CrossAmerica Sees Positive Impact From Dealerization Strategy
ALLENTOWN, Pa. — CrossAmerica Partners LP is benefiting from its dealerization strategy as it moves on from a seasonally weak first quarter.
In the first quarter of 2017, CrossAmerica's wholesale fuel volume was up slightly over the same period of 2016, reaching 230 million gallons. Wholesale fuel margins per gallon saw a bigger increase of 12 percent, mainly driven by the increase in crude oil and wholesale gas prices year over year, according to Jeremy L. Bergeron, president of CrossAmerica Partners.
CrossAmerica's rental income from its wholesale segment also improved by 13 percent for the quarter.
"This is primarily due to our dealerization strategy where we converted 77 company-operated sites to dealer accounts during 2016," the CEO explained during the company's first-quarter earnings call May 9. The dealerization strategy had a positive impact on the company's wholesale segment and category gross profit.
"In the first quarter of 2016, 70 percent of our segment gross profit was generated by the wholesale business; this increased to 78 percent in the first quarter of 2017," he explained.
As for category gross profit, CrossAmerica saw a "significant shift from the retail elements of our business to wholesale fuel and rent," said Bergeron.
Rent — the most stable of all categories — increased from 41 percent of gross profits in the first quarter of 2016 to 46 percent in 2017's first quarter, and is now CrossAmerica's largest category driver of free cash flow.
"Once again, this is a testament to our acquisition integration and dealerization strategy to generate more stable qualifying cash flow for our investors," Bergeron stated.
Discussing the pending merger of Alimentation Couche-Tard Inc. and CST Brands Inc. — CrossAmerica's general partner — the chief executive said that while there can be no assurances as to timing, CST continues to expect that the merger will be completed this quarter.
"We view this as great news as we remain excited about the potential strategic benefit that should happen at CrossAmerica, and look forward to sharing more detail on these plans in the near future," Bergeron said.
Q1 FINANCIALS
Noting that the first quarter is traditionally the weakest seasonally, Steven Stellato, CrossAmerica's vice president and chief accounting officer, reported that the company grew adjusted EBITDA to nearly $24 million, up from $22 million in the comparable period last year. In addition, the company reported distributable cash flow of nearly $17 million.
"The primary driver of our year-over-year growth in adjusted EBITDA revolved around our acquisitions, overall integration efforts, and the positive impact from our supplier terms discounts," he said.
According to Stellato, the company saw a roughly $2.5-million positive contribution associated with its Holiday Stationstores and State Oil acquisitions, and the expense reduction associated with the integration efforts on prior transactions, along with a more than $1.1-million favorable impact from supplier terms discounts.
In March 2016, CrossAmerica closed on its acquisition of 31 Holiday Stationstores. Of the 31 company-operated stores, 28 are located in Wisconsin and three are in Minnesota. CrossAmerica also purchased the land associated with 27 of the sites, as CSNews Online previously reported.
Six months later, CrossAmerica completed its acquisition of several assets in the Midwest from State Oil Co. for a total consideration of $43.1 million.
Moving on from the first quarter, Stellato said the company is in a good position as it enters the seasonally stronger second and third quarter driving season.
"We feel that the steps we are taking throughout the organization are demonstrating our ability to execute on our growth strategy in a very prudent manner," he said. "Although we have not closed on an acquisition since the State Oil transaction in the second half of last year, we remain very active in the space and look forward to continuing our successful M&A [merger and acquisition] strategy that has built this organization to the size it is today."
Allentown-based CrossAmerica ended the first quarter with more than 1,250 locations across the United States. These locations distribute more than 1 billion gallons of fuel and generate growth total income of more than $80 million on an annual basis.
In addition, CrossAmerica holds a 17.5-percent interest in CST Brands' fuel supply, which generates a 5-cent wholesale margin on approximately 1.8 billion gallons distributed annually within the CST network. CrossAmerica also operate 75 convenience stores in the upper Midwest market.