Investing.com -- S&P Global Ratings has revised the outlook for Calgary Alta.-based fuel and convenience store provider Parkland Corp. to negative from stable. This decision comes in light of the company’s weaker than expected financial performance at the end of 2024. Factors contributing to this performance include challenging macroeconomic conditions leading to weak fuel volumes in the U.S. and soft convenience store sales in both the U.S. and Canada. Additionally, unexpected downtime in Q1-2024 and weak crack spreads negatively impacted EBITDA from the Burnaby refinery.

Parkland’s leverage at the end of 2024 was approximately 4.7x, significantly higher than the downside threshold of 4.0x set by S&P Global Ratings. Despite this, the ’BB’ issuer credit rating on the company was affirmed, along with the 1 and 4 recovery ratings on the company’s senior secured and unsecured debt.

The negative outlook reflects concerns that under uncertain North American macroeconomic conditions, Parkland may struggle to restore its 2025 EBITDA. This could result in an adjusted debt-to-EBITDA ratio remaining over 4x throughout 2025.

The company’s end of 2024 operating performance was notably weaker than the previous year and fell short of S&P Global Ratings’ expectations. Tough market conditions in the U.S. and weak, volatile profitability at the refinery resulted in an overall EBITDA decline of 17% in 2024 compared with 2023.

Challenges faced by the company in the northern U.S regions, where Parkland primarily sells diesel and commercial jet fuel, could persist through 2025. Weak macroeconomic activity in the region throughout 2024 led to a demand-supply imbalance, fewer opportunities to import fuel from other markets, and compressed margins. Unseasonably warm weather led to lower commercial fuel volumes in Canada. These factors resulted in an 11% decline in fuel volumes in the U.S segment and a modest 5% decline in Canada.

Parkland also faced headwinds within its retail convenience store business due to increased competition and cautious consumer behavior that led to reduced store traffic. As a result, the company’s U.S. segment convenience store same store sales exhibited a low-single digit percentage decline. These factors led to a 10% year-over-year EBITDA decline from Parkland’s U.S segment.

In 2024, Parkland’s refinery segment, which operates a 55,000 barrels per day light/medium sweet crude refinery in Burnaby, British Columbia, faced significant challenges. Refining margins were significantly weaker in 2024 (C$61 per barrel versus C$73/barrel in 2023). An unplanned refinery shutdown in early 2024 also contributed to EBITDA weakness. As a result, Parkland’s EBITDA from the refining segment dropped sharply (50%) in 2024 compared with 2023.

The company’s management team has plans to restore leverage and continues to improve the operational side of its business. Parkland has also identified certain assets for sale and plans to use the proceeds toward debt repayment. The company has identified cost-saving initiatives that could modestly improve EBITDA in 2026. As a result, S&P Global Ratings expects the adjusted debt-to-EBITDA ratio to improve to the mid-3x to high-3x range by year-end 2025.

S&P Global Ratings could lower its ratings on Parkland if EBITDA remains pressured such that its debt to EBITDA will remain above 4x beyond 2025. However, the outlook could be revised to stable if Parkland demonstrates improvement in EBITDA such that leverage will improve below 4x by 2025. This could occur if the company improves convenience store performance, realizes cost efficiencies, successfully executes its asset-sale plans, or adheres to financial policies that support deleveraging to below 4x on a sustained basis.

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