Core-Mark Holding Company, Inc.
Q2 2014 Earnings Call Transcript

Published: 7 Aug 2014

[Operator:]

Welcome to the 2014 Second Quarter Investor Call. My name is Jeanette, and I will be your operator for today's call. [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 Gray Draper:]

Thank you, Jeanette, 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 second quarter results and to answer any questions you might have. If you have additional follow-up questions after the call, please call me, Milton Draper, at [phone]. Joining me today is the Chief Executive Officer of Core-Mark, Thomas Perkins; and the Chief Financial Officer, Stacy Loretz-Congdon. Also in the room is Chris Miller, our Chief Accounting Officer; and Greg Antholzner, our Vice President of Finance and Treasurer. Our lineup for the call today is as follows. Tom will discuss the state of our business and our strategy going forward, followed by Stacy, who will review the financial results for the second quarter. We will then open up the call for your questions. Now I would like to turn the call over to our CEO, Tom Perkins.

[Thomas B. Perkins:]

Good morning, everyone. I would like to begin with a discussion on our partnership Rite Aid in our newest division in Ohio and then touch on our second quarter results and finish up by updating you on our core strategies. As many of you know, we have signed a 3-year contract with Rite Aid and have been delivering to about 800 stores since the spring. The successful rollout of this large customer will mark another milestone for this organization. We are scheduled to start delivering additional Rite Aid stores from many of our divisions, including our new Ohio division. If all goes as planned, we will be expanding the number of stores we service significantly by the end of 2014. Currently, we are delivering frozen, fresh and refrigerated products. These include such items as home meal replacement, deli meats, cheeses, yogurt spreads and perishable beverages. In addition, we are delivering an extensive list of bakery items. As you might imagine, this rollout is progressing and moving forward on an almost daily basis. This win provides a significant growth opportunity for us long-term. However, our immediate focus is on executing a successful implementation with these initial categories. I am sure most of you saw our press release, announcing our strategic geographic expansion into the Midwest. Our new division will be located in Glenwillow, Ohio. We plan to open this division in October. We will begin servicing approximately 1,000 new stores and transferring about 1,000 existing customers to this distribution center when we can service them more efficiently and economically. We estimate all of these new and existing customers will be serviced by our Ohio division by the end of the first quarter in 2015. With the transfer of the existing customers, we estimate the transportation synergies will save about $2 million per year in transportation costs. This new division places us closer to our current and new customers and enhances our opportunity to execute and expand our core strategies in this region. We do expect startup costs for our new Ohio division of approximately $1.5 million and plan to invest approximately $16 million of capital. In addition, there is a great amount of market share opportunities in this region. There are over 5,000 traditional Convenience Stores in Ohio and nearly 8,000 more in the neighboring states of Michigan and Indiana. These 3 states represent about 9% of all C-Stores in the U.S., so we definitely plan to win our fair share of new accounts in this region over time. We expect our fixed cost will be further leveraged as we expand our market share in this region. Finally, we look forward to adding about 150 employees to the Core-Mark family as we get this division up and running. This is a very exciting and busy time for this organization. As for the current financial performance, we continue to focus on growing the higher-margin non-cigarette categories, which grew nearly 6% in the second quarter. Same-store growth for these categories grew 3.2%. These are less robust growth rates than we have experienced in previous quarters, reflecting the somewhat softer sales in the traditional center-of-the-store categories. However, we continue to experience strong performance in our core strategies that allow us to have solid results in a soft market. For example, we saw a 23.5% improvement in our Fresh categories, which include fresh, dairy, meat and bread in the quarter. This reassures me that our approach to the marketplace and to our customers is the right approach. Remaining gross profit margins for the non-cigarette categories increased 18 basis points, or 31 basis points excluding the compressing effect of the 2 large customers we won last year. This improvement reflects the growth of the higher-margin commodities our core strategies are focused on. This level of improvement, driven by these higher-margin items, has been pretty consistent over time, and we are pleased with that performance. Total operating expenses increased $6.4 million, or 5.5%, primarily driven by the $5.3 million increase in warehouse and delivery expenses. As we mentioned on recent investor calls, our strategy, which focuses on higher-margin non-cigarette categories, has, in fact, moved some of our operating metrics. We saw a 6% increase in cubic feet shipped, a 5.4% increase in deliveries, a 4.5% increase in miles driven and a 1.4% increase in cost per cube. That being said, our biggest operational challenge continues to be delivery. We are driving more miles. We're delivering more cubes and with the amount of chilled and frozen product increasing, we are increasing the amount of delivery time in each store, all resulting in more routes and higher cost. In addition, during the second quarter, we had to overcome the tightening of the driver pool in certain geographies. We have plans to address our delivery costs, including reallocating customers among divisions, as with our new Ohio division, and increasing the number of CNG tractors on the road, just to name a couple of the plans. We also know the demand for drivers is going to continue to grow, so we have and we'll continue to put in place short- and long-term plans to address the tightening of the driver labor pool. In the end, the most important metric to us is improved profits. I'm pleased to see our EBITDA grow over 5%, especially when I consider the difference in the cigarette holding gain in each quarter. Excluding the holding gains, our EBITDA grew 8%. This reflects what I see as free healthy fundamentals and contributes to my confidence of achieving our EBITDA guidance. I am pleased with how this organization is responding to the market and to our customers. Now an update on our progress in our core strategies. The VCI and Fresh initiatives are seeing good growth. The incremental VCI and Fresh sales generated $32 million in the quarter and over $70 million year-to-date. In fact, over 70% of the non-cigarette sales growth in the quarter was generated from Fresh and Vendor Consolidation incremental sales. VCI and Fresh are on pace to exceed our goal of $100 million per year. For the last several years, we have been discussing our customer's need to have more attractive offerings and more inviting stores to broaden the range of consumers and improve foot traffic. In order to accomplish this, we, as well as the industry, have been focused on Fresh foods, with the emphasis on natural products and foods perceived as good for you. It is our intention to be the market leader in developing the innovative programs that can help our customers participate in these important trends. To this end, we have recently developed a very robust Fresh produce program with Del Monte called Farm to Market. This program offers the standard fruits year around and local premium fruits seasonally. The seasonal fruits includes berries, mangoes, pears, watermelons and the like. These are very high-quality fruits, and we are helping our customers maximize their appeal to the consumer. In addition, we have developed a super-premium offering of functional drinks. This includes such items as fermented and probiotic drinks. These are just a couple of examples of how we develop programs to provide our customers solutions to take advantage of the developing food trends. Our Core Solutions Group also continues to make good progress. This group uses innovation to harvest data to help the independent retailer be more important to the consumer. We have generated more than 1,600 FMI surveys year-to-date and are on pace to exceed 3,000 for the year, the acceptance rate from this customer base now exceeds 60% and their growth rate for non-cigarette purchases is almost 4x that of the non-surveyed stores. We believe these programs are positively impacting our same-store non-cigarette sales numbers. In addition, we continue to leverage this important core strategy to win new accounts. The ability to show and impart the value we bring to our customers is a powerful sales tool. We also continue to pursue our acquisition strategy, and we are actively engaged with a number of potential targets. Given the fragmented nature of this industry, we believe acquisitions will be a part of our strategy for some time to come. Some will increase our geographical infrastructure and some will provide more business for existing divisions. In conclusion, I would like to remind you all of the healthy condition of the C-Store industry, which is as -- has over 150,000 stores in the U.S. and another 25,000 in Canada. With approximately 4% share of what is sold in those stores, we have a compelling opportunity for continued growth, not to mention opportunities in alternative channels. The soft sales in the traditional center-of-the-store categories is a bit of a concern and, hence, why we are now guiding to the lower end of our sales guidance. However, overall, I am pleased with this organization's financial performance in the second quarter and I am optimistic about our future. We are very excited about our partnership with Rite Aid in our new Ohio division. We plan to service new and existing stores in this region with the utmost care and are very pleased to have a stronger presence in this important part of the country. We are finally seeing signs of inflation with the recently announced price increase from many of the candy manufacturers. We hope this is indicative of inflation to come in other commodities, not just candy. As we have discussed in the past, inflation is good for our business and is offsetting the inflation we have seen in our operational expenses over the last 3 years. This candy price increase was the primary driver to our increased EBITDA guidance. This was partially offset by startup cost we will see -- we will spend to open our new division and to service our new customer. I leave the update to EPS guidance in Stacy's capable hands. In closing, I remain very optimistic about the strength of our organization. We have enormous opportunities ahead of us. I am pleased with the first half of the year and believe we will reach our guidance for the year. With that, I will now turn things over to our CFO, Stacy Loretz-Congdon, who will review our financial results in greater detail. Stacy?

[Stacy Loretz-Congdon:]

Thanks, Tom, and good morning, everyone. I'd like to begin with a brief discussion on EPS and guidance before moving into the numbers for the quarter. Diluted earnings per share were $0.52 compared to $0.51 last year. Excluding LIFO expense, this translates to $0.63 for the second quarter compared to $0.61 last year, including cigarette holding gains that were approximately $0.01 less than the prior year. We are now expecting EPS, excluding LIFO expense, of $2.12 to $2.20 for the year compared to our split-adjusted prior guidance of $2.07 to $2.15, a $0.05 increase. Including LIFO expense, adjusted guidance is now $1.73 to $1.81 for the year compared to split-adjusted prior guidance of $1.75 to $1.82. Excluding LIFO expense, the $0.05 increase consists of approximately $4 million to $5 billion in candy holding gains, partially offset by about $2 million in startup costs for our new division and new customer integration cost. In addition, we have increased depreciation and amortization estimates between $0.6 million and $0.8 million related to our expansion activities and market share gains. The net impact of these items is an increase to pretax profit of approximately $1.4 million on the low end or approximately $2.2 million on the high end. Share count was also adjusted to reflect current forecasts, which added about $0.01, and all items have been adjusted for rounding. We did increase LIFO expense from $13 million to $15 million, and we'll continue to monitor the Producer Price Index for further increases. At $15 million, this equates to a little over $0.39 per share, which you can subtract from FIFO EPS to arrive at LIFO EPS. Other key assumptions include 23.3 million diluted shares outstanding, about $7 million of cigarette inventory holding gains and a 39% tax rate. We are also decreasing our free cash flow forecast from the previous $55 million to $60 million to $35 million to $40 million for the year, or on a per share basis, free cash flow is now expected to be between $1.50 to $1.70 compared to $2.35 to $2.55 previously. This mainly reflects the increase in capital spending, which we raised from $30 million to $50 million for the year. This $20 million increase includes approximately $16 million of CapEx related to our new distribution center, $2 million for expansion projects related primarily to new customers and the remainder driven by an investment in state-of-the-art smart ordering technology for our customers. With that, I'd like to move to our second quarter results. Sales increased 4.5% in Q2 from $2.5 billion last year to over $2.6 billion this year. Sales, excluding the impact of foreign exchange, increased 5.3%. The weakness in the Canadian dollar reduced Canada's contribution to sales by about $21 million for the quarter. As Tom mentioned, we did see some softness in traditional category sales. This seems to be consistent with the slowing consumer traffic our customers are reporting. Cigarette sales increased 4% to $1.77 billion and cartons sold were essentially flat. Price per carton increased 3.9%, driven primarily by manufacturer price increases. And our same-store carton sales declined 3.4%, which was less than the industry, which reported volume declines of about 4.4%. We are generally pleased with the 5.6% increase in our non-cigarette categories, resulting in sales of $852.4 million this year compared to $807 million last year. Of the $45.4 million increase in sales, approximately 65% was driven by an increase in food sales. We saw particular strength in our bread healthy snacks, fast food and Fresh categories during the quarter, whereas the weakness retailers saw in the center of the store impacted our traditional categories, mainly candy and groceries. It's very reassuring to us that even in a slightly soft sales environment, our core strategies and the commodities associated with them continue to grow. Gross profit increased $6.3 million to $143.3 million, an increase of 4.6% for the second quarter of 2014. Remaining gross profit, which excludes LIFO expense and cigarette holding gains, increased $7.5 million, or 5.5%, to $144.3 million. Cigarette holding gains were $3.3 million this quarter compared to $3.9 million last year. This is slightly less due to the timing of the price increase, which occurred a little earlier than we expected this year, giving us less time to build inventory levels. Total remaining gross profit margins were up 5 basis points, or 14 basis points if you exclude the compressing effect of the 2 large customers added last year. This increase in margins was driven by the food/non-food category. Cigarette remaining gross profit increased $0.6 million, or 1.5%. On a per carton basis, cigarette remaining gross profit increased 1.7%, or 2.5% excluding the compressing effect of the 2 large customers. This increase was driven primarily by incremental cash discounts earned on the 2 cigarette price increases since last year and increased sales in certain geographies that allowed us to qualify for higher incentives for that region. Non-cigarette remaining gross profit increased $7 million, or 7.2%, for Q2 2014. Remaining gross profit margins were 12.2% compared to 12% during the same period last year. This is an 18 basis point improvement and includes a 13 basis point reduction related to the addition of the 2 major customers. We finally started seeing a little inflation in the nontobacco categories, primarily the food categories, during the quarter, with second quarter nontobacco floor gains increasing nearly $600,000 compared to last year's second quarter and almost double what we saw in the first quarter of this year. This was offset, in part, by lower floor gains in our other tobacco product categories this quarter versus last year and versus Q1 '14. As we've previously discussed, the manufacturers have been absorbing the inflation associated with their material input costs for some time. However, we are starting to see some prices increase, primarily in the food categories. And candy manufacturers finally announced the price increase that will benefit us in Q3. We are hopeful to see other manufacturers follow soon. Moving on to operating expenses. We saw a 5.5% or $6.4 million increase to $122.8 million in the second quarter this year compared to $116.4 million for the same period last year. We shipped 6.2% more cubic feet of food/non-food product during Q2, driving labor and other related costs up. Warehouse and delivery expenses increased $5.3 million, or approximately 7.3%, to $78.1 million during the second quarter. We were pleased to see that warehouse costs did see some leverage, increasing less than 4%. However, this was offset by delivery costs that were up 10%. As a percentage of sales, warehouse and delivery increased approximately 8 basis points. Approximately 5 basis points stems from the shift in sales to non-cigarettes, which have a lower price point than cigarettes, driving operating expense as a percentage of sales higher. In addition, transportation costs included approximately $1 million, or about 4 basis points, related to a tightening of the driver labor pool in a number of geographic areas. To address this shortage, we sent drivers from other regions into these areas, utilized outside freight, incurred overtime and temp help to ensure deliveries to our customers were continuing uninterrupted. We anticipate incremental costs related to the driver pool shortage will continue, though at a somewhat lower rate through the balance of the summer month. On a more positive note, SG&A increased only 2.6% to $44 million for Q2 '14 and as a percentage of sales, decreased 3 basis points despite the upward pressure from the shift in sales mix. Moving further down the income statement. Our effective tax rate for the quarter was 39.5% versus 40.9% for the second quarter last year. We are still hopeful for the reinstatement of several tax credits that expired at the end of last year, but I guess we'll have to wait until after the elections to see. Moving to cash flows. Cash generated from operations was $67 million for the first half of 2014 compared to $35.8 million last year. This large difference was driven by a couple of principal things. We had very high inventories at the end of 2013 that were approximately $20 million higher than the same period last year. In addition, our cigarette inventory was approximately $80 million lower at the end of second quarter this year than last. This was driven by the price increase coming earlier in 2014, which allows us to flush out most of the excess inventory by the end of the quarter. Remember, cash flows measure 2 single points in time. So period end inventory levels can have a significant impact on the moving parts. We measure working capital daily, and on average, our cash conversion cycle was approximately 13.8 days year-to-date compared to 14.3 days during the first half of last year. Free cash flow, which we measure as adjusted EBITDA, plus or minus changes in working capital, less CapEx, cash taxes and cash interest, was approximately $52.1 million for the first half of 2014. As previously discussed, with $50 million of CapEx investments we expect to make this year, free cash flow is now expected to be between $35 million and $40 million, depending, of course, on any unusual year-end activities, which I generally call out during our year-end call. Our capital allocation decisions continue to support our core strategies and focus on ensuring we have sufficient capital to fund acquisitions, CapEx, including expansion activities, opportunistic inventory buys, dividends and share repurchases. Unfortunately, we were not able to repurchase many shares during the second quarter because we had a very brief open period. However, our recent market win with Rite Aid as well as our very exciting entry into the upper Midwest region provides us great opportunity for continued growth and operational cost leverage. We expect the return on investment for our new distribution center in Ohio to approach our standard target of 20%. We paid $2.6 million in dividends during the second quarter, and you may have seen our recent announcement for our third quarter dividend for stockholders of record on August 22. It is our intention over the long term to address -- to continue to increase our dividends paid to stockholders to the extent we continue to generate sufficient free cash flow without sacrificing foreseeable acquisition or investment opportunities to grow the business in the future. To summarize, the second quarter was solid given the softness in sales experienced by many retailers. We believe the success of our core strategies is driving our same-store sales growth and helping us gain market share. We continue to generate steady growth and meaningful free cash flow, allowing us to execute our capital allocation strategies. And we look forward to the remainder of 2014 with optimism. And with that, I'd like to thank all of our employees, our vendors, our customers and you, our shareholders, for your continued support. Operator, you can now open the line for questions.

[Operator:]

[Operator Instructions] And we have a question from Andrew Wolf of BB&T Capital Markets.

[Andrew P. Wolf:]

Can you talk about the traffic at the C-Stores? And it's funny, because it's not weather, I don't think. And C-Stores are not a place that's affected by an increase in Internet-based shopping. So are they seeing less traffic in the stores related to travel or anything like that? Or is it really just a part of the store, the center of the store, seeing all the weakness?

[Thomas B. Perkins:]

I think...

[Andrew P. Wolf:]

The customer counts are where they would expect them is just sales are down because people aren't buying the center?

[Thomas B. Perkins:]

I think, it still goes back to the economic recovery because I still think that there are still a lot of people that at the lower spectrum of the economic ladder that are still struggling, which, of course, we know are our Convenience Store customers. So I think

[Andrew P. Wolf:]

And just to switch to some of the expense items. It doesn't -- could you just update us on the -- I mean, you've talked about it, but maybe go into more depth on the driver -- truck driver situation? I mean, are you experiencing actual shortages? I know historically up in parts of Canada you have had and, I guess, with the U.S. doing a lot more frac-ing, some of these people who could have been driving trucks making more money doing something else in the energy business. Just how widespread it is? Is it a true shortage? Or is it just sort of something -- the wage rates are going up? I know that truckers are -- independent truckers are charging more.

[Thomas B. Perkins:]

Yes. No, it's actually -- and I think from all the reports that I've seen, it's they're estimating a -- the demand for drivers far exceed what the supply is, and it's going to continue to be that going forward into the future. I think what we see is, you're right, there are certain geographies that we have issues with because of the economic conditions going on, for instance, in Texas, where you have the frac-ing in the oilfields going nuts and maybe up in the Midwest, where we're seeing a lot of people travel up there where they can make a lot of money in a short period of time. But we also are seeing tightening in other areas, not just in those areas. And again, I think with -- as the economy increases, you have more trucks on the road, you have more demand to get product to different industries. And so that in of itself is causing the strain on the labor pool. And I don't envision that really going away. And we, as a company, have to control our own destiny. And that's why we're putting in place short and long-term plans to address that.

[Andrew P. Wolf:]

Okay. And just lastly, in relation to the $2 million in transportation savings from Ohio, is that -- that's mainly in 2015. That's really not baked into the guidance here, right?

[Thomas B. Perkins:]

Yes. That's correct. Andy, really, what -- and if you think about it, so we service those areas today in those states. But we're coming -- we will set up depots close to those areas and we'll have stem miles to get the product up to those areas and we have resident drivers. But with this new center, we won't have those stem miles, right? So we're a lot closer to those customers and we've reduced the amount of miles that we drive to service those customers. So -- and it's similar to what -- as we acquired, let's say, the J.T. Davenport in Carolina, the same thing, where we can reallocate customers out of one division and moving them into the Carolina division, which are closer to customers and reduces the miles that we travel.

[Operator:]

And our next question comes from Chris McGinnis of Sidoti & Company.

[Christopher McGinnis:]

Could you maybe just talk a little bit about, I guess, the cadence for the remainder of the year on Rite Aid? And how many stores do you think -- or maybe a percentage of how many stores, I think, you'll service by the end of the year?

[Thomas B. Perkins:]

I believe that we probably will end up servicing close to 90% of their stores by the end of the year. And again, they'll be rolling out at different parts of the year. And that's sort of the plans right now. But again, as we know, plans always change. But that's the intent right now.

[Christopher McGinnis:]

And is that going to affect or impact the back half of the year for the call structure? Will that change at all significantly, to support that?

[Thomas B. Perkins:]

It will with onetime costs, right? Because as we add customers into -- and as we've talked about in the past, when we add a large account win to any division or to our company, we normally have start-up costs associated with those, which includes the hiring and training of new employees, the additional equipment we need to service the customers, et cetera. So we'll see that in -- definitely in 2014 and then -- but those costs go away in 2015.

[Christopher McGinnis:]

Great. Could you give maybe a level of revenue, do you think, coming from that?

[Thomas B. Perkins:]

No, I can't. But let me -- so here's -- again, this is a new partnership for us and for Rite Aid. And it's a -- Rite Aid -- everything you read about Rite Aid is they're making their stores into wellness centers, right? And as doing that, they want to be able to offer good-for-you products, right? And so this is in its infancy. And I think I like to look at it as we're going to crawl and then we're going to walk and then we're going to run. And it's a long-term partnership, a long-term strategy. So I envision the drops as we go forward will get larger and larger.

[Christopher McGinnis:]

All right. Great. And is there opportunity to increase from the products that you have now? And then a second question, sorry, but, could you just maybe talk about in the trials maybe the experience you saw from a store ramp and how positive that was, obviously, if they signed a 3-year contract?

[Thomas B. Perkins:]

They -- a couple of things is

[Operator:]

And our next question comes from John Lawrence of Stephens.

[John R. Lawrence:]

Would you comment just a little bit on the prior question about as you move 90% -- I assume it's sort of -- it looks like it's coming from the West Coast eastward. What would any other sections of the country need more of this capacity as you move? Or you're pretty well set capacity wise?

[Thomas B. Perkins:]

I think we're pretty well set capacity wise. The -- definitely, the opportunity with the Ohio division in and of itself was a great opportunity. But with incremental new stores, it just made it the right decision to make for the area. The other thing too is we know is that area has a great amount of Convenience Stores. And so, we know when we're closer to the stores, we can definitely execute and leverage our core strategies at a much faster pace. So -- but that really is the only one. The other one is just normal infrastructure with -- either maybe we expand a cooler or we add tractors and trailers to service the stores.

[John R. Lawrence:]

So trying to get there in a different way. I mean, if you get 90% penetration by the end of the year, then it'll be a rollout process again through '15 to get these increased drops across the country?

[Thomas B. Perkins:]

Yes, I think that's what it is. I think we are focused, as well as with -- I think, with Rite Aid is to execute the initial categories. Let's get their store managers comfortable with the process. And then as we move forward, we're going to be working with them to focus on other categories we could add to that delivery, because that's the whole idea. They're a great believer in vendor consolidation, right? And so that's -- we got our truck in the parking lot. Let's load it up with more stuff that we can deliver to their stores.

[John R. Lawrence:]

Yes. And then last question is, update on the CNG process or the engines coming through to move that forward?

[Thomas B. Perkins:]

Yes, we have, I think, approximately 90 tractors on the road, I believe. We'll have 200 by the end of the year. We have 3 stations. We have 2 that we own and another 1 we partnered with a company called Gain [ph], who built the station and we're the anchor tenant. We have 3 other stations in certain -- in process at certain steps in that process. So the intent still by the end of 2014, we'll have over 200 tractors on the road with about 6 to 7 stations that we're buying, whether we own or we're anchor tenants with this company called Gain [ph]. One of the things -- and we as well as other people who are utilizing the CNG tractors, one, is definitely the engines are more expensive, because the demand hasn't been as fast as we wanted. And we're still working on getting the miles per gallon up to the level we had anticipated. But there still definitely is a overall reduction in fuel costs with driving CNG, and so it's the right thing to do. And I think we'll see those savings this year as well as going into 2015.

[Operator:]

[Operator Instructions] And you have a question from Chris McGinnis of Sidoti & Company.

[Christopher McGinnis:]

Just a quick follow-up. Can you maybe talk about the -- you may have said it, maybe I missed it, maybe the e-cigarette trends?

[Thomas B. Perkins:]

Yes, it's interesting. We have seen a leveling off of the demand on e-cigs versus last year. But we did get a -- an uplift as Altria entered with their Mark 10 e-cigs. So they definitely had a -- as a -- delivered -- we delivered their product to the stores. And we'll probably get another uplift when Reynolds rolls out their VUSE e-cigarettes to a larger part of the country. But it's still -- it still -- there is a definitely a lull in the e-cigarette growth right now.

[Operator:]

And I'm showing no further questions at this time. I will now turn the call back over to Ms. Draper for closing remarks.

[Milton Gray Draper:]

Thank you for your participation in our conference call and for your interest in Core-Mark. We had a solid quarter and are pleased with the results. Our long-term growth prospects continue to look favorable and our core strategies continued to provide us a competitive advantage. If you have any follow-up questions after the call, please feel free to give me a call, Milton Draper, at [phone]. Thanks.

[Operator:]

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