Alimentation Couche-Tard Inc. (ATD.TO) saw its shares surge more than 11% in Toronto trading on Tuesday, as the parent company of the Circle K convenience store chain delivered a powerful fourth-quarter earnings report that handily beat analyst expectations. The standout performance was largely driven by exceptionally wide fuel margins in the United States, which reached a five-year high and far exceeded industry averages.
The stock climbed 11.5% to C$91.69 by early afternoon, touching a 52-week high of C$92.60 earlier in the session. The rally came even as Canada's benchmark S&P/TSX Composite Index slipped 0.3%, weighed down by weakness in technology and mining stocks. The divergence underscored the strength of Couche-Tard's results in a challenging market environment.
For the quarter ended April 26, the Laval, Quebec-based company reported net earnings of $863.4 million, or 94 cents per diluted share, a sharp increase from $439.4 million, or 46 cents per share, in the same period last year. On an adjusted basis, earnings came in at 73 cents per share, well above the 54 cents consensus estimate compiled by FactSet.
Revenue surged nearly 20% to $19.49 billion, driven by road transportation fuel revenue of $14.8 billion and merchandise and service revenue of $4.51 billion. Same-store merchandise sales rose 2.2% overall, though Canadian same-store sales dipped 0.9%.
The star of the quarter was fuel. U.S. gasoline gross margin climbed 9.17 cents to 52.44 cents per gallon, a level that analysts at Stifel noted was a five-year high and significantly above the industry average of about 35 cents. However, same-store fuel volumes in the U.S. fell 2.1%, while volumes in Europe and other international markets dropped 4.4%. Canada bucked the trend with a 2.0% increase in same-store fuel volumes.
CEO Alex Miller attributed the strong fuel performance to the company's supply chain capabilities, which he said have been built over more than a decade to create "optionality" during periods of oil price volatility. "When there is volatility, it is a strong opportunity for us," Miller told analysts on a conference call. The company's ability to source fuel efficiently during price swings gave it a competitive edge over rivals like 7-Eleven, according to Stifel analysts Martin Landry and Jesse Kestenbaum.
The quarter also benefited from a one-time gain of $260.9 million before taxes related to the resolution of long-standing legal disputes. Excluding that and other items, adjusted net earnings still jumped 51.2% to approximately $667 million, underscoring the underlying strength of the business.
Despite the upbeat results, some headwinds remain. Fuel volumes declined in two major regions, and Canadian merchandise same-store sales slipped. Fuel margins could also compress if oil prices stabilize or competitors lower prices at the pump. "I cannot predict fuel margins," Miller cautioned, highlighting the uncertainty going forward.
Investors, however, took the quarter as evidence that Couche-Tard can continue to generate strong earnings even in a volatile fuel market. The key question now is whether those margins can be sustained when the price swings subside.