental fresh and VCI sales, our goal is to add 100 million of incremental sales for these vitally important strategies each year. We must ensure our customer is moving to the fresh food service and good for you products that the consumers are looking for while also reducing the cost in their supply chains. Our core Solutions Group, who is responsible for the FMI surveys are also off to a good start. They have conducted 675 surveys in the first quarter. Our goal is to complete 3,000 surveys in 2016. We continue to see a meaningful reduction in churn rates and our non-cigarette sales growth rate are significantly higher than stores that have not participated in this program. More recently this group has focused on assisting their independent retailers in expanding their food service and fresh food offerings. This road map to fresh is included in each marketing plan that we provide to these surveyed stores. We continue to gain more insights and compelling industry information to help our customers better understand the profit potential of these important products. Our focus continues to be on helping our independent retail customers to be more relevant and profitable. Our core solutions group also continues to make important in roads in data collection around market share opportunities at the division level which has helped significantly in capturing those new stores won during the first quarter that I mentioned earlier. These two rules provide actionable intelligence for growing our business and for measuring our activities in the field. With our recent market share wins, we see ample opportunity to penetrate further with these important programs in 2016 and beyond. In summary, I'm very proud of this organization and what we have accomplished in a very business quarter. Our strategies for growth are resonating in the markets within which we compete and customers are committing to us as a result. We have successfully delivered on a commitment, we made to our new customer partners to make their transition to Core-Mark as seamless as possible. We continue to plan and prepare for the 7-Eleven businesses that we will start servicing in the fourth quarter of 2016, while in the near-term we're preparing for the summer business lift, and focusing on productivity as we head into high season. We invested about 2 million in the quarter to handle the large growth in our business and we'll continue to invest in our business to prepare for future growth, given all the new business wins and the countless opportunities ahead of us, I continue to view 2016 as a pivotal year for the company. And with that, I'll hand off the call to our new CFO, Chris Miller. Chris?

[Chris Miller:]

Thank you, Tom and good morning everyone. You probably saw in our press release, we reiterated our guidance for 2016. As Tom mentioned, we'll be updating guidance after the Pine State acquisition closes. The closing subject to regulatory approvals including Hart-Scott-Rodino and if approved represents nearly 1 billion in annual revenues, and is expected to be accretive in the first full year of operations. Before I dive into the results for the first quarter, it is worth mentioning what the impact of the addition of Murphy USA and the other larger market share gains had on our percent of sale metrics. On the call for the fourth quarter, we said we expected overall remaining gross profit margins to decline 45 to 50 basis points in 2016 due primarily to the addition of Murphy. This is due mostly to the sales mix which is over 90% cigarettes and tobacco having a compressing effect due to the high price points of these categories. Although during the quarter, we only saw a decline of about 40 basis points, since Murphy was on board for only part of the quarter, we still expect overall margins to decline to 45 to 50 basis points. Likewise operating expenses as a percentage of sales are expected to decline in the same range. Large change typically require less working capital allowing us in most cases, to offer lower prices to achieve a healthy return on our investments. In addition, these large customers provide extra volume which allows us to leverage our fixed costs. Murphy's product mix turns very quickly, their payment terms are favorable and many of the store locations fit well into our existing infrastructure, enabling us to provide even better pricing. This is not a change in how we go to market but a reflection of the uniqueness of this business both in size and fit. We're still very focused on our core strategies and on growing our non-cigarette categories, particularly fresh. However, tobacco business is still profitable and as long as the returns are there, and we add dollars to the bottom line, we will continue to service this key product for our customers. Now moving on to the first quarter results, total sales increased 22.8% during a first quarter of 2016, or 22% if you normalize for one extra selling day and the impact of foreign exchange. We continue to benefit from market share gains, the expansion of our business and our core strategies. Our same-store cigarette carton sales were down a modest 0.1% which was much better than the industry decline of 1% for the quarter. The addition of the new business shifted our sales mix to 70.2% of cigarettes compared with 67.1% last year for the first quarter. Our non-cigarette sales increased 11.1% during the quarter, led by OTP sales which grew 19% and fresh sales which increased over 16%. The increase in OTP was driven by the addition of Murphy and other market share wins and a continued shift to smokeless moist tobacco products. Our fresh category includes fresh food, meat, dairy and bread. Selling deeper into these categories continues to be a very important strategy for us. During the first quarter, fresh sandwiches, chilled beverages, produce and bread showed the strongest sales growth. In addition we continue to see strong sales of snacks which grew more than 11% for the quarter, exemplifying the trend of the new way to eat for many young adults. Healthy snacks, nuts, seeds and dry fruits as well as health bars led the increases in this category. Gross profit increased 10.1% or 13.8 million in the first quarter. We had $1 million of cigarette inventory holding gains in both years mainly arising from price increases by Canadian manufacturers. We also reported 3.4 million of LIFO spends this quarter compared to 2.4 million in the first quarter of 2015. Remaining gross profit which excludes holding gains, LIFO expense and a 0.9 million OTP refund in 2015 increased 15.7 million or 11.4% for the quarter. Remaining gross profit margin decreased 52 basis points driven primarily by the change in sales mix towards cigarettes and OTP. The addition of Murphy decreased margins by about 40 basis points and as I mentioned earlier, only reflects compression from a partial quarter of sales. Margins were also impacted by some of the other regional market share wins, higher sales of OTP which have lower margins than other non-cigarette categories and cigarette price inflation which compressed margins by about 6 basis points. Cigarette, remaining gross profit increased 7.9 million or 21.7% while cigarette remaining gross profit margins decreased by 12 basis points driven primarily by Murphy and some of the other new business. Non-cigarette remaining gross profit increased 7.8 million or 7.7%. Remaining gross profit margins for non-cigarettes decreased 39 basis points during the quarter. Excluding the impact in Murphy and other market share gains, remaining gross profit margins were essentially flat. The increase in OTP sales for the quarter also had a compressing effect on non-cigarettes margin and we saw a less pricing activity by manufacturers across all categories which lowered margins in this quarter compared to last year’s first quarter. Adjusting for these items, our non-cigarettes remaining gross profit margins increased 22 basis points. All else being equal we expect our remaining gross profit margins to increase 20 to 25 basis points due to our strategies which are focused on our non-cigarettes commodity. Moving onto operating expenses, total expenses increased 14.5 million or 11.4% for the quarter on sales growth of 22.8%. As a percentage of sales, OpEx improved nearly 50 basis points in the first quarter, due primarily to the shift in sales mix. Adjusting for the shift in mix, an incremental start up and expansion cost of 1.6 million, and a $2 million net gain related to our legacy legal settlement, operating expenses as a percent of sales improved approximately 7 basis points, warehouse and delivery expenses increased 12.1 million or 15.2% during the first quarter. As a percent of sales, warehouse and deliver expenses decreased 19 basis points. However adjusting for the shift in sales mix, warehouse and delivery expenses actually increased 8 basis points due primarily to 1.4 million of identifiable start up cost for the new business and incremental labor cost to ensure the successful on-boarding of our new customers. Note that we did not classify all new labor cost as start up even though we did hire in advance of our new customers coming on board. We expect to see additional leverage in Q2 once we see a full quarter of new customer sales, SG&A expenses increased 2.1 million or 4.4%, and includes the net gain of $2 million related to the legal settlement. As a percent of sales, SG&A decreased 29 basis points, again mix was responsible for roughly half of that decline and the legal settlement contributed 7 basis points. For the remainder of 2016, we have another 1.3 million for startup cost for the on-boarding of 7-Eleven later in the year and a little over 4 million related to the Las Vegas move with approximately half of that representing the write off of certain assets. The reinstatement of certain tax credits passed near the end of last year by Congress helped lower our effective tax rate for the first quarter to 38% compared to 39.6% last year. We expect our effective tax rate to be approximately 38.5% for the year. Moving to cash flows, cash generated from operations before working capital changes increased over 12% in the first quarter to 21.2 million. Working capital generated approximately 28 million in cash compared to approximately 63 million for the same period last year. The two primary drivers to the $35 million reduction in cash provided by working capital were, one, the addition of a new business which increased our investments in accounts receivable and inventories, and two, accounts payable which was higher than anticipated because of our payment processing slowed down as a result of implementation of a new financial system during the quarter. We are in the process of returning to more normal payment cycles. Free cash flow at the end of the quarter was approximately 38 million impart related to the working capital previously discussed. We spent nearly 9 million of CapEx in the quarter and 2.2 million in capitalized software and related costs primarily related to the new finance system. Our total target for CapEx is approximately 50 million for the year. Average debt for the quarter was approximately 78 million compared to approximately 30 million in 2015 supporting the on-boarding of new business and the transition to the new financial system as we stabilize cash flows. During the first quarter we spent 3.8 million on cash dividends and 1.8 million for stock repurchases. We also announced our second quarter dividend of $0.16 to be paid on June 15th to shareholders of record on May 25th. We put a great deal of thought into our capital allocation decisions. We believe it's imperative to reinvest back into the business to support the future growth of the company including CapEx and other investments in people and technology. In addition, our acquisition and expansion activities continue to be a key strategy. We also think it's important to return value to investors with our cash dividends and share repurchase program. We continue to focus on long-term value creation while also ensuring to have sufficient capital to fund our operational requirements and other business needs. To summarize the first quarter, we got off to a fast start where we were able to absorb significant increases and volume from the business while still generating a nice profit in the historically slowest quarter of the year. We feel very optimistic about the rest of the year, but there is still work ahead, successful execution especially in our operations is key to growing our earnings. We all believe this is a transformative year for the Company where growth rates will be much higher than our historic past. In the longer term, we view ourselves as a steady and sustainable best-in-class company. And with that, operator you may now open the line for questions.

[Milton Draper:]

Cynthia?

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Ben Bienvenu with Stephens Incorporated. You may begin.

[Ben Bienvenu:]

Thanks, good morning. Congratulations on rolling out the Murphy. First just on Pine State to the extent that you can talk about it prior to closing, can you at least compare/contrast this acquisition relative to some of the prior deals you have done? Obviously it is the largest deal in your history so you are attracted to that market and some of the attributes of the culture you mentioned. When do you expect the deal to close in 2016?

[Thomas Perkins:]

Okay. So we expect the closing to be within 30 to 60 days and we anticipate no issues from any other regulatory approvals, so we're anxiously waiting for that. Pine State Convenience is always very similar to the Core-Mark and it has a very good reputation in the marketplace. They're very customer centric. They have been very innovative in their technology that they use in relation to their customers and they have great a state-of-the-art facility up in Gardner, Maine which really fits into our model. I would say probably they are the best from an operator perspective of any acquisitions we've made. I think Davenport was right up there in the same type of operation, running the same type of operation, but really Pine State and I’d just go back to my experience with them over the past and really just like how they approach the market and really the value they bring to their customers. So we're really excited about them joining the Core-Mark family.

[Ben Bienvenu:]

And then Chris, you made some comments around leverage associated with the Murphy contract. You said that you expect additional leverage in 2Q and beyond. Did you mean relative to 1Q you expect additional leverage or just a continuation of leverage that we started to see in the first quarter?

[Chris Miller:]

No, that's right relative to Q1.

[Thomas Perkins:]

And Ben if you think about it, though we had a partial quarter of revenues and profits from the new business yet we had almost a full quarter of expenses related to it.

[Ben Bienvenu:]

Got it.

[Thomas Perkins:]

And so really that’s really the part of that investment we made in the first quarter.

[Chris Miller:]

Right.

[Ben Bienvenu:]

Okay, great. And then thinking about the Canadian business, I know in the past you have made moves to exit business that you have been in in that geography. Do you think what is occurring right now is just a cyclical issue or would it potentially make sense to move away from some business that you have in that geography?

[Thomas Perkins:]

No, I think it's cyclical, I think that the issue in Alberta specifically is like Fort McMurray which I mentioned earlier they went from a population of 120,000 people to 80,000 people right as the oil production slowed down, our customers are still viable up there but they're just not selling the same amount of products and I think overtime that's going to get back to what it was before, I remember the day is back in 2008 when we couldn't hire anybody in that area because of the oil sand boom, so I think it's cyclical ago, I think we still continue to focus on helping our customers even more so today to drive their in-store profits to our core strategies. And so, and the rest of the business is viable, our Toronto division have seen tremendous growth and with our new business we won up there which was the Shell Canada business that really has helped offset some of those same-store sales declines.

[Ben Bienvenu:]

And then just one last quick housekeeping, how do you think about normalized CapEx in a year where you don't have acquisitions or above average contract wins?

[Thomas Perkins:]

I think what we've seen, as we've seen on average about 30 million, right?

[Chris Miller:]

30 to 35.

[Thomas Perkins:]

30 to 35 and usually about half of that normally is for just regular maintenance where you are replacing forklifts or trailers that are past the age that we want to keep them in operation then the rest of it is usually just focused on expansion activities, where we're expanding coolers or freezers that type of programs but definitely any time we add a new building which we had last two years with Sacramento in 2014 and Las Vegas or 2015 with Sacramento and 2016 with Las Vegas, you will see a bump up into that $50 million range, and also all the new trailers we're bringing on for the new in particular 7-Eleven business at the end of the year.

[Operator:]

And our next question comes from Andrew Wolf with BB&T Capital Markets. You may begin.

[Andrew Wolf:]

Just want to start with kind of housekeeping, on the settlement, the Sonitrol, was that contemplated in the annual guidance?

[Thomas Perkins:]

It was not.

[Andrew Wolf:]

Okay.

[Thomas Perkins:]

It was not included in the guidance, it was not. It was just something that just happened, it's been going on for several years and it just came to fruition finally.

[Andrew Wolf:]

Okay. On the geographic segment, where is that? Is that in corporate income or in the U.S.?

[Thomas Perkins:]

It's in U.S.

[Andrew Wolf:]

Okay.

[Chris Miller:]

It is in corporate.

[Andrew Wolf:]

Okay.

[Thomas Perkins:]

Corporate? It's in corporate, sorry.

[Andrew Wolf:]

Moving on to Pine state, so from what you have seen of -- it sounds like maybe their customer facing technology might be something innovative to Core-Mark. I'm just kind of saying I know you haven't completed a deal so you may not be completely sure of this but through competition and preliminary conversations are what have you, is that something that might be able to be integrated into Core-Mark itself because maybe that's a system that couldn't be improved on the Core-Mark side?

[Thomas Perkins:]

Andrew, every acquisition, I think we go through we learn something from and we take best practices from the company we acquired and sort of mold or meld it into our operations, I think today, we have a really good customer ordering device system we have been rolling out over the last two years, but definitely Pine State has had a significant innovation in that and that definitely is an area that we are excited about looking at and seeing what kind of leverage right, we can use by taking their systems and their technology and rolling out to the rest of the company.

[Andrew Wolf:]

And the other thing on Pine State, just sort of get to Ben's question, I remember when Davenport was done, it was similar but I think the fresh programs were a nice addition to what they did and management was real excited to run with that. How do you look at Pine State's merchandising programs, particularly in fresh, is that an area where you can really bring something to their offerings for their customers?

[Thomas Perkins:]

I would say that they were probably a little ahead of the curve than Davenport was from a fresh offering. I think that with our marketing and category management expertise and our core strategies I think we'll be able to take them up to the next level, in particular, rolling out our focused marketing initiative surveys which they don't have and I think that is just going to help them grow their non-cigarette products even quicker.

[Andrew Wolf:]

And one more if I could. I think yesterday 7-Eleven announced they bought 76 stores from CST in California. Is that within the trade area where you are servicing 7-Eleven come the fall?

[Thomas Perkins:]

Yes.

[Andrew Wolf:]

And is that something that automatically contractually falls into your business or does whoever the current incumbent is assuming it is not you I believe?

[Thomas Perkins:]

That’s a good question. I believe that those stores will fall into the Northern region that we’re taking over in the fall of 2016. Currently CST, they are our customers and so I don’t know if 7-Eleven will just say I’m just going to keep those with Core-Mark right now and the once the new contract starts up them they just roll them to the new contract with 7-Eleven . That’s yet to be determined.

[Andrew Wolf:]

Okay. So you are already servicing those stores so it is not really a net gain, it is just a switch over?

[Thomas Perkins:]

Yes, that’s correct.

[Andrew Wolf:]

All right.

[Thomas Perkins:]

We like it the other way.

[Operator:]

And our next question comes from Mark Wiltamuth with Jefferies. You may begin.

[Mark Wiltamuth:]

On North USA, congrats on the on-boarding there, I know you had mentioned that the operating expense leverage would eventually offset the gross margin sacrifice you have taken to take that business on. What quarter do think you will achieve that balance where you are kind of two operating margin neutral status?

[Thomas Perkins:]

I think the second quarter, I think our anticipation is the second quarter but definitely by the third quarter, we’ll see that but definitely as we have this product rolled out we’re getting acclimated to the deliveries and servicing those stores and so really second quarter and probably totally be done by the third quarter of this year.

[Mark Wiltamuth:]

Okay. And on the Pine State deal, is some of that 3 million already contemplated here in the first quarter because of the due diligences you are doing to prepare for the deal or is that all from the time you sign the contract?

[Thomas Perkins:]

A portion of it, probably a third of it maybe.

[Chris Miller:]

Prior to signing.

[Thomas Perkins:]

Prior to signing yes, so a third of it has been spent already and then the rest will be up until we close the deal.

[Mark Wiltamuth:]

And is the margin structure on that business similar to the rest of your business or is there anything unique about that versus other acquisitions you have done before?

[Thomas Perkins:]

I think it’s similar, I don’t want to get into too much specifics about it but I think it’s similar I think the mix and everything sort of lays it out that way.

[Mark Wiltamuth:]

Okay. And how big is your fresh business in total? You have had a good 16% gain here this quarter. How big is the number in total now?

[Thomas Perkins:]

So our -- today, I think or through the end of last year and I don’t know what it was in previous -- for the quarter but our fresh sales were I think our fresh categories have grown over, are almost 9% of our non-cigarettes sale, I have to check that for you Mark but we started when I looked at the graph and I started like 7 years ago we were like maybe 0.5 percentage point and over the 7 years we’ve grown it up to about 9% of our overall non-cigarette sales which is pretty impressive.

[Mark Wiltamuth:]

And lastly, if we could just go through the margin compression on the non-cigarettes again, if you could just walk through that again and also if you can give us the overall non-cig comp again that would be helpful?

[Thomas Perkins:]

So the definitely compressing events that occurred in the first quarter is the 19% increase in OTP.

[Chris Miller:]

Yes.

[Thomas Perkins:]

Which really comes from the increase in our market share wins with Murphy and the other accounts. So that’s really a giant growth in that which is definitely OTP categories are at a much lower margin than average non-cigarette. So that drove a big piece of it.

[Chris Miller:]

Yes, and as I mentioned the pricing activity which tends to lead to floor gains that we recognized was definitely less than we’ve seen, less than last year and less than we’ve seen historically. So that contributed a bit to it. So it’s mainly those three things, the OTP, the floor gains and then Murphy and the new business.

[Mark Wiltamuth:]

Okay. And then the overall the non-CIG comp I caught the U.S. and the Canadian component but what was the overall number there?

[Thomas Perkins:]

You mean the same-store sales growth?

[Mark Wiltamuth:]

Yes.

[Thomas Perkins:]

Yes, it was 3% and the U.S. was 4.3% and Canada was down 8.3% I believe.

[Operator:]

And our next question comes from Chris McGinnis with Sidoti & Company. You may begin.

[Chris McGinnis:]

Just quickly I guess thinking about prepping for 7-Eleven, can you maybe just talk about what you are doing to make sure that the rollout is just as strong on the Murphy side?

[Thomas Perkins:]

Sure, yes so 7-Eleven is, it is really a unique customer and there is a lot of IT interface between 7-Eleven and Core-Mark so we've been working diligently on that for the last six months. We have in the past probably past three or four weeks, we've been running test orders and actually delivering product to their stores to ensure all those interfaces are working correctly and happy to report they are. We are having -- we are changing the divisions that are not six to eight week operations, to six to eight week operations in the next month, so we will be prepared for that. We have weekly calls among our -- internal calls among our Core-Mark personnel as we prepare we put staffing plans in place. We have hiring calendars when people have to be brought on board and hired and trained and then the other big piece of this is we're in process of constructing the new building in Las Vegas. So we anticipate that building to be operations in the June and fully operational by July which would be two to three months prior to 7-Eleven. So -- and then of course buying the numerous trailers we need for the business, we have already -- those are being built as we speak and will be ready. So we have taken really the playbook that we used when we bought on Murphy, we've taken that and have been following that as we're with 7-Eleven. Definitely, the complexity of the IT has caused us to really start much earlier in the process, but we're excited everything is going well. 7-Eleven is pleased by the performance we have conference call with the 7-Eleven team as we did with the Murphy team and we think that's really critical to a successful on-boarding.

[Chris McGinnis:]

And then just two quick ones, one just on I guess consolidation within the industry and your position still very small share but at what point I guess do you feel comfortable with your network or maybe do you run into some FTC regulations since you are the largest in the industry now?

[Thomas Perkins:]

I think that we really -- we still, I mean we do have a small market share and so even with acquisitions we haven't captured the market where someone would say, hey man they own the market, so that hasn't occurred. I think that consolidation is going to continue to happen slowly I think and really there is a tipping point. Decisions are made by different companies as to when is the right time to sell and it varies by company but I think there are more opportunities out there and I think that we don’t have -- I don’t think any customer or any wholesaler has a large enough market share combined with ours that there would be issues from a FTC perspective.

[Chris McGinnis:]

And I guess just how you think about that a little bit just on Pine State, was that more you being a little bit more proactive for the geography or I know sometimes that these are long kind of drawn out acquisitions. Maybe just a little bit about the timeframe of how it all worked out?

[Thomas Perkins:]

Yes I think that we -- Scott McPherson developed a relationship with the Pine State folks over the years. I think that when they made an internal decision that maybe now is the right time maybe they want us to sort of sell their Convenience part of their business that Scott was there with them. And I think we were in my decisions with the folks at Pine State that we were -- they saw us as the best partner and the way we go to market when we buy and when we acquire a company, it's a standalone division, all the employees are hired, the customers are kept and it really just continues to run as it is except now under the Core-Mark family. So I think that was -- I think that helped in their decision making process on negotiating a deal with Core-Mark.

[Chris McGinnis:]

One last one just maybe can you just comment on the competitive environment since winning all of the contracts and if there has been any notable change?

[Thomas Perkins:]

We've seen some pockets of regional aggressive, more aggressive than normal competition, but really nothing yet that really would say while there is a war going on or if there is someone trying to go after our business, so we haven't seen that on that state, that's not -- but so far it hasn’t been as loud. And the other thing too is I think we've done a really good job with our customers on renewing our contracts prior to the Murphy announcement, so I think that sort of helps us from that perspective.

[Operator:]

And our next question comes from Ben Brownlow with Raymond James. You may begin.

[Ben Brownlow:]

On the same-store carton trends down 0.1%, any insight into what is continuing to lead to that outperformance?

[Thomas Perkins:]

You mean on the cartons the same-store carton sales?

[Ben Brownlow:]

Relative to the industry?

[Thomas Perkins:]

Yes, I got to believe that it is still, the economy is still strong. I think that if you talk to the folks at the tobacco companies, I think people are still willing to spend any extra money they have from tax savings or from the gasoline price savings, that they are willing to buy cigarettes, maybe they are not using the e-cigarettes as much, and so they are using it there. And they are also trading up and buying the premium cigarettes versus the generic cigarettes. So I think, we're still seeing those two or three trends, macro trends, economic trends that are driving that but I also think that we've worked really hard with our customers and we have -- we serve some best in class large chain retailers but I think that they attract more customers into their stores. And I'd like to say that some of our core strategies the focused marketing initiative and vendor consolidation in fresh is helping our customers increase their foot traffic. I don't have any empirical evidence but gut feels tells me that's happening.

[Ben Brownlow:]

That is helpful. I know you have been, Tom like you have been hesitant in the past or it is difficult to quantify as you see selective states increase the purchasing age on cigarettes. But can you just help us frame what that potential impact is, when California when that legislation goes into effect? And maybe kind of in reference to maybe Hawaii, what you saw in Hawaii when that increase went into effect. Have you seen an uptick in accounts or customer acceptance more towards VCI staying ahead of that carton decline? Just help us frame that.

[Thomas Perkins:]

Yes we don't do a lot of business in Hawaii, so I don't have good data from Hawaii. I think that definitely in California, it's way too early to tell, I think in discussions and some observations from the tobacco companies, I think, a couple of things that they expect is one, is that the current smoking trends may not be impacted to a great extent. So, people that are smoking today are probably going to continue to smoke and if you are 18, you're probably going to continue to smoke, you just have to find a different way to get your cigarettes, I think what the real goal and the purpose of it is to really get the younger smokers, to not start smoking and I think that's going to be more of a long-term effect on the overall cigarette consumption. Maybe at the end of the third quarter call, we'll have a little bit better indication from what the law is going to do that will be sort of three months in from the June 9th start date, but it's really too early to tell and I don't think really anyone has an idea because again, if you think about it, all the cigarette companies have been focused on adult smokers at the time, adult was considered 18 but that's always been their focus and so, I think we'll just have to wait and see, what the end is going to be.

[Operator:]

And our next question comes from Chris McGinnis with Sidoti & Company. You may begin.

[Chris McGinnis:]

Sorry, just one quick question, I think there was maybe like a CEO change at 7-Eleven. Does that have any bearing on you at all or could that be an issue at all going forward?

[Thomas Perkins:]

You are talking about the parent company in Japan?

[Chris McGinnis:]

Yes.

[Thomas Perkins:]

Yes. No, I don't think so, I haven't heard any rumblings, I haven't seen any changes within the U.S. at least the structure that Joe DePinto is still in charge of the U.S. operations, haven't seen, don't know.

[Operator:]

And we have no further questions at this time. I'll now turn the call over to Milton Draper for closing remarks.

[Milton Draper:]

Thank you, for your participation in our conference call and for your interest in Core-Mark. We've got off to an exciting start in 2016. This year is expected to be a tremendous year for growth, and we'll be focused on productivity improvements as we move into the high season and continue to focus on excellent customer service. If you have additional questions, please feel free to give me a call at 650-589-9445. Thanks, bye.

[Operator:]

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.