March 22, 2023

Revenue rose to US$5 billion but net income fell to US$737.4 million.

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Alimentation Couche-Tard Inc., a Quebec-based giant chain of stores and gas stations, said it has agreed to acquire nearly 2,200 outlets from French oil company TotalEnergies SE, expanding its network in Europe as well as boosting its near-term dependence on gasoline. , Sales against the background of the global transition to electric vehicles.

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Couche-Tard said it will pay about $4.4 billion in cash for 1,195 offices in Germany, 566 in Belgium, 387 in the Netherlands and 45 in Luxembourg. Couche-Tard said the deal would give it full control of stores in Germany and the Netherlands, as well as a 60 percent stake in Total’s retail operations in Belgium and Luxembourg.

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“We see this as a strong geographic fit with our existing European network, allowing us to grow together in some of Europe’s strongest economies and move forward in our vision to become the world’s preferred destination for convenience and mobility,” CEO Brian Hannash. This is stated in the press release dated March 16.

Some work will be required to integrate total stations into the Couche-Tard network. “We think they’re doing a lot right on fuel, we think there’s still a lot of work to be done on electric vehicles, there’s definitely more to do inside the store,” Hannash said by phone with analysts. In addition, inflation in credit card fees, electricity and labor means that Total’s costs have “substantially increased,” he added.

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On the other hand, electricity and utility prices are declining in Europe, said CFO Claude Tessier.

Shares traded about two percent higher in mid-morning in Toronto, near $61.90 a share.

Record income

Couche-Tard executives said they have not yet decided whether they will rebrand Total’s sites under the Circle K banner, which covers most of the more than 14,000 offices worldwide.

The announcement of its European expansion came just hours after Laval’s Couche-Tard claimed revenue increased 3.5% in the latest quarter, spurring the company’s efforts to keep sales steady in the face of rising global inflation.

Couche-Tard is looking at ways to capitalize on growing revenue, most notably in a failed bid to buy French grocery chain Carrefour SA in 2021. More recently, Couche-Tard has taken advantage of rising earnings from higher gasoline prices to reward shareholders with higher dividends and share buybacks.

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However, the share price lagged as the company struggled to match analyst estimates. Fuel volumes have gone down, while wages and electricity bills have gone up. The company recorded $5 billion in revenue, but net income fell to $737.4 million in the quarter ended January. December 29, 2023 compared to $746.4 million in the same period a year earlier.

“As our markets around the world, especially in Europe, continue to face persistently high inflationary conditions, we remain focused and committed to delivering strong and consistent value to our customers and maintaining cost discipline across our operations,” Hannasch said in his report. . statement. Separate press release issued after markets closed on 15 March.

“While our mobility results continue to be impacted by work-from-home models and higher prices, we continued to earn healthy fuel margins to offset lower volumes.”

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At the crossroads

The latest results come as Couche-Tard is at a crossroads.

Experts such as Amr Addas, strategic advisor for sustainability at Concordia University’s John Molson School of Business, believe that demand for electric vehicle charging will outstrip gasoline demand in the coming years. As a result, fuel retailers like Couche-Tard could face an existential crisis.

“In Europe, the mobility transformation is changing how customers use service stations,” said Patrick Pouyanne, chief executive of TotalEnergies, in a press release announcing his deal with Couche-Tard. “This deep trend means that new services and new activities need to be developed, especially in stores.”

Indeed, Hannasch has said in the past that he wants the company to be less dependent on fuel sales.

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In February, Couche-Tard was named one of the top performing businesses in terms of environmental initiatives by Sustainalytics, an Amsterdam-based firm that evaluates companies based on their environmental, social and governance performance. However, closer investigation revealed that the company’s ESG initiatives may not be as impressive as they first appear.

Hannash said during a call with investors on March 16 that Total and Couche-Tard are on the same “journey” to make electric vehicles.

“In Mergers and Acquisitions”

The acquisition of Couche-Tard stations by Total is “overall a far-sighted move,” Addas said.

“At first, buying such a large network of gas stations in Europe may seem counterintuitive, but I think it shows Couche-Tard’s confidence in its approach and that it is ready to move forward in Europe on a massive scale,” Addas said.

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According to Hannasch, the company sees itself as “mergers and acquisitions.” In early March, the company acquired Wilsons Fuel Co. a network that includes 79 stores and gas stations in Atlantic Canada. To complete the deal, the company had to sell 52 of its own offices in the region after review by the Canadian Competition Bureau.

Feb. On October 27, Couche-Tard announced the acquisition of 45 convenience stores and Big Red gas stations in Arkansas. “As we expand our footprint in this region, we look forward to bringing the Circle K experience to new customers and making their lives a little easier every day,” COO Alex Miller said in a press release.

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Martin Landry, analyst at St. Stifel Financial Corp. of St. Louis, Missouri, wrote in a note that the purchase of Couche-Tard True Blue Car Wash – 65 car washes in Arizona, Texas, Illinois and Indiana – in December could give the company the opportunity to “start consolidation.” car wash industry” and gave the company a “buy” rating.

In another note, Landry wrote that M&A opportunities for Couche-Tard “seem to be plentiful,” noting that Iowa-based convenience store chain Kum & Go wanted to sell its lots. “With a strong balance sheet, we believe Couche-Tard is well positioned to create value through M&A,” Landry wrote.

In the past few months, Stifel has consistently recommended buying stocks.

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