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Berkshire Hathaway will pump out more Pilot data with bigger stake

Just as analysts are about to lose the financial information coming out of one of the biggest truck stop companies, they are going to get a look at an even bigger one.

The planned acquisition by TravelCenters of America (NASDAQ: TA) by oil company giant BP, announced last month, means that the quarterly earnings and conference calls of TA will disappear. 

But earlier this quarter, on Jan. 31, Berkshire Hathaway (NYSE: BRK.B) increased its stake in privately owned Pilot Travel Centers, which operates the PilotFlyingJ chain, by 41.4%, bringing its total ownership to 80%. The plan had been disclosed multiple times in various company filings with the Securities and Exchange Commission and was completed in the first quarter per the original agreement, which dates back all the way to 2017. The remaining 20% is with the Haslam family. James Haslam is the current Pilot chairman and former CEO. 

Berkshire Hathaway said the price for the 41.4% stake was “approximately” $8.2 billion. That puts the total value of Pilot at about $19.8 billion. TA, by contrast, was sold for approximately $1.3 billion. 

Pilot has more than 650 travel centers across 44 states and has over 150 retail locations where it sells diesel through third-party arrangements. Pilot has about 25,500 employees. 

In the annual report and 10-K filed with the SEC, Berkshire Hathaway said it had acquired Pilot for “financial reporting purposes” and will include Pilot’s financial statement going forward.

The Pilot results will be included in the breakout of the Berkshire Hathaway Manufacturing, Service and Retailing subsidiary. That group currently includes such companies as Lubrizol. References to Pilot in earlier Berkshire Hathaway earnings reports were mostly just mentions of its ownership without specific dollar amounts.

In a statement sent to FreightWaves, a Pilot spokesman said the company “performed very well last year and is in a very strong position to continue our growth trajectory.”

Berkshire Hathaway’s discussion of those businesses in Manufacturing, Service and Retailing in its 10-K and other SEC filing is more extensive, with disclosure of revenue figures as well as the change in earnings. That information will now be available for Pilot. 

In the latest 10-K that disclosed the acquisition of the 41.4% stake, Berkshire Hathaway already disclosed more information about Pilot than it had in previous years. 

Among the operating highlights at Pilot revealed by Berkshire Hathaway:

  • The company sold more than 13 billion gallons of fuel in 2022. (By contrast, the figure at TA, gasoline and diesel was about 2.27 billion gallons last year.) There was no breakdown of diesel versus gasoline sales, though TA’s breakdown is approximately 88% diesel. 
  • Pilot isn’t excessively dependent on any one customer or supplier. It said that its top 10 customers for diesel purchases accounted for less than 15% of the diesel sold by Pilot, and its top 10 suppliers accounted for less than 50% of the fuel that Pilot buys. 
  • Pilot’s sales of low-carbon fuels total about 1.5 billion gallons per year. Its annual sales of diesel exhaust fluid are about 320 million gallons.  

TA’s net income jumps 266%

Meanwhile, the information source that is going away — TA — released its quarterly earnings for the fourth quarter this week that showed a strong three months in what might be its final report as a public company. It did not hold a conference call with analysts, which it had done traditionally.

TA’s net income of $46.8 million was up 266% from the corresponding quarter a year ago. Its adjusted net income of $44.6 million was up 238.1%.

Even more notable was the eye-popping margins it received for its fuel sales. TA reports a gross fuel margin, which is a combination of gasoline and diesel margins, but since 88% of its sales were diesel during the quarter, the margin figure leans heavily toward reflecting the market for that product.

The gross margin of 29.8 cents per gallon was the highest in years, outstripping even the second-quarter number of 27.3 cents per gallon. Gross margins at TA have historically tended to fluctuate on either side of 15 cents per gallon.

But in a fourth quarter with rapidly declining futures and wholesale prices, retail levels did not keep up with the slide. 

Although ultra low sulfur diesel in the fourth quarter on the CME commodity exchange ended pretty much where it started, at about $3.36 per gallon. It shot up early in the quarter before moving back down rapidly. Wholesale prices generally track futures moves fairly closely, so if retail doesn’t follow suit, which it did not in the fourth quarter, the end result is the type of strong margin reported by TA. 

The significant lag between retail and wholesale diesel prices in the fourth quarter also was evident in the FUELS.USA data series in SONAR. That series measures the differential between average retail diesel prices and average wholesale diesel price. Historically, that number comes in around $1.10 per gallon. 

After languishing under $1 per gallon for the first few weeks of October when wholesale prices were rising, it began to catch up and eventually reached almost $2.25 per gallon by early December. Even as pump prices started to fall at a faster rate than wholesale levels, FUELS.USA only got down to about $1.36 per gallon by the end of the quarter, still well above historic norms. 

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