tag:blogger.com,1999:blog-8607093527751357203.post5425044079782936867..comments2024-03-27T02:19:13.052-07:00Comments on Quiet Highway: Saga of a Gentleman: Core-Mark Annual Shareholder Meeting (2009)Matt Rafathttp://www.blogger.com/profile/13256519881560435397noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-8607093527751357203.post-80635923861537900062009-11-18T11:53:30.856-08:002009-11-18T11:53:30.856-08:00Mr. Schulz: Thank you for taking the time to post ...Mr. Schulz: Thank you for taking the time to post a comment. The "cigarette stamping" issue has been bothering me for a long time.Matt Rafathttps://www.blogger.com/profile/13256519881560435397noreply@blogger.comtag:blogger.com,1999:blog-8607093527751357203.post-56179105895711590342009-11-18T08:42:12.056-08:002009-11-18T08:42:12.056-08:00Interesting blog.
This always appeared a bit of ...Interesting blog. <br /><br />This always appeared a bit of an orphaned company after ch. 11. <br /><br />I have my own theory on how the whole<br />stamping of cigarettes works. <br /><br />It is more hilarious than what you think by qualifying the benefit as a float issue.. <br /><br />CORE generates something known as cigarette holding profit. but never has reported a cigarette holding loss. <br /><br />what goes on is that during environment of rising state and fed taxes, the company sits on inventory of cigarette packs that have already been slapped with taxation labels (stamps) and can be sold into the market as is.. call this legacy inventory. old inventory that is fully stamped does not get retaxed to an increased tobacco tax etc, but simply is sold to retailers at prices reflecting the tax hike.<br /><br />AS you can see in 2009 so far, the federal legislation introduced created a big 50-state tax hike and resulted in a fairly sizable cigarette holding gain.. this is a pure profit event.<br /><br />the 2009 profits look unsustainably strong simply by virtue of the one time positive effects. but tax hikes are recurring across many states.<br /><br />Apart from any float issue you observe this profit recognition on inventory liquidation can be quite substantial given the tax hikes in question. 100 MM in cigarette inventory repriced at +20% means 20 MM more profit in that period before taxes.<br /><br />Hope this makes sense. Core has over time nicely benefitted from these tax hikes, although in the ordinary course of thigns the gross margin on this distribution is lower than with other consumer packaged goods, fresh foods and merchandising servcices.<br /><br />When tax hikes kick in, generally the volume drop of cartons sold in the period is typically more than offset by the big profit short in the arm. the nature of tobacco tax hikes are that they hikes are typically generous in % terms.Christopher Schulzhttps://www.blogger.com/profile/03926260335259698692noreply@blogger.com