CrossAmerica Partners (CAPL) 7 Nov 24 2024 Q3 Earnings call transcript

CrossAmerica Partners recently held its third quarter 2024 earnings call, providing insights into its operational and financial performance, as well as the market environment impacting its business. The call, led by CEO Charles Nifong and CFO Maura Topper, highlighted the company's focus on strategic site conversions and market performance, particularly in its retail segment.

Operational Performance: A Mixed Bag

CrossAmerica Partners reported a 24% increase in gross profit and a 19% increase in operating income for its retail segment in the third quarter of 2024. This was driven by the success in converting sites from the wholesale segment to the retail segment and strong same-store gallons and store sales performance. Despite a soft industry environment with decreased fuel demand and weak demand in certain store categories, the company's retail segment outperformed the overall market in gallons and inside store sales.

The retail fuel margin increased by 9% year-over-year to $0.406 per gallon, with the retail segment benefiting from strong fuel margins. This was largely due to a decline in crude oil prices during most of the quarter, which tended to benefit retail fuel margins due to the slower adjustment of retail fuel street pricing to market conditions. The company's volume performance was flat for the quarter year-over-year, but outperformed national demand, which was down approximately 5%.

Inside sales, however, were down 1% compared to the prior year for the third quarter, with inside sales, excluding cigarettes, remaining flat year-over-year on a same-store basis. The company's focus on expanding food and beverage offerings, particularly in recently converted retail locations, contributed to a slight decline in store merchandise margin.

Strategic Site Conversions and Market Expansion

CrossAmerica Partners' strategic site conversions to retail operations were a key highlight of the earnings call. The company successfully converted Applegreen lease locations to company-operated retail sites in April, increasing its company-operated site count by 79. It also converted certain lessee dealer sites to commission agent sites, which allowed for mutually beneficial economic relationships with dealers. This strategy of expanding its retail presence has been instrumental in the company's outperformance of overall national demand.

Market and Financial Overview

CEO Charles Nifong provided commentary on the market environment and the company's financial results. He noted that the retail segment's performance was aided by strong fuel margins and outperformance in gallons and inside store sales, despite a challenging industry environment. The company's financial results for the quarter included a net income of $10.7 million and adjusted EBITDA of $43.9 million, with changes in the composition of adjusted EBITDA due to strategic initiatives.

Financial metrics such as distributable cash flow and distribution coverage were slightly lower year-over-year, primarily due to increased interest expense and slightly higher sustaining capital spending. The company remains focused on managing its leverage ratio at approximately 4x on a credit facility-defined basis.

Outlook and Conclusion

CrossAmerica Partners' Q3 2024 earnings call highlighted the company's strategic focus on expanding its retail presence and optimizing performance at converted sites. Despite the challenges in the industry environment, the company's financial results and operational performance demonstrate its resilience and adaptability. The strategic site conversions and market performance, particularly in the retail segment, position CrossAmerica Partners for continued growth and value creation for its unitholders.

The company's focus on maintaining a strong and flexible balance sheet, while driving value for its unitholders, is a positive sign for its long-term prospects. As it continues to execute in its base business and ramp up operations of converted stores, CrossAmerica Partners is well-positioned to navigate the evolving market landscape and capitalize on opportunities for growth.

In conclusion, CrossAmerica Partners' Q3 2024 earnings call underscored the company's strategic approach to market performance and financial management, particularly in its retail segment. With a focus on site conversions, operational efficiency, and maintaining a strong balance sheet, CrossAmerica Partners is poised for continued success in the challenging industry environment.