Rising oil prices shrink Couche-Tard's fuel margins, shares slide

(Reuters) - Alimentation Couche-Tard Inc ATDb.TO said on Tuesday rising crude prices pressured margins from gasoline sales for the gas retail and convenient store operator in the third quarter, setting its stock on course for its biggest drop since 2008.

Pedestrians walk past a Couche-Tard convenience store in Montreal, April 18, 2012. REUTERS/Christinne Muschi

Couche-Tard said gross margins in its road transportation fuel business in its biggest market, the United States, fell 14.6 percent.

The company attributed the slide to “volatility created by the rapid and significant rise of crude oil prices” and lingering effects of Hurricane Harvey.

U.S. light crude prices CLc1 jumped about 12 percent during the quarter, helped by higher global demand and ongoing supply cuts led by the OPEC.

Same-store road transportation fuel volumes, excluding the impact from a recent acquisition, fell 0.4 percent in the United States.

Couche-Tard, the owner of the Circle K chain of stores, has been expanding through acquisitions as it faces stiff competition from fast food chains and supermarkets in the United States and Canada that sell similar products at cheaper rates.

“(The) biggest surprise in the quarter was tepid same-store sales and gas volumes/margins in the United States,” RBC Capital Markets analyst Irene Nattel wrote in a note.

Gross profit from the U.S. fuel business came in at $492.5 million, missing RBC’s estimate by about $98 million.

However, higher selling prices of fuel helped revenue from the business in the region rise 51.3 percent. Total revenue jumped 38.2 percent to $15.79 billion.

Net income rose to $463.9 million, or 82 cents per share, in the quarter ended Feb. 4, from $287 million, or 50 cents per share, a year earlier.

Couche-Tard said booked a tax gain of 196.3 million in the quarter due to the changes in the U.S. tax law. On an adjusted basis, the company earned 54 cents per share.

The company’s shares fell 6.86 percent to C$59.34 and were the biggest drag on the Toronto Stock Exchange.

Reporting by Taenaz Shakir in Bengaluru; Editing by Arun Koyyur