TravelCenters Still Stuck In The Red

By Sham Gad | May 08, 2011 AAA

TravelCenters of America (NYSE:TA) reported a net loss of 93 cents per diluted share for the 2011 first quarter ended March 2011 on Monday. Luckily for the company, this isn't as bad as it sounds. Analysts were estimating a loss of $1.03, and in the same quarter last year, the company lost a whopping $2.39 per share. The company also posted sales of $1.78 billion, significantly more than the $1.4 billion reported last year. The company operates and franchises travel centers along major U.S. highways, complete with gas stations, restaurants and other services. TravelCenters was battered by the recession in 2007 and 2008 and may now be working through a recovery. Here we take a closer look at its most recent quarterly report.

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Stuck in Park
With the exception of the 2010 fourth quarter, TA has been stalled for quite some time. Hampered by razor-thin fuel margins and a difficult environment for the trucking industry, TA has been consistently in the red. TA's locations typically include restaurants, truck repair facilities, stores, motels and other services. The company operated 229 sites at the end of the first quarter. The company continues to wait for a solid recovery in the hope of generating a consistent profit. Unfortunately, even as other businesses and industries have improved over the past several years, TA's improvement hasn't been strong enough to consistently reach the bottom line.

A Good Landlord
TA was carved out by Hospitality Properties Trust (NYSE:HPT), the company's current landlord and largest shareholder. Last year, HPT struck an agreement with TA to amend its rental terms, effectively giving TA more breathing room for several years. The news sent TA shares surging from around $4 to over $12. Today, shares trade hands for $8. A big portion of TA's operational improvement this quarter was a direct result of reduced rent expenses. Under the agreement with HPT, TravelCenters' annual rent expenses were reduced by $41 million. Fuel gross margins improved on a dollar basis to $61 million, or 12 cents per gallon, up from $50 million, or 10 cents per gallon. Non-fuel gross margins were up on a dollar basis but remained flat as a percentage of sales at 57.9%.

Wait and See
The trucking industry has been hurt badly as a result of the recession. The recent rise in fuel prices isn't helping things. Railroads such as Kansas City Southern (NYSE:KSU) are operating strongly because they can carry much more product per mile on significantly less fuel than trucks, making them less vulnerable to surging fuel prices. Aside from JB Hunt (Nasdaq:JBHT), the share price of most trucking outfits is hurting as oil prices continue to hit highs. Last week's oil pullback is likely nothing more than temporary relief.

The Bottom Line
TA did make some intriguing foreclosure acquisitions during the quarter, so we'll have to wait and see if this capital allocation decision pays off. (For more, see JB Hunt: The Trucking Company That Isn't.)

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