Core-Mark Isn't Ready For Prime Time (CORE)

| About: Core-Mark Holding (CORE)

SEC filings can be absolutely fascinating. You don’t see filings like the one I am about to describe very often….and that’s a good thing.

Core-Mark (CORE) is one of the largest wholesale distributors to the convenience retail industry in North America, operating 24 distribution centers and distributing some 38,000 SKU of packaged consumer goods to about 20,000 store locations in the US and Canada.

This is a distribution business with some $4 billion in sales through 2004, and about $3.7 billion in sales for nine months of 2005. But margins are extremely narrow. Sales of cigarettes constitute some 72% of sales and excise taxes are a significant part of cigarette sales. Gross profits for the first nine months of the year were only about $207 million or only 5.6%. Net income for the nine months was $6.7 million. This represents a net profit margin of merely a sliver, 0.18%. All this on a share base of only 10.5 million shares outstanding, so there is plenty of sales leverage.

Distribution companies provide valuable service to their customers in terms of planning and inventory control. The cigarette business represents a much lower gross profit margin than non-cigarette businesses which have only 28% of the revenue mix but 64% of the gross profits (2004 figures.)

Core-Mark has emerged from the bankruptcy of Fleming Companies which filed Chapter 11 in April of 2003. The re-org plan of Fleming became effective in August of 2004, and Core-Mark emerged as a separate entity.

This ought to be a fairly interesting, steady-eddy cash flow generating business. It is second only (in cigarette volumes) to McLane Company, Inc, formerly a WalMart subsidiary and now part of Berkshire Hathaway. Capital expenditure needs are de minimus. Cash flow from operations significantly exceeds net income. This really should be an interesting business. Cash flows should be fairly reliable…but the financial statements need to be reliable.

But somehow, Core-Mark may have emerged before it was ready for primetime. The company has just announced that is unable to file its 10-K on time:

Core-Mark Holding Company, Inc. (the “Company

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