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Impressive Growth by Alimentation Couche-Tard Inc (TSX:ATD.B) in Q1 Makes the Stock a Must-Buy!

Alimentation Couche-Tard (TSX:ATD.B) released its first-quarter earnings earlier this week, as the company continued to show impressive growth. Couche-Tard has been heavily involved in acquisitions, and it was a year ago that the company closed the deal with CST Brands Inc., strengthening its footprint south of the border. However, it wasn’t all just growth via acquisition, as the company was also able to achieve strong organic growth from its existing stores as well.

Let’s take a look in a bit more detail how the company did in Q1, and why it’s a terrific buy today.

Sales up significantly from last year

Revenues for the quarter were up by over 50%, with sales for the period hitting as high as US$14.8 billion — a big increase from the US$9.8 billion that the company recorded this time last year. Specifically, it was fuel-related revenues that drove the big increase in the top line, with the segment’s sales rising by 60% year over year. Merchandise sales were not as strong but still showed a very impressive increase of over 27% from a year ago.

Perhaps just as important was the fact that Couche-Tard generated a lot of the growth organically, as same-store merchandise sales were up across all regions. In Europe, the organic growth rate was 7.3%, which was an increase from the 1.4% that it recorded last year. Canada’s 6.6% same-store growth was a big improvement from the negative growth rate it had in 2017. Meanwhile, the U.S. also grew at 4.2% and was a more modest jump from the 1.4% growth it achieved last year.

On the expense side, while Couche-Tard did see increases, they were under control and ensured a lot of the improvement in the top line flowed through to earnings. Operating, selling, administrative and general expenses were up almost US$300 million this past quarter for an increase of 27%; however, restructuring costs of US$1.5 million were a drop in the bucket compared to the US$43.2 million that Couche-Tard incurred a year ago.

The company faced upward pressure on its costs as a result of rising minimum wages, but in its release Couche-Tard credited its “financial discipline” and focus on creating shareholder value for its ability to keep costs from spiraling out of control. In total, operating expenses rose by 32%, and while high, they did not outpace revenue growth. That led to a much stronger bottom line as profits were up by 25%.

Couche-Tard expects those efficiencies to continue to pay off as the company projects the synergies from the CST Brands acquisition will reach US$215 million within a few years, up from the US$189 million that it estimates its annual run rate is today.

Bottom line

Couche-Tard had a terrific quarter and proved that it could acquire and integrate brands into its corporate structure efficiently and effectively. With strong profits and cash flow, there are many opportunities for the company to continue to grow around the world. Despite its impressive track record, Couche-Tard is still a great value buy that trades at very modest multiples to earnings and can provide investors with lots of opportunity for long-term growth. In five years, the stock has increased by 200%, and there’s no reason the stock can’t continue to generate such impressive returns in the future.

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Fool contributor David Jagielski has no position in any of the stocks mentioned. Alimentation Couche-Tard is a recommendation of Stock Advisor Canada.

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