CrossAmerica Partners' Q1 Earnings See Lift From 7-Eleven Deal

ALLENTOWN, Pa. — CrossAmerica Partners LP continues to see its acquisition deal with 7-Eleven Inc. for more than 100 convenience stores pay off.

In the first quarter of 2022, the partnership's wholesale and retail fuel segments ticked up, primarily driven by the assets the partnership added to its network.

In the spring of 2021, CrossAmerica reached a definitive agreement to acquire 106 stores from Irving, Texas-based 7-Eleven for $263 million. The deal consisted of company-operated sites that were included in 7-Eleven's divestiture process in connection with its acquisition of Speedway LLC from Findlay, Ohio-based Marathon Petroleum Corp.

The vast majority of the sites operated under the Speedway brand, and all of the sites were rebranded in connection with the closing.

CrossAmerica's wholesale fuel gross profit in the first quarter of 2022 was $32.8 million, a 54-percent increase when compared to the first quarter of 2021, driven by increases in both fuel volume and fuel margins. Overall wholesale segment gross profit was $46.9 million, an increase of 35 percent year over year. 

Wholesale fuel volume was 320.2 million gallons for Q1, an increase of 10 percent vs. the same period in 2021, largely due to the acquisition of the assets from 7-Eleven, CrossAmerica President and CEO Charles Nifong said during the company's first-quarter earnings call, held earlier this month.

Same-store fuel volume performance for the wholesale segment during the quarter was down approximately 0.5 percent year over year, impacted by external factors.

"In January, same-site volume was down in [the] low double-digits year over year as the country dealt with the Omicron surge," Nifong explained. "February volumes were up in the mid-single-digits year over year as activity picked up when Omicron receded. Finally, March volumes were negatively impacted by the surge in fuel pricing due to the Ukraine conflict and other factors."

According to the chief executive, the surge in fuel prices continued to adversely impact same-site volumes into April, although volume performance has improved in recent weeks.

The wholesale fuel margin per gallon ticked up to 10.2 cents in the latest quarter, compared to 7.3 cents per gallon for the first quarter of 2021 — a 40-percent increase. This year-over-year increase was driven by several factors, Nifong noted. 

"First, we benefited from increased volume to CrossAmerica's company-operated retail sites, which we supply on a variable margin basis. Second, we continue to benefit from better sourcing costs due to the execution of certain strategic initiatives, such as our brand consolidation. Finally, our wholesale fuel margin per gallon also benefited from higher variable fuel margins due to market conditions," he said.

Retail Segment Results

Moving to CrossAmerica's retail segment, fuel volume on a same-site basis was up 4 percent for the quarter year over year. Inside sales on a same-site basis were down 3 percent relative to last year. However, inside sales excluding cigarettes were up 1 percent.

The retail segment's gross profit rose by $13 million, or 66 percent year over year, to $32.7 million in the first three months of 2022 vs. $19.7 million in the same period of 2021.

As Nifong pointed out, CrossAmerica's wholesale segment supplies its retail segment on a variable margin basis and the overall fuel profitability at these sites is split between the company's wholesale and retail segments.

"The fuel margin to our retail sites recorded in the wholesale segment makes a meaningful contribution to our wholesale segment, and to our overall profitability, that is not apparent looking at the retail segment’s financial results in isolation," he explained.

While the 7-Eleven sites helped boost the quarter's results, the deal also contributed to an increase in the partnership's operating expenses. The addition of those stores increased CrossAmerica's average company-operated site count from 151 to 254, a 68-percent jump.

"We finished the acquisition of the last remaining sites of the 7-Eleven portfolio during the quarter in February. Our strong results for the quarter are due, in part, to the solid contribution of the 7-Eleven portfolio assets," Nifong said. "We continue to work on maximizing the results of these assets, as well as the results of our entire retail portfolio."

As part of its initiatives, CrossAmerica continues to evaluate its portfolio and look for opportunities to divest non-core properties, the CEO said, adding that the partnership completed four property sales in Q1 for $1.5 million in proceeds.

"We have a strong pipeline of identified opportunities within our portfolio to execute on in 2022," Nifong concluded. 

Overall, CrossAmerica reported first-quarter 2022 operating income of $9.7 million and net income of $5 million, compared to an operating loss of $900,000 and a net loss of $4 million for the first quarter of 2021. Adjusted EBITDA was $32 million, which was an increase of 55 percent when compared to the first quarter of 2021.

"The first quarter was a strong period for us despite a challenging operational environment, driven by concerns about Omicron in January and, later in the quarter, the extreme oil market pricing and volatility pressures in March," Nifong said. "Our results this quarter illustrate the underlying strength of our asset portfolio and provide evidence of the impact our strategic initiatives have had on improving our operational performance."

Allentown-based CrossAmerica Partners LP is a wholesale distributor of motor fuels, convenience store operator, and owner and lessee of real estate used in the retail distribution of motor fuels. Its general partner, CrossAmerica GP LLC, is indirectly owned and controlled by entities affiliated with Joseph V. Topper, Jr., the founder of CrossAmerica Partners and a member of the board of the general partner since 2012.

Formed in 2012, CrossAmerica Partners LP is a distributor of branded and unbranded petroleum for motor vehicles in the United States and distributes fuel to approximately 1,750 locations, and owns or leases approximately 1,150 sites. With a geographic footprint covering 34 states, the partnership has relationships with several major oil brands, including ExxonMobil, BP, Shell, Sunoco, Valero, Gulf, CITGO, Marathon and Phillips 66.