CrossAmerica Partners LP (CAPL), a leading wholesale distributor of motor fuels and operator of retail sites, faced a challenging start to 2024, with its first-quarter results reflecting the broader industry headwinds. However, the partnership's strategic initiatives, including the Applegreen acquisition and ongoing site conversions, positioned it for potential long-term growth and improved profitability.
Financials
For the full year 2023, CrossAmerica reported annual net income of $40.1 million, annual revenue of $4.39 billion, annual operating cash flow of $117.1 million, and annual free cash flow of $82.5 million. These financial results demonstrated the partnership's ability to navigate the complexities of the industry.
In the first quarter of 2024, CrossAmerica reported a net loss of $17.5 million, a significant decline from the $1.0 million net loss in the same period of 2023. This loss was primarily driven by a $15.9 million charge related to the lease termination with Applegreen and a decline in adjusted EBITDA. Adjusted EBITDA for the quarter was $23.6 million, down from $31.7 million in the first quarter of 2023, due to lower operating income in both the wholesale and retail segments.
Wholesale Segment
The partnership's wholesale segment gross profit declined 14% to $27.0 million, primarily attributable to a 13% decrease in motor fuel gross profit and a 14% decrease in rent gross profit. The decline in motor fuel gross profit was driven by a 9% decrease in volume and a 4% decrease in margin per gallon. The reduction in rent gross profit was due to 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
In the retail segment, gross profit increased 7% to $54.4 million, driven by an 18% increase in merchandise gross profit and a 3% decrease in motor fuel gross profit. The increase in merchandise gross profit was primarily due to the higher store count and improved merchandise gross margin percentage. The decrease in motor fuel gross profit was due to a 3% decline in margin per gallon, partially offset by a 2% increase in volume.
Strategic Initiatives
The partnership's strategic initiatives, including the Applegreen acquisition and ongoing site conversions, were expected to have a potential positive impact on its future performance. The Applegreen transaction, which closed in the first quarter, resulted in the conversion of 59 lessee dealer sites to company-operated retail locations. This transition was anticipated to be immediately accretive to the retail segment and the partnership's overall results.
In addition to the Applegreen acquisition, CrossAmerica converted 20 other locations during the first quarter, either to company-operated sites or commission agent sites. These conversions were expected to generate better fuel volume and increased profitability at these sites going forward.
Liquidity
The partnership's liquidity position remained strong, with availability under the CAPL Credit Facility of $91.2 million as of March 31, 2024. CrossAmerica's credit facility-defined leverage ratio was 4.49x as of the same date, and the partnership remained focused on maintaining a leverage ratio of approximately 4x.
Outlook
While the first quarter of 2024 was challenging, with the partnership reporting a net loss and a decline in adjusted EBITDA, the strategic initiatives undertaken by CrossAmerica were expected to potentially drive improved performance in the coming quarters. The partnership's focus on optimizing its site portfolio, increasing its exposure to retail fuel margins, and maintaining a strong balance sheet positioned it to navigate the current industry environment.
Looking ahead, CrossAmerica's management remained cautiously optimistic about the partnership's prospects. The company did not provide specific financial guidance for the remainder of 2024, but indicated that it expected to see material improvement in its coverage ratio as it moved into the summer driving season, a historically stronger period for the business.
Conclusion
CrossAmerica Partners LP faced a difficult start to 2024, with its first-quarter results reflecting the broader industry challenges. However, the partnership's strategic initiatives, including the Applegreen acquisition and ongoing site conversions, positioned it for potential long-term growth and improved profitability. With a strong liquidity position and a focus on maintaining a healthy balance sheet, CrossAmerica was prepared to navigate the current environment and capitalize on future opportunities.