TravelCenters of America wants to sell more than gasoline and diesel. It has spent millions of dollars in an effort to grow into a full-service kind of company in a business sector where profit margins are uncertain and sometimes very thin. The strategy is starting to pay off.
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The front of the TravelCenter located in Lodi, Ohio. The travel centers cater to all travelers, families, business and especially truckers. WESTLAKE, Ohio -- Making money selling gasoline and diesel fuel requires a lot of hustle, some luck, deep pockets and a lot of patience -- the latest report from TravelCenters of America, or TA, shows.
The company's bottom line improved in the fourth quarter, finally reflecting strong profits from stores it bought as long ago as 2011. Those profit announcements come just weeks after a hedge fund, which owns stock in the company, urged it to sell off some of its divisions, for example its repair facilities, as well as selling its real estate and leasing it back as strategies to increase the value of its stock.
The quarterly and full-year 2014 results released Friday also reflect higher profit margins on fuel. The company acknowledged that it did not lower pump prices at its truck stops and convenient stores as rapidly as its own wholesale fuel costs dropped, generating a gross margin one analyst estimated at 23 cents per gallon
In fact, the company has been making 16 cents to 19 cents on every gallon it sells and one way it will do that is by purchasing fuel directly from refiners rather than paying wholesalers to buy it for the company. The company now buys directly from Marathon Petroleum Corp., for example.
"Assuming fuel prices stay where they are, can we expect a 23-cents-per-gallon margin," Thomas O'Brien, CEO and president, said in answer to a question from an analyst in a publicly available teleconference.
O'Brien said the margins on fuel are based more on price volatility and competitive pressures than what the wholesale price is.
And the fourth quarter was an anomaly, he added; and analysts should look at prices over the 12 months that end on Sept. 30, 2014, for a more realistic picture of fuel profitability.
The company's long-term strategy is to be more than just a gasoline or diesel supplier, he explained.
"Our approach to customers includes a value-added proposition. We think we can help customers (truckers) with their efficiency ratios," he said. "If you get (maintenance) service where you buy fuel that may save you a trip."
Full-service dining as well as fast food and the company's $13-a-night reserve rental parking slots for big rigs are other examples of the company's efforts to help truckers increase their "roll time," he said.
Asked whether this integrated sales approach was the answer to future customer growth and profitability, O'Brien replied, "If I had magic bullet to prove it with numbers, our sales force would be unstoppable. It is more of a feel. There are some customers of TA who are fanatical about it, others who believe it intuitively and others who don't believe it."
Here are the basic numbers for the quarter and the year:
- Fourth quarter: Profits were up 187 percent, but sales were down compared to the fourth quarter of 2013. Net profit was $34.4 million compared to $11.9 million in the last three months of 2013. Sales in the last three moths of 2014 were $1.7 billion, compared to $1.9 billion in the last quarter of 2013.
- Full year: Profit for the year was up 93 percent. Net profit was $61 million compared to $32 million in 2013. Sales totaled $7.8 billion in 2014, down slightly from $7.9 billion in 2013.
You can read the company's full report on its website, ta-petro.com, or by clicking here. To listen to the company's teleconference with analysts, click here.
As of the end of 2014, TravelCenters was operating 250 travel centers or truck stops in 43 states and parts of Canada. Of these, 174 did business under the TA brand. The other 76 operated as Petro Shopping Centers. Both brands can be seen along Ohio interstates. The company also operated 34 convenience stores with retail gasoline stations, primarily under the "Minit Mart" brand name.