10-Q: CrossAmerica Partners Q2 Profit Soars on Asset Sales

CrossAmerica Partners LP reported a significant increase in net income for Q2 2025, primarily driven by substantial gains from its ongoing real estate rationalization efforts, despite a decline in overall revenues.

Summary

• Net income available to limited partners for the three months ended June 30, 2025, increased by 108% to $24.488 million, up from $11.752 million in the same period of 2024.
• For the six months ended June 30, 2025, net income available to limited partners swung to a profit of $16.708 million, compared to a loss of $6.445 million in the prior year period.
• Operating revenues decreased by 15% to $961.925 million in Q2 2025 and by 12% to $1.824 billion for H1 2025, primarily due to a 13% decrease in consolidated average fuel selling price in Q2 and a 10% decrease in H1, alongside a 4-5% volume reduction.
• Gross profit decreased by 4% to $100.992 million in Q2 2025, but increased by 3% to $190.806 million for H1 2025.
• The company recorded significant net gains on dispositions and lease terminations of $28.365 million in Q2 2025 and $33.402 million in H1 2025, compared to gains of $5.578 million and losses of $11.228 million in the respective prior year periods.
• Interest expense decreased by 12% to $12.569 million in Q2 2025 due to a lower average SOFR rate and reduced debt, but increased by 3% to $25.413 million for H1 2025 due to the maturity of favorable interest rate swap contracts.
• Net cash provided by operating activities increased to $37.697 million for H1 2025, up from $34.723 million in H1 2024.
• Net cash provided by investing activities significantly improved to $50.871 million for H1 2025, compared to a use of $26.114 million in H1 2024, driven by $72.766 million in proceeds from asset sales.
• Total debt and finance lease obligations decreased to $733.332 million as of June 30, 2025, from $775.436 million at December 31, 2024.
• The Distribution Coverage Ratio for H1 2025 was 0.79x, a decrease from 0.95x in H1 2024, indicating that distributable cash flow did not fully cover distributions paid.
• The company sold 60 sites in Q2 2025 and 67 sites in H1 2025 as part of its real estate rationalization effort.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While headline net income and operating income show significant improvement, this is largely driven by non-recurring asset sales. Core revenue and wholesale gross profit declined, and the distribution coverage ratio falling below 1.0x is a concern for an MLP. The reduction in debt is positive, but the increase in impairment charges and the maturity of favorable interest rate swaps present headwinds.

Positives

• Net income available to limited partners increased by 108% in Q2 2025 and swung from a loss to a profit in H1 2025.
• Operating income significantly increased by 47% in Q2 2025 and 187% in H1 2025.
• Substantial gains from asset dispositions ($29.7 million in Q2, $35.2 million in H1 2025) contributed significantly to profitability.
• Debt and finance lease obligations decreased by $42.104 million from December 31, 2024, to June 30, 2025.
• Net cash provided by operating activities increased by $3 million for H1 2025, driven by improved working capital management.
• The company maintains significant availability under its Credit Facility, with $193.6 million available at June 30, 2025, and $200.7 million at August 1, 2025.

Negatives

• Operating revenues decreased by 15% in Q2 2025 and 12% in H1 2025, primarily due to lower average fuel selling prices and reduced fuel volumes.
• Consolidated fuel volume decreased by 4% in Q2 2025 and 5% in H1 2025 due to net loss of independent dealer contracts and a reduction in base business volume.
• Gross profit declined by 4% in Q2 2025, driven by decreases in aggregate motor fuel and rent gross profit in the wholesale segment.
• The Distribution Coverage Ratio for H1 2025 was 0.79x, falling below 1.0x, indicating that cash flow from operations did not fully cover distributions paid to common unitholders.
• Depreciation, amortization, and accretion expense increased significantly (26% in Q2, 34% in H1) primarily due to higher impairment charges ($6.0 million in Q2, $14.4 million in H1 2025).
• The maturity of three favorable interest rate swap contracts on April 1, 2024, led to an increase in the effective interest rate on the Credit Facility to 6.1%.

Risks

• The Topper Group's business strategy and operations, and potential conflicts of interest with the Partnership.
• Availability of sufficient cash flow to pay current quarterly distributions on common units.
• Availability and cost of competing motor fuel resources.
• Volatility in motor fuel prices, exacerbated by global conflicts such as in Ukraine or the Middle East.
• A reduction in demand for motor fuels.
• Changes in U.S. trade policy, including the imposition of tariffs.
• Intense competition in the industries and geographical areas of operation.
• Environmental compliance and remediation costs.
• Risks associated with existing or future indebtedness and the ability to comply with debt covenants.
• Impacts on liquidity, results of operations, and financial condition.
• Failure to comply with applicable tax and other governmental regulations or policies.
• Future legislation and changes in regulations, governmental policies, immigration laws, and restrictions.
• Future regulations and actions that could expand the non-exempt status of employees under the Fair Labor Standards Act.
• Future income tax legislation and changes in energy policy.
• Impact of technological advances.
• Impact of worldwide economic and political conditions, wars, and acts of terrorism.
• Weather conditions or catastrophic weather-related damage, earthquakes, and other natural disasters.
• Hazards and risks associated with transporting and storing motor fuel.
• Unexpected environmental liabilities.
• The outcome of pending or future litigation.
• Concentration risk with motor fuel suppliers (approximately 79% from four suppliers for H1 2025).
• Concentration risk with motor fuel carriers (approximately 22% of gallons delivered by top two carriers for H1 2025).
• Concentration risk with merchandise suppliers (approximately 56% from one supplier for H1 2025).

Future Outlook

The company anticipates continued impacts from crude oil price volatility on motor fuel gross profit. It plans to continue its real estate rationalization efforts, including divesting lower-performing properties, often with continued fuel supply relationships. Proceeds from these sales are expected to reduce Credit Facility borrowings and interest expense. The company will also continue to evaluate and pursue opportunistic acquisitions that align with its strategy, subject to market conditions, availability of suitable targets, regulatory compliance, and financing terms.

Management Comments

• We continue to consider the highest and best use class of trade for each of our properties, which may result in the conversion of sites from one class of trade to another and ultimately increases or decreases in the gross profit for the wholesale and retail segments.
• As part of our evaluation of the highest and best use class of trade for each of our properties, we anticipate continuing to divest certain assets, often lower performing properties.
• For many of these divestitures, we anticipate continuing to supply the sites with fuel through long-term supply contracts.
• Due to using the proceeds of these sales to pay down borrowings on our Credit Facility, we anticipate a decrease in our interest expense.
• We will continue to evaluate acquisitions on an opportunistic basis. Additionally, we will pursue acquisition targets that fit into our strategy.

Industry Context

The company operates within the highly competitive and volatile motor fuel distribution and convenience retail sectors. Its performance is significantly influenced by crude oil price fluctuations, which directly impact fuel selling prices and gross margins. The ongoing strategy of divesting lower-performing assets and converting sites reflects a broader industry trend towards optimizing asset portfolios and enhancing retail segment profitability. The company's concentration risks with key suppliers and carriers are typical for the fuel distribution industry, highlighting supply chain dependencies.

Comparison to Industry Standards

• No specific comparable companies, projects, or results were mentioned in the filing to provide a direct assessment against global benchmarks.

Legal Proceedings

• The company is from time to time party to various lawsuits, claims, and other legal proceedings arising in the ordinary course of business, including for alleged personal injury, breach of contract, property damages, environmental damages, employment-related claims, and punitive damages.
• Management believes it is not reasonably possible that these proceedings, separately or in the aggregate, will have a material adverse effect on consolidated financial position, results of operations, or cash flows.

Related Party Transactions

• Wholesale motor fuel sales and real estate rentals to TopStar (an entity affiliated with the Topper Group) were $9.1 million in Q2 2025 and $17.9 million in H1 2025.
• Accounts receivable from TopStar were $0.9 million at June 30, 2025.
• Purchased a property from TopStar for $0.2 million in February 2025.
• Lease real estate from the Topper Group, with rent expense of $2.5 million in Q2 2025 and $5.0 million in H1 2025.
• Incurred expenses under the Omnibus Agreement (management services, cost reimbursements) totaling $32.8 million in Q2 2025 and $64.7 million in H1 2025.
• Amounts payable to the Topper Group related to Omnibus Agreement expenses were $5.1 million at June 30, 2025.
• Distributed $7.7 million to the Topper Group related to common unit ownership in Q2 2025 and $15.4 million in H1 2025.
• Distributed $2.6 million to affiliates of John B. Reilly, III related to common unit ownership in Q2 2025 and $5.2 million in H1 2025.
• Accretion on preferred membership interests issued to related parties was $0.7 million in Q2 2025 and $1.3 million in H1 2025.
• Incurred charges for maintenance and environmental remediation activities with a Topper Group affiliated entity of $0.4 million in Q2 2025 and $1.1 million in H1 2025.
• Accounts payable to this related party were $0.3 million at June 30, 2025.
• Received $0.1 million in Q2 2025 and $0.2 million in H1 2025 from DMI for environmental remediation indemnification.
• Purchased convenience store products from an affiliate of John B. Reilly, III and Joseph V. Topper, Jr., amounting to $4.8 million in Q2 2025 and $9.1 million in H1 2025.
• Amounts payable to this related party were $1.6 million at June 30, 2025.
• Lease expense for vehicles from a Topper Group affiliated entity was insignificant in Q2 2025 and $0.1 million in H1 2025.
• Rent expense for principal executive offices leased from an affiliate of John B. Reilly, III and Joseph V. Topper, Jr. was $0.3 million in Q2 2025 and $0.6 million in H1 2025.
• Cost of public relations and website consulting services from a company affiliated with John B. Reilly, III was insignificant.

Stakeholder Impact

• Shareholders: Net income available to limited partners increased significantly, but the distribution coverage ratio fell below 1.0x, raising questions about the sustainability of current distributions from operating cash flow alone. Asset sales are providing cash for debt reduction and distributions.
• Creditors: Debt levels have decreased, and the company is in compliance with financial covenants under its Credit Facility, which is positive for creditors.
• Customers: Lower average fuel selling prices could benefit customers, but reduced volumes suggest some customer attrition or decreased demand.
• Employees: General and administrative expenses decreased, partly due to lower equity compensation expense, which could impact employee incentives. The Applegreen acquisition and site conversions may lead to changes in staffing needs and roles.

Next Steps

• Continue to consider the highest and best use class of trade for properties, potentially converting sites or divesting assets.
• Anticipate continuing to divest certain lower-performing assets, often with continued fuel supply contracts.
• Utilize proceeds from asset sales to pay down borrowings on the Credit Facility.
• Evaluate and pursue acquisition targets on an opportunistic basis that fit the company's strategy.
• Include new income tax disclosures (ASU 2023-09) in the Annual Report on Form 10-K for the year ending December 31, 2025.
• Implement new income statement expense disclosures (ASU 2024-03) in the Annual Report on Form 10-K for the year ending December 31, 2027, and interim and annual reports thereafter.

Key Dates

Recommendation

While the company reported a significant increase in net income and operating income, these gains are largely attributable to non-recurring asset sales rather than core operational growth. Revenue and fuel volumes declined, and the distribution coverage ratio for the first half of 2025 fell below 1.0x, which is a key concern for an MLP's distribution sustainability. The reduction in debt is a positive, but the underlying operational trends and reliance on asset divestitures suggest a 'hold' recommendation until there is clearer evidence of sustainable operational improvements and distribution coverage from organic cash flow.

Keywords

Motor Fuel Distribution, Convenience Stores, Retail Fuel, Wholesale Fuel, MLP, Master Limited Partnership, SEC Filing, 10-Q, Energy Sector, Real Estate Rationalization, Asset Sales, Distribution Coverage Ratio, Crude Oil Prices, Financial Performance