CrossAmerica Partners LP (CAPL): Navigating the Evolving Fuel Landscape with Retail Expansion and Operational Efficiency

Published on March 12, 2025 | Ticker: CAPL

Business Overview and History

Established in 2011 as a Delaware limited partnership, CrossAmerica Partners LP has grown to become one of the largest independent distributors of motor fuels in the United States. The partnership operates through two primary segments: Wholesale and Retail. The Wholesale segment focuses on the distribution of motor fuels to lessee dealers and independent dealers, while the Retail segment encompasses the retail sale of motor fuels and the operation of convenience stores.

The Topper Group plays a significant role in CrossAmerica's operations, controlling the sole member of the partnership's general partner. This gives the Topper Group the ability to appoint all members of the board of directors and control the partnership's operations and activities. As of February 21, 2025, the Topper Group also held a beneficial ownership of 38.6% limited partner interest in CrossAmerica.

The partnership's journey as a public company began in 2012 when it completed its initial public offering and started trading on the New York Stock Exchange under the ticker symbol CAPL. Since then, CrossAmerica has been actively pursuing acquisitions to expand its wholesale and retail footprint. A notable example of this strategy was the 2022 acquisition of assets from 7-Eleven, which added 106 sites to the partnership's portfolio.

Throughout its history, CrossAmerica has faced several challenges, including volatility in crude oil and wholesale motor fuel prices, which directly impacted the company's cost of sales and gross profit. To mitigate this risk, the partnership has sought to pass along wholesale price changes to its retail customers, although market conditions do not always allow for immediate price adjustments. Additionally, the partnership has had to navigate seasonal fluctuations in motor fuel demand and merchandise sales, which have impacted its financial performance.

The highly competitive and fragmented nature of both the wholesale motor fuel distribution and retail motor fuel industries has presented another ongoing challenge for CrossAmerica. The partnership competes with other distributors, independently owned sites, supermarkets, and other retailers for customers. To differentiate itself, CrossAmerica has focused on providing reliable service, value-added offerings, and strategic site acquisitions and conversions.

Financials

In 2024, CrossAmerica reported total revenue of $4.10 billion, a decline from $4.39 billion in 2023, primarily due to a decrease in wholesale motor fuel volumes. The partnership's net income for the year declined from $42.6 million in 2023 to $22.5 million in 2024. The decrease in net income was largely attributable to higher interest expenses and a decline in adjusted EBITDA, which fell from $165.8 million in 2023 to $145.5 million in 2024.

Operating cash flow for 2024 was $87.8 million, down from $117.1 million in 2023. Free cash flow, defined as operating cash flow less sustaining capital expenditures, amounted to $61.5 million in 2024, compared to $82.5 million in the previous year. The decline in operating cash flow and free cash flow was primarily attributable to the lower adjusted EBITDA generated during the year, as well as an increase in cash interest expense due to rising interest rates and the maturity of some of the partnership's interest rate swap contracts.

In the most recent quarter (Q4 2024), CrossAmerica reported revenue of $944.2 million and net income of $16.9 million. The retail segment's gross profit increased by 9% in Q4 2024 compared to Q4 2023, while the wholesale segment's gross profit decreased by 22% over the same period. The decrease in wholesale segment gross profit was primarily due to a decline in both fuel volume and margin per gallon, driven by the conversion of certain lessee dealer sites to company-operated and commission agent sites, which are now accounted for in the retail segment.

Retail Segment Expansion and Performance

One of the key strategic initiatives for CrossAmerica has been the expansion of its retail presence. In 2024, the partnership converted 107 sites from the wholesale segment to the retail segment, either as company-operated sites or commission agent locations. This move has strengthened the partnership's exposure to retail fuel margins and the convenience store business.

The retail segment's performance has been a bright spot for CrossAmerica. In 2024, the retail segment's gross profit increased by 14% to $289.7 million, driven by a 22% increase in merchandise gross profit and a 9% increase in motor fuel gross profit. On a same-store basis, the retail segment's fuel volume declined by 1% in 2024, but this still outperformed the overall national demand, which declined by approximately 4% according to industry data.

The company's focus on expanding its retail footprint and optimizing the performance of its company-operated sites has been a key driver of its success. In 2024, the retail segment's operating income increased by 7% year-over-year, highlighting the partnership's ability to effectively manage its growing retail operations.

The retail segment sold 554.5 million gallons of motor fuel in 2024, an increase of 9% from 2023, primarily due to the conversion of certain lessee dealer sites to company operated and commission agent sites. As of the end of 2024, CrossAmerica operated 365 retail sites, up from 296 at the end of 2023.

Wholesale Segment Challenges and Optimization

While the retail segment has been a bright spot, the wholesale segment has faced some challenges. In 2024, the wholesale segment's gross profit declined by 16% to $108.6 million, primarily due to a 12% decrease in fuel volume and a slight decline in fuel margin per gallon.

The decline in wholesale volume was largely attributed to the conversion of certain lessee dealer sites to the retail segment. However, on a same-store basis, the wholesale segment's volume performance outpaced the overall national demand, demonstrating the partnership's ability to optimize its wholesale operations.

In 2024, the wholesale segment distributed 743.5 million gallons of motor fuel, generating $1.87 billion in total revenues. The decrease in volume was driven by the conversion of certain lessee dealer sites to company operated and commission agent sites, as well as the net loss of independent dealer contracts.

CrossAmerica has also been actively divesting non-core properties as part of its real estate optimization efforts. In 2024, the partnership divested 30 properties for $36.3 million in proceeds, reflecting its commitment to streamlining its asset portfolio and generating capital for reinvestment.

Financial Position and Liquidity

As of December 31, 2024, CrossAmerica reported total debt of $767.5 million and a credit facility-defined leverage ratio of 4.36 times. The partnership has been proactive in managing its debt levels, with a focus on maintaining a strong balance sheet to support its growth initiatives.

In terms of liquidity, CrossAmerica had $3.4 million in cash as of December 31, 2024, with $68.9 million available under its credit facility. The partnership's current ratio stood at 0.73, while its quick ratio was 0.34, indicating a relatively tight liquidity position.

The partnership's distributable cash flow was $86 million for the full year of 2024, compared to $116.7 million in 2023, reflecting a decline. The distribution coverage ratio was 1.08 times for the full year of 2024, compared to 1.46 times in 2023, indicating a tighter coverage of distributions to unitholders.

Business Operations and Geographic Presence

CrossAmerica is engaged in the wholesale distribution of motor fuels, the ownership and leasing of real estate used in the retail distribution of motor fuels, and the operation of retail sites including the sale of convenience merchandise. The partnership distributes branded motor fuel under the Exxon, Mobil, BP, Shell, Marathon, Valero, and Phillips 66 brands, as well as unbranded motor fuel.

As of December 31, 2024, CrossAmerica distributed motor fuel to approximately 1,640 sites located in 34 states across the United States. The partnership owns or leases approximately 1,080 sites, of which 365 are company-operated retail sites. The remaining sites are either leased to lessee dealers or operated by commission agents.

The company's business is subject to extensive federal, state, and local laws and regulations, including those relating to the storage, handling, use, and sale of motor fuel and the sale of convenience merchandise.

Outlook and Future Initiatives

Looking ahead to 2025, CrossAmerica remains focused on optimizing its portfolio and driving operational efficiency across its business segments. The partnership plans to continue strategically converting sites to retail when it makes sense and expects to maintain its portfolio divestiture efforts along the lines of what was achieved in 2024. This strategy aims to recycle capital for investment in growth opportunities and strengthen the balance sheet.

Management emphasizes that the business remains a steady and dependable operation that consistently generates cash flow. CrossAmerica is committed to executing its strategy while adapting to market conditions, with a continued focus on expanding its retail footprint and streamlining wholesale operations.

The partnership's ongoing commitment to financial discipline and balance sheet management will be crucial in navigating the evolving energy landscape and maintaining its competitive edge in the motor fuel distribution and retail industry.

Conclusion

CrossAmerica Partners LP has demonstrated its ability to adapt and navigate the challenges facing the motor fuel distribution and retail industry. The partnership's strategic focus on expanding its retail presence, optimizing its wholesale operations, and maintaining a strong financial position have positioned it for continued success.

As the energy landscape continues to evolve, with shifts in consumer behavior, technological advancements, and macroeconomic factors, CrossAmerica's adaptability and operational excellence will be crucial in maintaining its competitive edge and delivering value to its unitholders. The partnership's consistent cash flow generation and strategic portfolio management provide a solid foundation for future growth and resilience in a dynamic market environment.

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