CST Brands' (CST) CEO Kim Bowers on Q2 2014 Results - Earnings Call Transcript

Aug.12.14 | About: CST Brands (CST)

CST Brands, Inc. (NYSE:CST)

Q2 2014 Earnings Conference Call

August 12, 2014 9:00 am ET

Executives

Randy Palmer - Director IR

Kim Bowers - Chairman, President, CEO

Clay Killinger - SVP, CFO

Hal Adams - SVP, CMO

Analysts

Ben Brownlow - Raymond James

Bonnie Herzog - Wells Fargo

Esteban Gomez - JPMorgan

Damian Witkowski - Gabelli & Company

David Hartley - Credit Suisse

John Lawrence - Stephens

Operator

Welcome to the CST Brands Second Quarter 2014 Earnings Call. My name is Elda, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Randy Palmer, Director of Investor Relations. Mr. Palmer, you may begin.

Randy Palmer

Thank you, operator, and good morning and thank you for joining our second quarter 2014 earnings call. With me today are Kim Bowers, our Chairman and CEO; Clay Killinger, our CFO; and other members of our executive leadership team.

Kim will provide an overview of the operational performance of the second quarter and then will turn the call over to Clay to discuss our financial results. We will then open the call up to questions.

Before we begin, I would like to remind everyone that today's call including the question-and-answer session may include forward-looking statements regarding expected revenue, future plans, future operational metrics and opportunities and expectations of the company. These estimates and plans and other forward-looking statements involved known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied on the call. There could be no assurance that management's expectations, beliefs and projections will be achieved or that actual results will not differ from expectations.

Accordingly, for these forward-looking statements we claim the protection of the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Please see our filings with the Securities and Exchange Commission including our Annual Report on Form 10-K and quarterly reports on Form 10-Q for a discussion of important factors that could affect our actual results.

Forward-looking statements represent the judgment of the company's management as of today's date and the company disclaims any intent or obligation to update any forward-looking statements.

During today's call, we may also provide certain performance measures that do not conform to U.S. generally accepted accounting principles or GAAP. We provide schedules to reconcile these non-GAAP measures with our reported results on a GAAP basis as part of our earnings press release, which could be found on the Investors section of our Web site at cstbrands.com. Today's call is being webcast and a recording of this conference call will be available there for a period of 60 days.

And with that, I will now turn the call over to Kim Bowers.

Kim Bowers

Well, thank you, Randy, and good morning, everyone, and welcome to our second quarter 2014 earnings call. This morning we reported second quarter 2014 earnings of $32 million or $0.43 per share. This compares to net income of $41 million or $0.54 per share for the second quarter of 2013.

As a reminder, we are not a public company until May 1, 2013 and as such the second quarter of 2013 results do not include all of the expenses associated with being a public company. Clay will discuss the financial results in more detail later in the call, but I first wanted to discuss our second quarter performance and the activities we currently have underway.

In the second quarter, we did experience rising crude oil and wholesale gasoline prices which impacted our overall profitability especially in the U.S. Last year, we experienced the seasonal market decline of wholesale gasoline prices in June, but this year that decline did not start to occur until July, which has certainly helped us get off to a good start in the third quarter, but impacted our second quarter results especially when compared to last year.

Once again, this fuel impact did not dampen our merchandise sales or profitability. We achieved a 5% increase in merchandise gross profit dollars in the U.S. in the second quarter. Our efforts to focus and improve this part of the business are certainly paying dividends. To further support this effort, we did make an investment in late July to expand our retail distribution center capabilities with a purchase of an existing distribution center in San Antonio which is significantly larger than our existing center. This new facility will also provide us with future corporate service center office space.

Our Canadian business turned in a solid quarter performance with $29 million in operating income absent the effects of foreign exchange, they were able to improve motor fuel and merchandise gross profit during the period when compared to last year. And our team in Canada and the U.S. continued to make progress on our goal of 38 new to industry stores this year. To-date, we opened 14 stores with significant construction occurring throughout the summer.

I'd like to say a few words about our recently announced acquisition of the incentive distribution rights and general partner of Lehigh Gas Partners LP, which is expected to close in the early fourth quarter of this year. We are obviously very excited about the possibilities and opportunities this acquisition brings us. Through this deal, we obtain a media control and access to a favorable capital structure that will position us for future growth.

The access to capital higher MLP multiples will allow us to be more aggressive in our growth plans while also allowing us to mark significant value of our existing assets such as our new to industry properties and a very large wholesale fuel distribution business.

And while this transaction does not include any limited partner interest in LGP, you can't expect this will change over time as assets are sold at fair market value from CST to Lehigh Gas for cash and limited partner interests. The distribution from that equity interest in addition to the incentive distribution rights would generate ongoing cash flow streams back to CST. But acquiring a favorable capital structure is just one aspect of this great transaction. Achieving this with Joe Topper and the talented team he has assembled at Lehigh Gas is what makes this acquisition special. They have accomplished a great deal since our IPO less than two years ago, amassing a wholesale fuel network of over 1000 stores and over 600-leased acquisitions spread across 16 states along the U.S. East Coast. This now gives us a coast-to-coast network of assets and diversifies our fuel supply with numerous suppliers of Lehigh Gas.

Combining Lehigh Gas strength and wholesale fuel distribution dealer networks and acquisitions with CSTs operational merchandising and new build expertise makes this a terrific acquisition and one that would generate significant long-term value for our shareholders and LGP unitholders.

Finally, I wanted to provide you with an update on our network optimization plan for the potential sale of approximately 100 or so stores that we have previously discussed. We have received bids on the properties; however, in light of the recently announced transaction with LGP, we are currently reviewing these bids with a potential impact of including LGP in the process which will most likely take us a few weeks to complete. After the completion of this review, we should have a good sense of what we will be doing with these sites.

And with that, I will turn the call over to Clay to review our second quarter results.

Clay Killinger

Thanks Kim. As Kim mentioned this morning, we reported net income of $32 million or $0.43 per share for the second quarter of 2014. This compares to net income of $41 million or $0.54 per share for the second quarter of 2013.

For a portion of the second quarter of 2013, we were not a public company and as such these results do not include an entire quarters worth of interest expense or additional general and administrative expenses we are now incurring from being a public company. As I discuss our second quarter highlights in more detail I will be referring to our U.S. and Canada segment operating results, which were included within our earnings release.

In regards to our U.S. segment, second quarter 2014 motor fuel gross margin declined by $12 million or 16% when compared to the second quarter of 2013. The decrease was primarily attributable to a decline in the cents per gallon fuel margin, net of credit card fees of almost $0.03 between the periods falling to $0.14 from $0.17 in the second quarter of 2013.

Second quarter 2014 prices of crude oil and wholesale gasoline were steadily increasing for most of this quarter. As we have mentioned before, during periods of rising crude oil and wholesale gasoline prices, our retail margins are usually reduced. Our U.S. motor fuel gallon sold per site per day fell by approximately 2% quarter versus quarter impacted by rising fuel costs and competition in some of our markets.

Our gross margin for merchandise sales increased $5 million or 5% in the second quarter of 2014 when compared to the same period in 2013 primarily driven by improved food, beverage and snack categories across our networks particularly from our new to industry stores.

Operating expenses increased $8 million quarter versus quarter driven primarily by our new to industry stores as we have outlined in our 10-Q filing.

Turning to our Canadian segment, second quarter fuel gross margin decreased by $1 million or nearly 2%. Most of this decline in fuel gross margin was attributable to the effect of foreign currency exchange, which I will talk about in a minute.

Our reported motor fuel gross margin on a cents per gallon basis net of credit card fees was $0.25 in both the second quarter of 2014 and 2013. Our reported gross margin for merchandise sales and our other category were relatively flat for the second quarter of 2014 compared to 2013. As a reminder, other revenues in Canada include our heating oil business as well as other services such as car wash, and ATM fees similar to the U.S.

I mentioned earlier that we did see some weakness in the Canadian dollar relative to the U.S. dollar during the second quarter of 2014 versus the comparable period in 2013. As noted in our earnings release, the exchange rate for the U.S. dollar relative to the Canadian dollar averaged 0.92207 for the second quarter of 2014 versus 0.97260 for the comparable period in 2013. This represents a devaluation of the Canadian dollar by approximately 5% between the comparable periods.

To keep exchange rates in mind when comparing our reported Canadian results quarter versus quarter. The unfavorable impact on our income statement related to these foreign currency changes was approximately $5 million on gross profit when comparing the second quarter of 2014 to the same period in 2013.

Now, I will make a few comments about our financial position. At the end of the second quarter, we had $428 million of cash and $121 million available under our credit facility after considering letters of credit and our maximum leverage constraint of 3.75x adjusted EBITDA.

In regards to our capital spending, capital expenditures for the three months period ended June 30, 2014 totaled $45 million. During the second quarter, we completed four new stores in the U.S., 16 new stores are currently under construction in the United States and five are under construction in Canada.

We are continuing to target 38 new store builds this year. We now estimate that we will spend between $295 million and $320 million in total capital expenditures in 2014 and this includes $12 million of IT infrastructure and our recently acquired regional distribution center. Our 2014 estimated full year sustaining capital expenditures which includes remodels and renovations continues to be between $80 million and $90 million.

I would also like to give you an update on our expected third quarter 2014 non-gross margin items.

Operating expenses for the third quarter of 2014 are expected to be in the range of $174 million to $178 million consistent with our pervious guidance. We currently expect the same range for the fourth quarter as well. Increases from 2013 quarterly levels are directly related to the opening of our new to industry stores for the remainder of the year.

Recurring general and administrative expenses for the third and fourth quarters are expected to be in the range of $25 million to $27 million. These general and administrative expense ranges do not include any non-recurring costs related to the Lehigh Gas transaction.

Depreciation, amortization and accretion expense continues to be in the range of $30 million to $33 million per quarter and our quarterly and annual effective tax rate continues to be in the range of 33% to 35%.

With that, I will turn it back over to Randy, and he will give you more guidance regarding our third quarter gross margin metrics.

Randy Palmer

Thanks Clay. Before we open the call up to questions, we wanted to provide you with some segment guidance for our third quarter of 2014.

Our U.S. segment, we expect the third quarter 2014 fuel volume on gallon sold per store per day basis to be in the 4900 to 5000 range. Our merchandise sales on a per store per day basis we expect a range of 3650 to 3750. For the U.S. segment, we anticipate our merchandise gross margin percentage to be in the range of 29.5% to 30.5%. This is after the deduction of credit card fees.

In regards to our Canadian segment, the third quarter 2014 volume on gallons per site per day basis is expected to be in the range of 3400 to 3500. We expect merchandise sales per site per day basis to be in the range of 2700 to 2800. And for merchandise gross margin percentages for the Canadian segment, we expect a 27% to 28% range. This is after the deduction of credit card fees.

All dollars related guidance that has been provided regarding our Canadian segment could change if we see any further weakening or strengthening of the U.S. dollar relative to the Canadian dollar. These metrics are subject to the risk factors included in our SEC filings.

And with that operator, we will now open it up for questions.

Question-and-Answer session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Ben Brownlow from Raymond James.

Ben Brownlow - Raymond James

Hi, good morning. Thanks for taking the question.

Clay Killinger

Good morning, Ben.

Kim Bowers

Good morning.

Ben Brownlow - Raymond James

On the – obviously a very attractive purchase on the general partner of Lehigh, can you give some color and update on what you are seeing on acquisition opportunities in the retail assets?

Kim Bowers

We are clearly that – acquiring the general partner give us the access to the MLP capital structure which will let us to be more competitive in the big process. I mean our M&A team has looked at a number of assets over the last year-and-a-half since we spun out. But, quite frankly, we were pushed to be competitive in the bid process given the MLP entrance into the acquisition market there.

So I think, by teaming up with LGP, we will be able to be more competitive in the acquisition process as we go forward. I think generally speaking, we expect the market to continue to do the consolidation process we have started to see over the last several months. And I'm looking forward to working with LGP and Joe Topper to be part of that consolidation process.

Ben Brownlow - Raymond James

Great. And on 100 site divestiture, why don't those classify as held-for-sale, if you could touch on that? And on the number of bids that you received, can you give us that number of sites that you received bids so far and do all those include wholesale contracts as well?

Clay Killinger

Well, in terms of alliance of the accounting stuff been on held-for-sale, there – just hadn't been enough maturity on that sale process to warrant held-for-sale criteria under generally accepted accounting principles mean it's heading towards that way but as you can see, I mean, Kim touched upon we are now reevaluating those stores in light of the LGP process. So there is just not enough – not enough maturity in that process warrant held-for-sale.

Kim Bowers

And then just in terms of kind of very high level over the bid process, we did get bids on the vast majority of the sites some with fuel contracts and some without. So it was a mixed bag across the 100 stores.

Ben Brownlow - Raymond James

Great. I will jump back in the queue. Thanks.

Kim Bowers

Thanks Ben.

Operator

The next question comes from Bonnie Herzog from Wells Fargo.

Bonnie Herzog - Wells Fargo

Good morning.

Kim Bowers

Good morning, Bonnie.

Bonnie Herzog - Wells Fargo

My first question is on your deal with LGP, could you help us understand the impact on your fuel margin going forward given the drop downs that you are planning. Could you confirm that your margins will be $0.03 to $0.05 lower as you drop down your wholesale fuel supply business to LGP, which in fact will lower your EBITDA and EPS? And then really, how we should be thinking about this?

Clay Killinger

Well, Bonnie, when you say we, I presume you are meaning just CST and not LGP, although we will be having consolidated financial statement. So similar to how one of our competitors was reporting that have similar structure they added those $0.03 margin when they were reporting their margins. Obviously, this deal doesn't do anything to the actual margin that's available on the street to be shared between both companies. But you are correct, that if you look solely at CST, the margin and the ongoing cash flow would be reduced by $0.03 to $0.05 per gallon.

Although, I would remind you that upon the drop of the sale of that wholesale supply business that would be done at fair value. So the CST side will receive cash for that. So that's one aspect of it. Net cash will be used for the enjoyment of the CST shareholders and redeploying back into the business and will free up other cash to be able to be used to return cash back to shareholders which is the big benefit to CST shareholders.

There upon the sale, there is economic substance of the transaction is a significant gain will be realized from an economic perspective at the CST level albeit under generally accepted accounting principles because they are two entities under economic control that won't be recognized.

There will be a lot of cash and then ongoing forward after – we will continue to get cash back from the IDRs that they reach those advance splits. They are actually in the 15% split level, but as they reach 50% the ongoing margin will be returned back to CST very rapidly after two year period or so, 50% of that cash comes back in terms of an IDR distribution.

Bonnie Herzog - Wells Fargo

Okay. That's really helpful. I appreciate that. And then, I do have another question on I guess on your NTIs, I guess I'm surprised to see that both your fuel and merchandise sales per site were down in the quarter as well as your margins. So could you give us a little more color on what is driving this performance in your new stores? And then if you expect this trend to improve as well as what this means as those are drop down to LGP?

Kim Bowers

Sure. I will start and then let the other guys weigh in here as well. As we have said kind of over time, we see NTI is maturing over a three year process and well over a 50% of the stores in our NTI bucket now are less than two years old so they are early on the maturation process. And then couple that with we had a couple of knock them out of park NTIs that are in that bucket as well from the early years, so just look a little bit more skewed in that direction as well.

Hal Adams

This is Hal, Bonnie. I just would continue to point to the fact that we are very encouraged that with 9400 gallons and $6800 dollars a day in sales on the NTI, they compared very favorably to the course or above. And we continue to see good results from our NTIs and encouraged you to look at the fact that the current numbers are comparing 58 stores to the comparable numbers of 38 stores. So there is a lot more stores coming on line and those averages could be very skewed to the bigger stores that Kim mentioned that currently we are averaging. But, still the NTI stores on gallons, sales dollars and on margin percent clearly over performing the rest of the market.

Bonnie Herzog - Wells Fargo

Okay. Thank you.

Kim Bowers

Thanks Bonnie.

Operator

The next question comes from Matthew Boss from JPMorgan.

Esteban Gomez - JPMorgan

Good morning. This is Esteban on for Matt. On the capital allocation front on the $200 million buyback how we should be expect – how should we expect the timing of that repurchase to be spread out?

Clay Killinger

I don't – well, we don't actually have an expected time to utilize the share buybacks, so we will be opportunistic based on the capital needs and excess cash at CST and then evaluating where our stock price is. I would more characterize the stock repurchase program is another lever that we have in addition to our dividend program that we have to return capital back to the shareholders when we find that its strategically optimistic and when we find that it's – the right thing to do based on the stock price at the time and so just gives us another leverage of return money back to shareholders.

Esteban Gomez - JPMorgan

Okay. And on the incremental cash flow generation from the MLP, can we expect your dividend payout increase over time and do you have target yield in mind?

Clay Killinger

Again, we don't have a target yield in mind from the dividends perspective. We will evaluate the cash that we have on hand and there will be a lot of cash that's generated at CST level from the drops and ongoing operations, which the board will need to evaluate whether the return of capital is appropriate to the shareholders and what lever they want to use whether it's stock repurchase or through a dividend increase.

On a consolidated basis there is now on – we have the general partner of Lehigh Gas which is a yield – yield play, it's not a dividend; it's a distribution play. So those that want to – those investors that want to participate in the CST consolidated story now have an opportunity to invest in a Master Limited Partnership that gives them yield. And it should be a favorable yield so they have ongoing cash flow and those that want to participate in the growth story of CST will be able to buy common stock as well.

Esteban Gomez - JPMorgan

Got it. And if I can ask just one more, we heard a lot about the competitive pressure in Texas recently, so I mean what are you seeing there today and how should we think about the merchandise gross margin over a multiyear period, just given the recent consolidation and people coming into the area?

Kim Bowers

I will actually speak to the competitive effects that we are seeing and I will let Hal kind of weigh on the merchandise margin question there as well. I mean clearly the Texas economy is doing well and it's strong and just as you would expect its attracting market entrance into the economy. So we are seeing competition across the state particularly in places like Houston and Dallas.

But, again, we are building our new stores; I say in particular I think our new stores can compete with anybody anywhere any time and any corner. So its part of the market process and part of what we have deal with everyday. And I think in the long run what we have to offer to our consumers, is what they are looking for.

Hal Adams

In the merchandise margin side in the U.S., I think we have said before, we would like to raise our margin percentage 50 basis points a year as we have shown that we have in the last few years by fact of enriching our private label business, expanding food and the addition of [SGI] (ph) stores into the network.

Esteban Gomez - JPMorgan

Got it, fair. Thanks guys.

Kim Bowers

Thank you.

Operator

The next question comes from Damian Witkowski from Gabelli & Company.

Damian Witkowski - Gabelli & Company

Hi, good morning.

Kim Bowers

Good morning, Damian.

Damian Witkowski - Gabelli & Company

I want to just go back to fuel in the U.S.; it's easy to understand why fuel in those cents per gallon earned were down with what the crude oil was doing during the quarter. But, if I look at your same-store sales in the U.S. again, just overall – do you think it's – is there anything specific to your markets or do you think you are actually losing market share with being down almost 2% on a same-store sales basis?

Kim Bowers

I think it's going to be a mix of just kind of the overall trends that we see in the industry. I think the industry numbers are showing about that much down in terms of volume overall. When the prices at the pump get as high as they did this past quarter, folks find ways to drive past them. So I think you are seeing the impact of that. And then the competition we just discussed a few minutes ago, I think it's certainly coming into the play too. There are competitive impacts out there and we are seeing that on the volume side too. Hal, do you need to add any?

Hal Adams

Yes. Damian, I would just add that we are also coming off what we had under Valero regime very, very strong volumes about the last three – actually two to three years. So we are seeing some of that curve fall off naturally almost what we are intending it to do. What we have been trying – trying to maximize more of the gross margin play. So we are also affecting things that way as well. But the market is also very competitive and new guys go across street one of your old stores, he is going to take your share of flash from you. So we are dealing with that.

Damian Witkowski - Gabelli & Company

But, no changes if there was a high yield, think about when you first came out and said, we want to maximize the fuel volume not just volume meaning – any changes in terms of how you think about pricing going forward?

Kim Bowers

No, we're continuing to try to find out that perfect middle spot.

Hal Adams

We are trying to do pretty hard at that too.

Damian Witkowski - Gabelli & Company

And then in terms of the 100 stores that are up for sale possibly, you mentioned LGP being in play now but will there be – could that be done from a tax perspective or is the cost basis on those stores high enough to make sense for them to be dropped into the MLP?

Kim Bowers

Yes. I mean we have a face tax like its either way with the sale process, so its just the fuel contract in particular as it ties into LGP is, but one of the aspects we'll be evaluating but the tax we could use the same whether we sell to LGP or we sell out to somebody else.

Damian Witkowski - Gabelli & Company

Okay. Thanks.

Operator

The next question comes from David Hartley from Credit Suisse.

David Hartley - Credit Suisse

Good morning. Just wanted to ask you about merchandised categories just may be you can highlight areas where you saw particular strength or weakness in the store?

Hal Adams

This is Hal, David. We're particularly happy with our packaged beverage business. We've been working that strong with real strong energy pricing in the markets and the package beverage business is very, very good for us for some time. And along with that comes snacks and so we're happy with that and then we're also feeling that we are quite over performing the market in alcoholic beverages particularly in Texas.

David Hartley - Credit Suisse

And is that incremental because you've always been fairly strong there, so has that picked up even more and what would you attribute that to?

Hal Adams

I would just say that the numbers we see show us picking up share in those categories and in beer, if your question is directly to beer I just think that we happen to be a very, very sharp beer retailer and we've got a good team against that category. I think we serve the customer well and we've done a great job of expanding into the craft and the microbrews and we are in the business of making product available that customers want.

David Hartley - Credit Suisse

So is the beer volume is that trailing the margin you are seeing from the beer category or are they kind of walking forward in step?

Hal Adams

They are walking forward in step.

David Hartley - Credit Suisse

Okay. And just I think someone else previously was kind of asking a bit about merchandise margins particularly in new stores. So I guess the relative year-over-year weakness is more related to newness of the store, scale of the operation, early days in terms again in penetration with some of the categories would that at all be accurate or?

Hal Adams

Yes. So I just want to say that we don't look at it as a year-over-year math. We'll be looking -- you're looking at averages of our NTI stores which are different group of stores. So when you add 20 new stores into that group the average is different. It doesn't mean that the NTI stores are performing less this year than the last year. It just means that there is a different group of stores in that bucket.

So we're not giving, unfortunately you're not looking at same-store NTI stores, you're looking at all NTI stores in our network. So I just want to reemphasize that we're not at all around this table disappointed with the NTI performance of sales or gallons. We're very encouraged and when you look at the 32.5% margin that those stores are driving compared to the 29.7% margin in the same-store it's significant and we want to keep moving in that direction.

David Hartley - Credit Suisse

Okay, fair enough. And just last question, the tobacco category, can you talk a little bit about what you're seeing there and what you're seeing in terms of where you are with regulatory headwinds or activities by some of the retailers recently have you pass-through that. Do you see anything changing with the pending merger?

Hal Adams

Yes. So can't comment on the pending merger that's their business, can't comment on the cigarette business in our stores which tends to be about the same as we've seen in the last three quarters. A little bit loss in volume of about 2% and we're concentrating on maximizing the margin and bucketing our stores where we can take more margins and lowering our retail price and stores where we believe the volume helps our traffic.

David Hartley - Credit Suisse

Great. Thanks a lot.

Kim Bowers

Thank you.

Randy Palmer

Operator, we'll take one more question.

Operator

Thank you. The question comes from John Lawrence from Stephens.

John Lawrence - Stephens

Good morning everyone.

Kim Bowers

Good morning, John.

Randy Palmer

Good morning.

John Lawrence - Stephens

Just to start off with that sort of exercise on the math, if you would imply, if I'm looking at this the right way. Assuming that some of the NTIs are dropped in and let's just say for a hypothetical $100 million of a transaction X number of NTIs are sold or dropped down immediately, 75% of that is cash and 25% would be general partner interest. Is that correct?

Clay Killinger

Limited partner interest.

John Lawrence - Stephens

Limited partner interest. I'm sorry.

Clay Killinger

Yes, sir.

John Lawrence - Stephens

That's the way that would work, so you would book seven, you would get $75 million to redeploy and then that's the three fours to one fourth ratio that would be on every transaction.

Kim Bowers

That's the mix we're looking at.

Clay Killinger

That's correct and that is -- that sort of stipulated by the bond indenture that's why the breakout is like.

John Lawrence - Stephens

And certainly all the NTIs I guess roughly in the U.S. this have been, what is it $0.23, $0.25 since the spin are eligible day one to go into that limited partnership?

Clay Killinger

That's correct.

John Lawrence - Stephens

That's great. And last question, Hal could you give us just a little sense from a food service side of the business what's going on, anything new to report as far as new partnerships et cetera?

Hal Adams

So we keep working that business hard John as you know. And we introduced a new product last quarter when we talked to you last and it's doing well in our stores. We're doing some pricing adjustment to that to increase the movement to get in more people's hand. We've got some real fun stuff plans for the coming quarter get Hatch that corner stores, we are a sponsor of the Hatch Chile Festival in New Mexico and we'll be having Hatch Chile breath of taco, hot pies and kolaches in our stores from the month of December, I mean September. So we think Hatch Chile is our big movement in the southwest, so we're using our culinary talent here to step up our taste for fun in those items and we're really excited about that.

John Lawrence - Stephens

Great. Last question, just the DC timing of how that's sort of when do you move to that facility et cetera, and how is Coremark involved in it?

Kim Bowers

Sure. In terms of some new data, our existing facility leases up in March of 2015, so we're in the process right now of getting that move scheduled so that we will be out of our existing facility on time. And we're working with Coremark on that process.

John Lawrence - Stephens

Great. Thanks.

Randy Palmer

Thanks John. Okay. That completes today's conference call. We appreciate each of you joining us today. If you do have follow-up questions please feel free to contact us. Thanks very much.

Kim Bowers

Thank you.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. We thank you for your participation. You may now disconnect.

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