SAN ANTONIO & ALLENTOWN, Pa. --CST Brands Inc., one of the largest independent retailers of motor fuels and convenience-store merchandise in North America, and CrossAmerica Partners LP, a leading wholesale distributor of motor fuels and owner and lessee of real estate used in the retail distribution of motor fuels, both reported strong financial results for the first quarter ended March 31, 2015.
CST owns CrossAmerica GP LLC, the general partner of CrossAmerica Partners.
“Led by a strong U.S. fuel margin along with continued growth in same-store merchandise sales, both in the U.S. and Canada, we delivered solid results for the first quarter of 2015,” said Kim Lubel, chairman and CEO of CST Brands Inc. “The momentum in inside-store traffic has positioned us well for the upcoming summer driving season.”
In March, the company completed the installation of 160 Coca-Cola Freestyle fountain units in the San Antonio market. "Fountain plays a key role in growing food and growing snacks in our stores, and we're really interested in seeing how installing this in a market-wide basis is able to allow us to move the needle on these high-margin products," Lubel said.
For the three months ended March 31, 2015, the company reported net income of $14 million, driven by a significant increase in motor fuel gross profit during the quarter—a 27% increase. Net income was $11 million for the comparable period in 2014. Operating income was $31 million for first-quarter 2015 compared to $25 million for first-quarter 2014. Earnings before interest, taxes, depreciation and amortization (EBITDA) was $66 million for the three months ended March 31, 2015, compared to $57 million for the same period in 2014.
The increase in operating income and EBITDA were due to an increase in motor fuel gross profit of $19 million and an increase in merchandise gross profit of $5 million in the United States, offset by increases in operating expenses and general and administrative expenses of $7 million and $14 million, respectively, when compared to the same periods in 2014.
The increase in operating expenses was due to the acquisitions of Nice N Easy and Landmark convenience stores in the United States, along with the addition of 33 new-to-industry (NTI) stores compared to first-quarter 2014. The increase in general and administrative expenses was the result of severance costs, acquisition costs, legal related expenditures and incentive compensation.
Motor fuel gross profit (per gallon) in the United States for first-quarter 2015, after deducting credit-card fees, was 14 cents, a 43% increase compared to 10 cents in first-quarter 2014, caused by a declining crude oil and wholesale gasoline pricing environment.
U.S. merchandise gross profit increased 5% when compared to first-quarter 2014, driven by the company's NTI stores.
Operating revenues totaled $2.2 billion for first-quarter 2015 compared to $3 billion for the same period of 2014. The decrease in operating revenues was due to a decrease in the per-gallon average selling price for both the U.S. retail and Canadian retail segments. The average motor fuel selling price per gallon for our U.S. segment during first-quarter 2015 was $1.10 lower when compared to the price for the same period last year, a decline of 33%.
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CrossAmerica Partners
For the three months ended March 31, CrossAmerica reported revenue of $484.6 million, compared to $482 million in revenue for first-quarter 2014.
"During the first quarter, we saw solid growth in our wholesale fuel supply sales and rental income, thanks to our acquisitions and partnership with CST Brands. Our consolidated fuel sales saw a 51% increase in gallons sold and our rental income grew 10%,” said Joe Topper, CEO of CrossAmerica. “We have also positioned ourselves for future growth with $125 million in acquisitions during this quarter and further consolidated our strong partnership with CST Brands allowing for future strategic acquisitions in the years ahead.”
The company distributed, on a wholesale basis, 233.8 million gallons of motor fuel at an average wholesale gross margin of 5.6 cents per gallon, resulting in a wholesale gross profit of $13.1 million. For the three months ending March 31, 2014, it distributed, on a wholesale basis, 159.6 million gallons of fuel at an average wholesale gross margin of 5.9 cents per gallon, resulting in a wholesale gross profit of $9.4 million.
Topper attributed the increase of 40% in gross profit from wholesale fuel sales for first-quarter 2015 relative to 2014 to a 47% increase in volume from the acquisitions that it has completed since first-quarter 2014, offset by certain marketplace volume declines and the closure of certain sites.
Wholesale fuel margin per gallon for the quarter was approximately 5% lower relative to first-quarter 2014, due to the decline in purchase discounts provided to us by suppliers due to the lower fuel prices. The partnership receives certain discounts from suppliers based on a percentage of the purchase price of fuel; the dollar value of these discounts varies with the fuel price.
Gross profit from other revenues for the wholesale segment, which primarily consist of rental income, was $8 million for first-quarter 2015 compared to $6.1 million for the same period in 2014. Topper associated the increase in rental income with the previously announced acquisitions of Nice N Easy and Landmark convenience stores, which CrossAmerica leases to CST.
For first-quarter 2015, the company sold 46.4 million gallons at an average retail motor fuel gross margin of 10.2 cents per gallon, net of commissions and credit-card fees, resulting in a retail gross profit of $4.7 million. For the same period in 2014, it sold 15.3 million gallons at an average retail motor fuel gross margin of 2.1 cents per gallon, net of commissions and credit-card fees, resulting in a retail gross profit of $300,000. The increase in retail gross profit from retail motor fuel sales for first-quarter of 2015 relative to 2014 was due to an increase in the number of sites.
During the quarter, it also generated $7.8 million in gross margin from the sale of food and merchandise from the acquisitions of Petroleum Marketers Inc. (PMI) and Erickson Oil Products Inc. The company did not have retail food and merchandise operations in first-quarter 2014.
Based in San Antonio, CST Brands has approximately 1,900 locations throughout the southwestern United States, New York and eastern Canada. In the United States, CST Corner Stores sell fuel and signature products such as Fresh Choices baked and packaged goods, U Force energy and sport drinks, Cibolo Mountain coffee, FC Soda and Flavors2Go fountain drinks. In Canada, CST is the exclusive provider of Ultramar fuel and its Dépanneur du Coin and Corner Stores sell signature Transit Café coffee and pastries.
Formed in 2012, Allentown, Pa.-based CrossAmerica distributes fuel to more than 1,100 locations and owns or leases nearly 750 sites in 21 states.
Click here for details on CST's dropdown and acquisition plans.
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