10-Q: CrossAmerica Q3 2025: Asset Sales Boost Income Amid Fuel Price Drop

CrossAmerica Partners LP reported a significant increase in net income for the nine months ended September 30, 2025, primarily driven by substantial gains from its real estate rationalization efforts and reduced interest expense, despite lower fuel revenues and volumes.

Summary

• Net income available to limited partners increased to $12.9 million for the three months ended September 30, 2025, up from $10.1 million in the prior year period.
• For the nine months ended September 30, 2025, net income available to limited partners significantly rose to $29.6 million, compared to $3.7 million in the same period of 2024.
• Operating revenues decreased by 10% to $971.8 million for the three months and 11% to $2.8 billion for the nine months ended September 30, 2025, primarily due to a 7-9% decrease in consolidated average fuel selling price and a 5% decrease in fuel volume.
• Gross profit declined by 6% to $104.8 million for the three months and 1% to $295.6 million for the nine months, mainly due to lower aggregate motor fuel gross profit and reduced rent gross profit in the wholesale segment.
• The company recorded significant net gains from dispositions and lease terminations of $7.4 million for the three months and $40.8 million for the nine months ended September 30, 2025, compared to $4.7 million gain and $6.5 million loss, respectively, in 2024.
• Interest expense decreased by 17% to $11.8 million for the three months and 4% to $37.2 million for the nine months, attributed to a lower average SOFR rate and reduced outstanding debt from asset sale proceeds.
• The retail segment's merchandise gross profit increased by 5% to $32.0 million for the three months and 7% to $87.4 million for the nine months, driven by increased sales in the base business and a higher merchandise gross profit percentage.
• The distribution coverage ratio was 1.39x for the three months ended September 30, 2025, and 0.99x for the nine months ended September 30, 2025.
• Capital expenditures for the nine months ended September 30, 2025, totaled $28.7 million, including $7.1 million in sustaining capital and $21.5 million in growth capital.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive. While core operating revenues and gross profit declined due to market factors (lower fuel prices and volumes), the company demonstrated strong strategic execution in its real estate rationalization, generating substantial gains and reducing debt. This led to a significant improvement in net income and operating income. However, the nine-month distribution coverage ratio falling slightly below 1.0x indicates some pressure on cash flow relative to distributions, and the resignation of a key executive adds a minor element of uncertainty.

Positives

• Net income available to limited partners increased by $2.7 million (26.8%) for the three months and $25.9 million (703.8%) for the nine months ended September 30, 2025, compared to the prior year periods.
• Operating income increased by $1.0 million (3.7%) for the three months and $29.3 million (69.4%) for the nine months ended September 30, 2025.
• Significant net gains from asset dispositions and lease terminations: $7.4 million for the three months and $40.8 million for the nine months ended September 30, 2025, reflecting successful real estate rationalization.
• Interest expense decreased by $2.4 million (17%) for the three months and $1.7 million (4%) for the nine months, due to lower SOFR rates and debt reduction from asset sales.
• Retail merchandise gross profit increased by $1.5 million (5%) for the three months and $5.6 million (7%) for the nine months, indicating strength in non-fuel sales.
• The Credit Facility balance was reduced from $767.5 million at December 31, 2024, to $705.5 million at September 30, 2025, improving the company's debt profile.
• The effective interest rate on the Credit Facility decreased to 5.8% at September 30, 2025, from 6.2% at December 31, 2024.

Negatives

• Operating revenues decreased by $107 million (10%) for the three months and $358 million (11%) for the nine months ended September 30, 2025, primarily due to lower fuel selling prices and reduced fuel volumes.
• Consolidated fuel volume decreased by 5% for both the three and nine months ended September 30, 2025, due to the net loss of independent dealer contracts and a reduction in base business volume.
• Gross profit decreased by $6.5 million (6%) for the three months and $1.8 million (1%) for the nine months, mainly driven by lower aggregate motor fuel gross profit.
• Wholesale segment motor fuel gross profit decreased by $1.2 million (7%) for the three months and $1.5 million (3%) for the nine months, impacted by lower volume and reduced prompt payment discounts.
• Wholesale segment rent gross profit decreased by $1.7 million (18%) for the three months and $5.5 million (18%) for the nine months, due to site sales and conversions.
• The distribution coverage ratio for the nine months ended September 30, 2025, was 0.99x, indicating that distributable cash flow was slightly less than distributions paid on common units for the period.

Risks

• The Topper Group's business strategy and operations, and potential conflicts of interest with the Partnership.
• Availability of cash flow to pay current quarterly distributions on common units.
• Availability and cost of competing motor fuel resources.
• Motor fuel price volatility, including as a result of geopolitical conflicts (e.g., Ukraine or Middle East).
• A reduction in demand for motor fuels.
• Changes in U.S. trade policy, including the imposition of tariffs and resulting consequences.
• Competition in the industries and geographical areas of operation.
• Environmental compliance and remediation costs.
• Existing or future indebtedness and related interest expense, and the ability to comply with debt covenants.
• Liquidity, results of operations, and financial condition.
• Failure to comply with applicable tax and other regulations or governmental policies.
• Future legislation and changes in regulations, governmental policies, immigration laws and restrictions, or changes in enforcement or interpretations thereof.
• 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.
• Technological advances.
• The 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.
• Ability to comply with federal and state laws and regulations, including those related to environmental matters, the sale of alcohol, cigarettes, and fresh foods, employment and health benefits, and immigration.

Future Outlook

The company anticipates continued impact from volatile crude oil markets on motor fuel gross profit. Strategic real estate rationalization efforts are expected to continue, involving site conversions from wholesale to retail and divestitures of lower-performing properties. These actions are projected to increase retail segment gross profit and operating expenses, reduce wholesale segment gross profit, and decrease interest expense due to debt paydowns from asset sale proceeds. The company will continue to evaluate opportunistic acquisitions that align with its strategy, subject to market conditions, availability of suitable targets, regulatory compliance, and financing terms.

Management Comments

• Management believes that the disclosures made are adequate to keep the information presented from being misleading.
• Management reviews its estimates based on currently available information, and changes in facts and circumstances could result in revised estimates and assumptions.
• Management views the business in two reportable segments: wholesale and retail.
• Management has evaluated the effectiveness of disclosure controls and procedures as of September 30, 2025, and concluded they were effective.

Industry Context

The company's performance is significantly influenced by the highly volatile crude oil commodity markets, which directly impact wholesale motor fuel prices, cost of sales, and gross profit margins. The ongoing trend of optimizing retail site formats and divesting lower-performing assets aligns with broader industry efforts to enhance efficiency and profitability in the competitive fuel and convenience retail sector. The shift from scan-based trading to a gross profit model for certain merchandise products reflects a strategy to capture more margin in the convenience store segment, a common move among retailers seeking to diversify revenue streams beyond fuel.

Management Changes

Legal Proceedings

• The company is from time to time party to various lawsuits, claims, and other legal proceedings that arise in the ordinary course of business.
• 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 from TopStar (affiliated with Topper Group) were $9.4 million (3 months) and $27.3 million (9 months) ended September 30, 2025.
• Purchased a property from TopStar for $0.2 million in February 2025.
• Rent expense under lease agreements with the Topper Group was $2.4 million (3 months) and $7.4 million (9 months) ended September 30, 2025.
• Incurred expenses under the Omnibus Agreement (with DMI, affiliated with Topper Group) totaling $32.5 million (3 months) and $97.1 million (9 months) ended September 30, 2025.
• Distributed $7.7 million to the Topper Group and $2.6 million to affiliates of John B. Reilly, III for common unit ownership during each of the three months ended September 30, 2025.
• Accretion on preferred membership interests issued to related parties was $0.7 million (3 months) and $2.0 million (9 months) ended September 30, 2025.
• Paid income tax distributions of $1.3 million related to preferred membership interests for each of the three and nine months ended September 30, 2025.
• Incurred charges of $0.6 million (3 months) and $1.7 million (9 months) with an entity affiliated with the Topper Group for maintenance and environmental remediation activities.
• Received $0.1 million (3 months) and $0.4 million (9 months) from DMI for environmental remediation indemnification.
• Purchased convenience store products from an affiliate of John B. Reilly, III and Joseph V. Topper, Jr. for $5.2 million (3 months) and $14.3 million (9 months) ended September 30, 2025.
• Lease expense for vehicles from an entity affiliated with the Topper Group was insignificant (3 months) and $0.1 million (9 months) ended September 30, 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 (3 months) and $0.8 million (9 months) ended September 30, 2025.
• Engaged a company affiliated with John B. Reilly, III for public relations and website consulting services, with insignificant costs.

Stakeholder Impact

• Shareholders: Increased net income and EPS, but a 9-month distribution coverage ratio slightly below 1.0x may raise questions about distribution sustainability if not improved. Debt reduction and asset rationalization could enhance long-term unit value.
• Employees: Resignation of the SVP of Retail indicates a change in leadership within a key segment, potentially impacting retail operations and strategy.
• Customers: Site conversions from wholesale to company-operated or commission agent sites, and investments in company-operated sites (e.g., targeted renovations, increased food offerings), could lead to changes in service, pricing, and product availability.
• Creditors: Reduced Credit Facility balance and lower effective interest rates improve the company's credit profile and reduce financial risk.
• Suppliers: Concentration risk remains high, with 79% of motor fuel purchased from four suppliers and 52% of merchandise from one supplier, indicating reliance on key relationships.

Next Steps

• 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 disclosures for disaggregation of income statement expenses (ASU 2024-03) in the Annual Report on Form 10-K for the year ending December 31, 2027, and subsequent interim and annual reports.
• Continue the real estate rationalization effort, including divesting lower-performing properties and converting sites to optimize class of trade.
• Evaluate acquisitions on an opportunistic basis, pursuing targets that fit the company's strategy, subject to market conditions and financing availability.

Key Dates

Recommendation

The company's financial results present a mixed picture. While net income and operating income saw substantial increases, primarily driven by significant gains from asset dispositions and reduced interest expense, core operating revenues and gross profit declined due to lower fuel prices and volumes. The strategic real estate rationalization is a positive, generating cash and reducing debt, which strengthens the balance sheet. However, the nine-month distribution coverage ratio of 0.99x, while close to 1.0x, suggests that distributable cash flow is not fully covering distributions, which is a point of concern for a partnership. The resignation of the SVP of Retail introduces some uncertainty in the retail segment. Given these offsetting factors, a 'hold' recommendation is appropriate, as the benefits from strategic asset management are currently balancing the pressures on core fuel distribution and retail operations.

Keywords

Fuel distribution, Convenience stores, Real estate, Wholesale fuel, Retail fuel, Asset dispositions, Debt reduction, SEC filing, Quarterly report, Financial performance, Crude oil prices, Merchandise sales, Partnership, CAPL