Parkland Fuel Corporation Reports Solid First Quarter 2012 Results

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   - Parkland Combats Unusually Warm Conditions to Deliver Positive Results -
RED DEER, AB, May 8, 2012 /CNW/ - Parkland Fuel Corporation ("Parkland" or the "Corporation") (TSX: PKI), Canada's largest independent distributor and marketer of fuels and lubricants, today announced the financial and operating results for the three months ended March 31, 2012. All financial figures are stated in Canadian dollars.
     
Financial Highlights:
For the three months ended
March 31,
 
2012 2011 % Change
       
(in millions of litres)      
Total fuel volume 1,085 1,044 4
Retail fuel volume 415 341 22
Commercial fuel volume 462 529 (13)
Wholesale fuel volume (incl. intersegment) 208 174 17
       
(in millions of Canadian dollars)      
Net earnings 17.5 16.3 7
       
EBITDA (1) 43.1 46.6 (8)
       
Distributable cash flow (1)(2) 26.7 31.9 (16)
Dividend/distribution to distributable cash flow payout ratio 62% 43%  
       
Operational Highlights:
Parkland delivers record EBITDA after factoring out $4.3 million invested in put options being used to help protect future supply profits and despite an estimated $5.0 million reduction in EBITDA due to unusually warm conditions.
Grow
  • Cango contributes to 22% growth in retail fuel volumes; and
  • 1% increase in commercial fuel gross profit despite warm weather and reallocation of volumes to wholesale.
Supply
  • Refiners' margins currently very strong; and
  • Parkland invests in put options to help protect future profits related to strong refiners' margins.
Operate
  • 8% year-over-year reduction in net unit operating costs; and
  • 6% year-over-year reduction in first quarter days sales outstanding for receivables.
"Improvements across our business allowed us to manage through an estimated $5.0 million reduction in EBITDA due to warm weather to deliver solid results this quarter," said Bob Espey, President and Chief Executive Officer of Parkland. "To put our results into context, before accounting for the $4.3 million we invested in put option contracts to help protect future supply profits in 2012, this quarter set a new EBITDA record.  Our marketing teams continue to grow their earnings through effective cost management while our corporate development team works on a number of acquisition opportunities.  In summary, we have improved our earnings growth potential for 2012."
       
Consolidated Highlights      
       
  For the three months ended
(in millions of Canadian dollars, except volume and per   March 31,  
Share amounts) 2012 2011 % Change
       
Income Statement Summary:      
Sales and operating revenues 1,064.4 955.1 11
Gross profit 111.0 113.6 (2)
Operating costs 44.5 47.6 (7)
Marketing, general and administrative 19.6 20.0 (2)
Depreciation and amortization expense 13.5 17.4 (22)
  33.4 28.6 17
       
Customer finance income (0.5) (0.6) (17)
Finance costs 5.5 8.9 (38)
Loss (gain) on disposal of property, plant and equipment 0.6 (0.9) (167)
Realized risk management loss 0.3 -  
Unrealized risk management loss 3.9 -  
Earnings before income taxes 23.6 21.2 11
Income tax expense 6.1 4.9 24
Net earnings 17.5 16.3 7
       
Net earnings per share      
  - Basic 0.27 0.30 (10)
  - Diluted (3) 0.26 0.28 (7)
       
Non-GAAP Financial Measures:      
EBITDA (1) 43.1 46.6 (8)
Distributable cash flow (1)(2) 26.7 31.9 (16)
Distributable cash flow per share (1)(2) 0.41 0.59 (31)
Dividends 16.6 13.7 21
Dividend to distributable cash flow payout ratio 62% 43%  
       
Key Metrics:      
Fuel volume (millions of litres) 1,085.0 1,044.0 4
Return on capital employed (ROCE) 13.5% 10.7%  
Net unit operating cost (NUOC)(1) 3.55 3.86 (8)
Employees 1,226 1,431 (14)
       
Fuel Key Metrics - Cents per litre:      
Average Retail fuel gross profit 4.46 5.25 (15)
Average Commercial fuel gross profit 11.23 9.68 16
Operating costs 4.10 4.56 (10)
Marketing, general and administrative 1.81 1.92 (6)
Depreciation and amortization expense 1.24 1.67 (25)
       
Liquidity and bank ratios:      
Net Debt:EBITDA(1) 1.93 3.79  
Senior Debt:EBITDA (1) 0.99 2.50  
Interest coverage (1) 3.67 1.97  
(1) Please refer to the Non-GAAP Measures section in the MD&A for definitions.
(2) Please see Distributable Cash Flow reconciliation table in the MD&A.  
(3) Diluted earnings (loss) per share can be impacted by an anti-dilutive impact of
conversion of the debentures. Quarterly diluted earnings (loss) per share may
therefore not accumulate to the same per share value as the year-to-date
calculation.
     
62% Payout Ratio
Distributable cash flow decreased by 16% to $26.7 million in the first quarter of 2012 compared with $31.9 million in the first quarter of 2011 due to an increase in capital spending and lower cash from operations (excluding changes in non-cash working capital).  Distributable cash flow exceeded dividends by $10.1 million in the first quarter of 2012 compared with $18.2 million in the first quarter of 2011.  The dividend payout ratio for the first quarter of 2012 was 62% compared with 43% in the first quarter of 2011.
Commercial Team Grows Profit by 1% 
Parkland Commercial Fuels' volumes decreased 13% to 462 million litres compared with 529 million litres for the same period in 2011 primarily due to the reallocation of 49 million litres of high-volume low-margin accounts to the Wholesale, Supply and Distribution ("WS&D") division and unusually warm weather conditions throughout most ofCanada.
Warm weather in Eastern and Central Canada led to a $1.4 million reduction in EBITDA derived from heating oil sales in the first quarter of 2012 compared to the prior year.  Management analysis indicates that warm weather also reduced commercial fuel volumes by approximately six percent in affected regions.  This reduction can be attributed to lower overall demand due to warm weather combined with road bans that came into effect much earlier than normal, temporarily suspending fuel deliveries late in the first quarter.
Despite a contraction in volumes this quarter, careful management allowed gross profit to increase by 1% to $51.9 million in the first quarter of 2012 compared with $51.2 million during the first quarter of 2011.
Average net fuel gross profit on a cents per litre basis for the first quarter of 2012 was 11.23 cpl, an increase of 16% or 1.55 cpl compared with 9.68 cpl in the first quarter of 2011 due to the re-allocation of high-volume, low-margin accounts to WS&D .  Average net fuel gross profit increased in the first quarter of 2012 by 30% or 2.62 cpl compared with 8.61 cpl in the fourth quarter of 2011 for the same reasons mentioned above.
Warm weather negatively impacted the growth of Parkland's lubricant business this quarter, with non-fuel commercial gross profit growing only 5% to $18.9 million compared with $18.0 million in the first quarter of 2011.
Divisional Outlook
While oilfield activity drew back in March due to an early road ban related to unusually warm conditions, it returned to 2011 levels in April. Robust oilfield activity in Northern Alberta and Northeast British Columbia is expected to continue despite lower natural gas prices.  Management believes that oilfield activity will remain robust as long as oil prices per barrel remain above the $80 mark.
While temperatures have cooled in April, Parkland's heating oil business is expected to lag in the second quarter as the result of warm weather during the first quarter allowing some customers to avoid a spring delivery.  However, if cooler conditions return in the latter part of 2012, there may be an opportunity to regain lost ground as customers who avoided a spring delivery are required to order an early fall delivery.
Retail Volumes Grow by 22%
For the three months ended March 31, 2012, Parkland Retail Fuels' volumes increased 22% to 415 million litres compared with 341 million litres for the same period in 2011.  The increase was the result of additional fuel volumes attributable to the Cango acquisition, network growth in Parkland's company-owned and dealer network, partially offset by the following factors:
  • Planned rationalization of underperforming stations in both Parkland's and Cango's network;
  • High prices in certain markets curtailing demand;
  • Temporary closures for the purpose of upgrades; and
  • Warm weather impacting demand for Fas Gas Plus' full serve offering.
Fuel gross profits from Parkland Retail Fuels for the three months ended March 31, 2012 increased 3% to $18.5 million compared with $17.9 million for the same period in 2011 primarily due to volume increases through the acquisition of Cango in 2011 offset by a 15% decrease in margins on a per litre basis.
Parkland Retail Fuels' gross profit in the first quarter of 2012 decreased by 15% to 4.46 cpl compared with 5.25 cpl in the first quarter of 2011 reflecting the net impact of increased competition in certain markets, rising fuel supply prices during the quarter (which typically squeeze margins) as well as the addition of higher-volume, lower-margin stations in the Cango network.  Compared with the fourth quarter of 2011, fuel gross profit on a cents per litre basis decreased by 12% due primarily to rising fuel prices and the effects of competition.
Divisional Outlook
The Cango network is expected to contribute to increased volumes through the second quarter of 2012 compared with 2011. In addition, should wholesale prices continue trending downward, this would be expected to have a positive impact on profit margins in the second quarter.
Supply Works to Protect Profits Using Hedging Strategy
Parkland Wholesale, Supply and Distribution ("WS&D") fuel volumes (factoring out intersegment sales) increased 17% to 208 million litres compared with 174 million litres for the same period in 2011 primarily due to the reallocation of 49 million litres of high-volume low-margin accounts to WS&D from commercial, offset by lower wholesale volumes from the rest of the wholesale portfolio due to the rationalization of some customers and unusually warm weather conditions lowering demand.
Fuel gross profits from Supply and Wholesale for the three months ended March 31, 2012 decreased 11% to $15.5 million compared with $17.5 million for the same period in 2011 primarily due to increased freight charges.
Parkland recorded a $4.3 million expense related to put option contracts being used to help protect a portion of the future economic benefit that Parkland receives on its refiners' margins based contract.  This is expected to mitigate the potential earnings volatility that would be caused by a normalization of refiners' margins from their current highs.  Refiners' margins refer to the profit made between the cost of the crude oil required to produce fuel and the wholesale price received by refiners for the fuel they sell.
Divisional Outlook
Despite a number of refinery turnarounds that are planned for the spring of 2012, it is expected that fuel supplies will be sufficient to meet demand in all Canadian markets.
Refiners' margins in 2012 have been unusually strong primarily due to weak mid-continent and Canadian crude prices relative to Brent Crude prices.  The differential between Brent and Edmonton Par is due to an abundance of sweet crude in the mid-continent from the Bakken area and from production in Alberta's oil sands coupled with a lack of pipeline and transport capacity to other markets and refining centres.  The future potential addition of pipelines and the reversal of existing pipelines may eventually mitigate the current supply imbalance and return mid-continent refiners' margins to normal levels.  However, timing of the approval and subsequent construction on pipelines remains a matter of speculation.
Parkland will continue to optimize a number of key supply agreements in 2012 that will improve Parkland's supply economics, diversify the supply portfolio, and provide further supply security and flexibility for customers.  Parkland will not announce new contracts due to the confidential and sensitive nature of the volume and pricing information of these supply agreements.
The Bowden terminal conversion project continues on time and on budget. The terminal is scheduled to open in the fourth quarter of 2012.  Bowden will enhance Parkland's storage and supply capability for western Canada and will also be available for third parties to lease tankage for the storage of petroleum products.
Operating Costs Decrease by 0.5 Cents per Litre
Operating and direct costs decreased by 7% to $44.5 million (4.1 cpl) for the three months ended March 31, 2012, compared with $47.6 million (4.6 cpl) for the three months ended March 31, 2011.  Operating and direct costs decreased primarily due to the sale of the long-haul trucking assets in 2011.  Parkland no longer incurs additional costs for maintaining a long-haul fleet. Increased focus on Parkland's core businesses of marketing fuels and lubricants and the Give me Five! strategic cost initiative are expected to lead further improvements in this area.
Marketing, General and Administrative Expenses Decrease by 0.1 Cents per Litre
Marketing, general and administrative expenses ("MGA") decreased 2% or $0.4 million to $19.6 million (1.8 cpl) in the first quarter of 2012 compared with $20.0 million (1.9 cpl) in the first quarter of 2011. MGA costs in the first quarter of 2012 were comparable on a cpl basis with the fourth quarter of 2011.  Further improvements in this area are expected as a result of the continuing efforts discussed under the Operating Costs heading above.
EBITDA Decreases due to Warm Weather and Put Option Contract
EBITDA for the first quarter of 2012 decreased by 8% to $43.1 million compared with $46.6 million in the first quarter of 2011. Compared with the first quarter of 2011, the $3.5 million decrease in EBITDA is the result of a realized and unrealized risk management loss for the quarter of $4.3 million related to put option contracts being used to help protect a portion of the future economic benefit that Parkland receives on its refiners' margins based contract, a $1.4 million decrease in EBITDA from heating oil sales, other EBITDA reductions across the business due to warm weather, partially off set by lower operating and MGA costs.
Net Earnings Increase by 3% Despite Challenges
Net earnings increased by 7% to $17.5 million for the three months ended March 31, 2012 compared with $16.3 million during the first quarter of 2011. The increase in net earnings over the prior year was primarily due to $3.4 million in lower finance costs and $3.9 million in lower depreciation and amortization partially offset by $3.5 million in lower EBITDA, a $1.5 million increase in losses on the sale of property, plant and equipment, and a $1.1 millionincrease in income taxes compared to the first quarter in 2011.
MD&A and Financial Statements
The Financial Statements and Management's Discussion and Analysis are available at www.parkland.ca andwww.sedar.com.
Conference Call Information
President and CEO Bob Espey and Senior Vice President and CFO Mike Lambert will host a webcast and conference call at 7:00 a.m. Mountain Standard Time ("MST") (9:00 a.m. Eastern Standard Time) to discuss Parkland's financial results for the quarter and then take questions from securities analysts, brokers and investors.
Please log into the slide presentation 10 minutes before the webcast start time at:
http://www.meetview.com/parkland20120508/
To access the conference call by telephone from within Canada dial toll free 1-888-886-7786.  International callers or callers from the Toronto area should use 416-764-8658.  Please connect approximately 10 minutes prior to the beginning of the call and quote the conference ID: 2612 2436.
The webcast will be available for replay two hours after the conference call ends.  It will remain available at the link above for 90 days.
Annual and Special Meeting
The holders of common shares of Parkland are invited to the Annual and Special Meeting of Shareholders taking place Tuesday, May 8, 2012 at 9:00 a.m. MST (11:00 a.m. EST) at the Black Knight Inn.
The Black Knight Inn
2929 ‐ 50th Avenue
Red Deer, Alberta, Canada
Parkland will also simultaneously webcast the meeting and presentation at the following URL:
http://event.on24.com/r.htm?e=455697&s=1&k=21AAFC1DD8C8C3233F92963971D48B01
Forward Looking Information
Certain information included herein is forward-looking. Forward-looking statements include, without limitation, statements regarding the future financial position, business strategy, budgets, projected costs, capital expenditures, financial results, taxes, effectiveness of internal controls, sources of funding of growth capital expenditures and plans and objectives of or involving Parkland. Many of these statements can be identified by looking for words such as "believe", "expects", "expected", "will", "intends", "projects", "projected", "anticipates", "estimates", "continues", or similar words. Parkland believes the expectations reflected in such forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties some of which are described in the Corporation's annual report, annual information form and other continuous disclosure documents. Such forward-looking statements necessarily involve known and unknown risks and uncertainties and other factors, which may cause the Corporation's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Such factors include, but are not limited to: general economic, market and business conditions; industry capacity; competitive action by other companies; refining and marketing margins; the ability of suppliers to meet commitments; actions by governmental authorities including increases in taxes; changes in environmental and other regulations; and other factors, many of which are beyond the control of Parkland. Any forward-looking statements are made as of the date hereof and the Corporation does not undertake any obligation, except as required under applicable law, to publicly update or revise such statements to reflect new information, subsequent or otherwise.
About Parkland Fuel Corporation
Parkland Fuel Corporation is Canada's largest independent marketer and distributor of fuels and lubricants, managing a nationwide network of sales channels. We are Canada's local fuel company, delivering gasoline, diesel fuel, lubricants, heating oil and other products to businesses, consumers and wholesale customers by community based operators who care.
 
For further information:
For investor and media inquiries please contact Tom McMillan, Director of Corporate Communications at tom.mcmillan@parkland.ca or 1-800-662-7177 extension 2533