8-K: CrossAmerica Partners LP Reports Mixed Results for 2023, Cites Strong Q4 Performance

CrossAmerica Partners LP announced its fourth quarter and full year 2023 financial results, highlighting a strong fourth quarter but a decline in full year performance compared to 2022.

Summary

• CrossAmerica Partners LP reported a net income of $16.7 million for the fourth quarter of 2023, compared to $17.1 million in the same period of 2022.
• Adjusted EBITDA for Q4 2023 was $47.6 million, up from $44.3 million in Q4 2022, and distributable cash flow increased to $35.8 million from $33.3 million.
• For the full year 2023, net income was $42.6 million, a decrease from $63.7 million in 2022.
• Full year 2023 adjusted EBITDA was $165.8 million, down from $179.8 million in 2022, and distributable cash flow was $116.7 million, compared to $140.9 million in the previous year.
• The company's leverage ratio was 4.2 times as of December 31, 2023, compared to 3.7 times at the end of 2022.
• The distribution coverage ratio was 1.80 times for the fourth quarter of 2023, up from 1.67 times in Q4 2022, but decreased to 1.46 times for the full year 2023 from 1.77 times in 2022.
• Wholesale segment gross profit increased slightly in Q4 2023 to $33.0 million from $32.8 million in Q4 2022, while full year gross profit decreased to $128.8 million from $130.7 million.
• Retail segment gross profit increased to $69.0 million in Q4 2023 from $60.4 million in Q4 2022, and full year gross profit increased to $253.5 million from $245.0 million.
• The company sold ten properties for $9.2 million during 2023, resulting in a net gain of $6.5 million.
• CrossAmerica entered into an agreement on January 26, 2024, to acquire assets from Applegreen Midwest, LLC and Applegreen Florida, LLC, converting 59 lessee dealer sites to company operated sites.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to the strong Q4 results and strategic moves, but tempered by the weaker full-year performance and increased leverage.

Positives

• The fourth quarter of 2023 was the best in the company's history, with strong financial results.
• The retail segment experienced significant growth in gross profit, driven by both fuel and merchandise sales.
• The distribution coverage ratio improved in the fourth quarter, indicating a stronger ability to cover distributions.
• The company is expanding its retail operations by converting 59 lessee dealer sites to company operated sites.
• Merchandise gross profit percentage increased to 28.2% for the fourth quarter 2023 and 28.4% for the full year 2023, indicating improved margins.
• The company paid down $9 million on its credit facility in 2023.

Negatives

• Full year 2023 net income, adjusted EBITDA, and distributable cash flow decreased compared to 2022.
• The full year distribution coverage ratio decreased from 1.77 times in 2022 to 1.46 times in 2023.
• The company experienced a decrease in motor fuel gross profit for the full year 2023 due to lower fuel margins.
• Interest expense increased by $11.6 million for the full year 2023 due to rising interest rates.
• The leverage ratio increased to 4.2 times as of December 31, 2023, compared to 3.7 times at the end of 2022.
• Wholesale segment gross profit decreased slightly for the full year 2023.

Risks

• The company's financial results are subject to fluctuations in motor fuel margins and prices.
• Rising interest rates could continue to impact the company's profitability through increased interest expenses.
• The company's performance is dependent on maintaining and growing its relationships with major oil brands.
• The conversion of lessee dealer sites to company operated sites may involve integration risks and increased operating expenses.
• The company's leverage ratio has increased, which could pose a risk if financial performance declines.

Future Outlook

The partnership is well positioned to continue its success into 2024 and beyond, with a focus on executing its business strategy and expanding retail operations. The acquisition of assets from Applegreen is expected to further enhance the company's retail presence.

Management Comments

• We finished the year with the best fourth quarter in our history.
• Our financial results for the fourth quarter, and year overall, reflect the ongoing success of our business strategy.
• We continue to execute well across all of our business operations, which is reflected in our excellent financial results for the past year and our strong balance sheet at year end.
• The partnership is well positioned to continue this success into 2024 and beyond.

Industry Context

The results reflect the ongoing trends in the fuel distribution and convenience store industries, including the importance of retail operations and the impact of fuel price fluctuations. The company's focus on expanding its retail operations aligns with the industry trend of increasing profitability through company-operated sites.

Comparison to Industry Standards

• CrossAmerica's leverage ratio of 4.2x is higher than some of its peers, such as Sunoco LP which has a leverage ratio closer to 3.5x, indicating a higher debt burden.
• The company's distribution coverage ratio of 1.46x for the full year is lower than some other master limited partnerships (MLPs) in the energy sector, which often target coverage ratios above 1.5x.
• The increase in retail gross profit is in line with industry trends where convenience stores are seeing increased sales and margins, similar to what companies like Casey's General Stores have reported.
• The decline in wholesale fuel margins is a common challenge in the industry, as seen in reports from other fuel distributors, due to fluctuations in crude oil prices and market dynamics.
• The conversion of lessee dealer sites to company operated sites is a strategy also employed by other fuel retailers to increase control and profitability, similar to moves by companies like Alimentation Couche-Tard.

Stakeholder Impact

• Shareholders will be impacted by the mixed financial results, with a strong Q4 but weaker full-year performance.
• Employees may see changes due to the conversion of lessee dealer sites to company operated sites.
• Customers may experience changes in service and offerings at the converted sites.
• Suppliers may see changes in demand and distribution patterns.
• Creditors will be impacted by the increased leverage ratio.

Next Steps

• The company will host a conference call on February 27, 2024, to discuss the fourth quarter and full year 2023 earnings results.
• The company will proceed with the acquisition of assets from Applegreen, expected to close in the first and second quarters of 2024.
• CrossAmerica will continue to manage debt levels and leverage ratio.

Key Dates

Keywords

motor fuel, wholesale, retail, convenience store, EBITDA, distribution, gross profit, leverage, merchandise, fuel margin