Higher Fuel Margins for Lehigh Gas Partners

But same-store merchandise sales take dip

Gas Pumps

ALLENTOWN, Pa. -- Lehigh Gas Partners LP's acquisitions fueled its third-quarter 2013 financials.Net income for third-quarter 2013 totaled $4.924 million, compared to $ 3.768 million for pro forma third-quarter 2012.

Lehigh Gas Partners completed its initial public offering (IPO) in Oct. 2012, and its management said the pro forma results for the period ended Sept. 30, 2012, provide a more relevant comparison than the actual results of the partnership's predecessor for the period. 

Earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $12.762 million, compared to $9.508 million for the pro forma 2012 period. Total revenue amounted to $490.1 million for the quarter--$480 million of aggregate revenues from fuel sales, including revenues from fuel sales to affiliates and $10.1 million of aggregate rent income. On a pro forma basis in third-quarter of 2012, the partnership recorded $6.6 million in rent income.

During the quarter, the company distributed 160.5 million gallons of fuel at an average of $2.991 per gallon and an average margin of 7.3 cents per gallon, resulting in a gross profit of $11.7 million. For the same period in 2012, on a pro forma basis, the partnership distributed 153.6 million gallons of fuel at an average of $3.14 per gallon and an average margin of 6.1 cents per gallon, resulting in a gross profit of $9.4 million.

Higher average fuel margins accounted for the increase in gross profit from fuel sales for third-quarter 2013 relative to 2012, as well as the higher overall fuel volume for third-quarter 2013 relative to 2012. The increase in fuel volume was primarily due to the Express Lane acquisition completed in fourth-quarter 2012, Getty lease sites acquired during fourth-quarter 2012 and the Rogers Petroleum Inc. and Rocky Top Markets LLC acquisitions closed during the third quarter, offset primarily by marketplace volume declines at certain sites and on a net basis, certain dealer supply contracts that were not renewed.

(Click here for details on Lehigh Gas Partners' acquisitions and ongoing acquisition intentions.)

Total expenses amounted to $483.1 million for the quarter, including rent expense of $3.7 million, operating expenses of $1.3 million, depreciation and amortization of $5.2 million and selling, general and administrative expenses of $4.6 million. Included as a reduction to rent expense is a $300,000 gain related to certain sites leased from Getty where the partnership provided notice to Getty that it intends to terminate the leases at these sites in accordance with the terms of the master lease. Included in selling, general and administrative expenses for the quarter is $300,000 in transfer tax expense associated with the contribution of certain sites to the partnership at the time of its IPO in 2012 and $400,000 in expenses related to the acquisitions the company completed during the quarter.

The increase in rent income in third-quarter 2013 relative to 2012 was due to the additional rent associated with the Express Lane and Dunmore acquisitions completed in fourth-quarter 2012 and to certain Getty leases signed in fourth-quarter 2012 and the acquisitions completed during the third quarter.

Meanwhile, over the last year, same-store merchandise sales declined "a little over 4%," chairman and CEO Joseph Topper Jr. said during the company's third-quarter conference call. He attributed this to the company's "digestion of the Getty leases that we acquired last year … and also somewhat to the weather in the Southeast."

Although he would not offer same-store sales projections, he said, "We run our business to make margin dollars so that we can give [shareholders] dividends out of our cash not out of our gallons. We historically will tell you that the Northeast is suffering from 2% to 3% volume decline over the last few years, and I don't see anything necessarily changing out in the economy that's going to change demand. I see the Southeast growing, which is why we have focused our acquisitions in that marketplace."

Lehigh Gas Partners, Allentown, Pa., is a leading wholesale distributor of motor fuels and owner and lessee of real estate used in the retail distribution of motor fuels. Formed in 2012, Lehigh Gas Partners owns or leases more than 500 sites in 12 states: Pennsylvania, New Jersey, Ohio, Florida, New York, Massachusetts, Kentucky, New Hampshire, Maine, Tennessee, Georgia and Virginia. The company is affiliated with several major oil brands, including ExxonMobil, BP, Shell, Chevron, Sunoco and Valero.