NYSE:SUN Sunoco Q3 2023 Earnings Report $53.34 -1.23 (-2.25%) Closing price 03:59 PM EasternExtended Trading$54.75 +1.41 (+2.64%) As of 07:07 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Sunoco EPS ResultsActual EPS$2.95Consensus EPS $1.11Beat/MissBeat by +$1.84One Year Ago EPS$0.75Sunoco Revenue ResultsActual Revenue$6.32 billionExpected Revenue$5.62 billionBeat/MissBeat by +$703.07 millionYoY Revenue Growth-4.20%Sunoco Announcement DetailsQuarterQ3 2023Date11/1/2023TimeBefore Market OpensConference Call DateWednesday, November 1, 2023Conference Call Time10:00AM ETUpcoming EarningsSunoco's Q2 2025 earnings is scheduled for Tuesday, May 6, 2025Conference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)SEC FilingEarnings HistoryCompany ProfilePowered by Sunoco Q3 2023 Earnings Call TranscriptProvided by QuartrNovember 1, 2023 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Greetings, and welcome to Sunoco L. P. Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Operator00:00:19As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Scott Grigel, Senior Vice President of Finance and Investor Relations. Thank you. You may begin. Speaker 100:00:33Thank you, and good morning, everyone. On the call with me this morning are Joe Kim, Sunoco LP's President and Chief Executive Officer Carl Fales, Chief Operations Officer Dylan Bramhall, Chief Financial Officer and other members of the management team. Today's call will contain forward looking statements that include expectations and assumptions regarding the partnership's future operations and financial performance. Actual results could differ materially and the partnership undertakes no obligation to update these statements based on subsequent events. Please refer to our earnings release as well as our filings with the SEC for a list of these factors. Speaker 100:01:11During today's call, we will also discuss certain non GAAP financial measures, including adjusted EBITDA and distributable cash flow as adjusted. Please refer to the Sunoco LP website for a reconciliation of each financial measure. The Q3 brought a continuation of Sunoco's strong financial performance throughout 2023. The partnership generated Adjusted EBITDA of $257,000,000 compared to $276,000,000 a year ago. Fuel volumes for the quarter were 2,100,000,000 gallons, up 7% from the Q3 of last year. Speaker 100:01:45Fuel margin on all gallons sold was $0.13 per gallon compared to $0.239 per gallon a year ago. Total third quarter operating expenses were $141,000,000 An increase of $10,000,000 from the same period last year. This year over year increase was attributable to the Peerless and Zenith acquisitions. During the Q3, we spent $31,000,000 of growth capital and $14,000,000 in maintenance capital. 3rd quarter distributable cash flow as adjusted was $181,000,000 compared to $196,000,000 in the Q3 of 2022, yielding a current quarter coverage ratio of 2 times and a trailing 12 months coverage ratio of 1.9 times. Speaker 100:02:30On October 20, we declared an 0.84 $0.02 per unit distribution, consistent with last quarter. As you may recall, we increased our distribution by 2% in the Q1 of 2023, and we will determine our next distribution increase next year in Q1. Turning to the balance sheet. At the end of the 3rd quarter, We had $647,000,000 outstanding on our revolving credit facility, leaving approximately $847,000,000 of liquidity. Leverage at the end of the quarter was 3.9 times. Speaker 100:03:03In September, we completed an offering of $500,000,000 of 7% Senior notes due 2028. We use the net proceeds from the offering to repay a portion of the outstanding borrowings on a revolving credit facility. This notes offering not only improved our liquidity position, but it also allowed us to achieve a savings and interest expense given between the current cost of borrowing on the revolving credit facility and the fixed rate on the new notes. Finally, As a result of our strong performance year to date and our outlook for the remainder of the year, we are increasing our EBITDA guidance for the full year 2023 to The above $935,000,000 This represents a $20,000,000 increase to the top end of the revised guidance range we issued in May, further demonstrating our ability to continue to grow cash flow year after year in any environment. Reliability and free cash flow generation of our operations allows us to remain consistent in our capital allocation strategy and focus on our 3 pillars. Speaker 100:04:051st, To maintain a secure distribution with annual growth second, to protect our balance sheet and third, to pursue disciplined investment in growth opportunities. We are confident that this framework will continue to deliver strong returns to our unitholders. With that, I will now turn the call over to Carl to walk through some additional thoughts on our Q3 performance. Speaker 200:04:28Thanks, Scott. Good morning, everyone. We delivered another strong quarter Supported by continued strength in margins, volume growth, expense discipline, efficient operations and accretive acquisitions. When you step back and look at our business, it continues to perform quarter after quarter. The fundamentals are sound. Speaker 200:04:49We have put ourselves in a solid financial position and we have the strategies to take advantage of market opportunities. Our volumes this quarter were up about 7% versus the Q3 of last year. The continued growth in volume relative to prior years Comes from the contribution from our capital deployed, both organic and through acquisitions, as well as demand growth in some geographies. This quarter marks the highest volume quarter in our history in the 2nd consecutive quarter where our volumes were above the 2,000,000,000 gallon mark. When you compare this to various reports on U. Speaker 200:05:24S. Demand, it is clear that we are outpacing the sector and picking up market share, Another sign that our growth is delivering tangible results. This is all occurring as we grow in our existing geographies and enter new markets. As we look to the end of the year, we expect that volume in the Q4 would see a normal seasonal decline sequentially, but our relative position in the market will remain strong. With respect to margins, the strong margin performance of the last few years continued in the 3rd quarter as we delivered margins of $0.13 per gallon. Speaker 200:05:58There's no extraordinary story to share for this quarter. The continued combination of increased market volatility, higher breakeven margins And our gross profit optimization strategies delivered strong margins even with some rising prices in the first half of the quarter. Looking forward to the Q4, we expect the same fundamental factors to remain in place. However, just like with volume, Our margins are often seasonally lower when compared to the Q3. Even with some variability quarter to quarter, As we have said many times, when you look at our business over a full year period, we continue to deliver strong and growing results. Speaker 200:06:39I want to briefly touch on the devastating wildfires experienced on the island of Maui in August. We have 3 sites that were impacted by the fires and clearly there has been some additional business impact as a result of reduced travel to the island. So overall, it is not material to our results. More importantly, we are very grateful that all our employees are safe, Though many of them experienced dramatic impacts to their homes and families, we are extremely proud of our team in Hawaii And how they have been able to pivot from worrying about the impacts on their own lives and livelihoods and find ways to help their neighbors and contribute to the community response. Thank you to all of them. Speaker 200:07:21Turning to expenses. Consistent discipline in managing our expenses remains one of our core strengths. Our Q3 results firmly demonstrate that as they were basically flat to the Q2. Even with the increase in our EBITDA guidance for the full year, We expect our expenses to be in the range that we shared in May. Moving on to maintenance and growth capital. Speaker 200:07:44Both of these also remain in line with our If we look at our overall growth profile, We have deployed approximately $1,300,000,000 of growth, acquisition and working capital since the beginning of 2021. Our growth strategy has been focused on adding fuel distribution in midstream assets. On the acquisition side, we've been able Identify businesses that fit into our strategy and execute on those results. We find businesses where we can add value to the fuel supply chain, Grow volume, reduce supply costs or expand margin. We optimize expenses and utilize our balance sheet and capital discipline To invest in the acquired businesses in ways that unlock value, we look at integrating our fuel distribution business with midstream assets, Even where that might appear to be a step out like our Transmix or Puerto Rico acquisitions, at the core, the strategy is the same. Speaker 200:08:48I already talked about how we are growing our fuel volume. We are also now one of the largest refined product terminal operators in the United States And the largest transmits operator. These represent high quality infrastructure assets that will continue to have value for decades to come In any energy transition scenario, while also supporting our growing fuel distribution portfolio. Simply put, our acquisitions and subsequent operational results speak for themselves. Before turning the time over to Joe, I will end on this. Speaker 200:09:24Sunoco remains a growth company. I talk a lot about the stability of our base business, the strong Market foundation, our expense discipline and gross profit optimization. Ultimately, those are all tools that both deliver results in our current business and enable us to continue to grow. We will do that through investing in high return organic projects and focusing on making accretive acquisitions at attractive transaction multiples, which will deliver immediate results for our stakeholders and ultimately drive continued appreciation in our unit price. Speaker 300:09:59Joe? Thanks, Carl. Good morning, everyone. We delivered a very strong Q3. Although 2023 is not quite over, I want to provide some perspective on this year as a whole. Speaker 300:10:11On a macro level, Fuel distribution has remained highly attractive within the energy sector. The combination of higher breakeven margins and commodity volatility Has supported strong earnings for select companies that can optimize gross profit and manage expenses. Obviously, this is what Sunoco does well. In addition, our growth in the terminal business has enhanced our overall portfolio, providing further stability and growth opportunities. As a result, we're on pace for another record year. Speaker 300:10:41As Scott mentioned, we increased our EBITDA guidance for the full year 2023. We expect more of the same in 2024. This December, we'll provide a new investor presentation, which will include our formal 2024 guidance And business outlook, I'd like to preview a few key themes. We expect to grow and have another strong year in 2024. We expect industry fundamentals to remain supportive and we expect the continuation of our proven track record of optimizing our business in various macro environments. Speaker 300:11:15Regardless of one's outlook on fuel demand, inflation recession risk and geopolitical uncertainty, we Our stable portfolio to deliver strong results in various environments. With our increasing cash flow, we expect to grow both organically and through acquisition. The opportunity set remains ample and attractive. And finally, We're in a position to increase our distribution again next year. All of this while maintaining strong coverage and leverage ratios. Speaker 300:11:44Operator, that concludes our prepared remarks. You may open the line for questions. Operator00:11:49Thank you. At this time, we'll be conducting a question and answer session. Our first question comes from Theresa Chen with Barclays. Please proceed with your question. Speaker 400:12:28Good morning. Thank you for taking my questions. I wanted to go back to the comments about Sunoco So, being and remaining a growth company. Carl, to your comments about gaining market Sure. In these tumultuous volatile markets, can you talk about if this is primarily Driven by the acquisitions or how have you been able to organically grow market share? Speaker 200:12:58Yes, Theresa, thanks for the question. And if you think about the components and kind of the contributions to Market share growth. I think you hit on the 2 biggest. So from an acquisition standpoint, clearly the biggest difference In volume, this quarter, Q3 this year versus Q3 last year is our acquisition of Peerless at the end of last year. But in addition, there are investments that we've made both in growth capital and I'd say generically in working capital in growing our business. Speaker 200:13:36And that's signing new customers to long term agreements and then I think finding opportunities To take advantage of market demand, whether that's through consolidating our supply And selling that through various wholesale channels and coupling that with additional branded growth Where we spend growth capital. So it's really a combination of both of those. I'd say Probably a little more towards the acquisitions, but I would not discount the growth that we've had coming from the investments in growth capital and working capital. Speaker 400:14:15Got it. And on the M and A landscape, can you talk about what you're seeing as Evolution of valuation assets coming to market that you're interested in, how is that changing? And Particularly to midstream assets outside of wholesale distribution and for on the infrastructure side, are there opportunities where it may make Thanks to invest along with your parent. Speaker 300:14:43Hey, Trish, this is Joe. Assessing the M and A landscape, I would probably put it this way. I know for probably for the last 2 or 3 years, I've said pretty much the same thing that the opportunities out there It looks robust. Looking forward probably to this year and to next year, I would expect it to be exactly the Same or maybe even better. So the situation that we're in right now is, I think people like Sunoco with a strong balance sheet, We bring synergies to the table. Speaker 300:15:15I think we're very well situated whenever opportunities come up and trying to separate out between field distribution and midstream. We like both sectors and some of the acquisitions we've done actually is not one or the other, it's actually both. So We're equally interested in both. I think if there's an opportunity that pops up Sonoco alone or with Energy Transfer, we're in a really good position To take advantage of that and when the right opportunity comes up, we'll take advantage of it. Speaker 400:15:46Thank you. Operator00:15:50Our next question comes from Spiro Dounis with Citi. Please proceed with your question. Speaker 500:15:56Thanks, operator. Good morning, team. Joe, I want to come back to your comment around the distribution increase. You sound pretty constructive once again as we head into next year. And so Just wondering if you could remind us some of the factors that you and the Board will be looking at when you determine what the right size of that distribution increase could be? Speaker 100:16:15Hey, Spiro, this is Scott. I'll take that one and maybe Joe can follow-up if necessary. But I think there's really three factors primarily that come into play when we evaluate the distribution and increases moving forward. And those are really staying true to our capital allocation strategy, right? We want to ensure surety of the distribution moving forward. Speaker 100:16:36We want to continue to protect the balance sheet and operate at or below our long term leverage target. And we want to be in a continued position to grow the company. So I think those are the 3 primary factors. And then subsequent to that, I think we want to ensure Ongoing growth opportunities in the distribution, right? So sizing it to where each year we can continue to evaluate Future growth opportunities and distribution increases. Speaker 100:17:05As Joe said, we're in a position To with our announcement in 2024 to talk about another distribution increase. And I think as we sit here today, you should expect Something at or above the 2% that we announced earlier this year. Speaker 500:17:22Helpful. Thanks for that, Scott. Second question, maybe just going to Peerless. Just curious if you guys can update us any potential opportunities coming out of that asset. I think you've owned it for almost a year now and it sounded like you were pretty excited About what you'd be able to sort of spring out of there under your new ownership. Speaker 500:17:37So one, any update there? And as we think about the size and magnitude, whether it be CapEx or EBITDA contribution, how should we be thinking about that? Speaker 200:17:46Yes. Spiro, this is Karl. That asset was, Call it roughly somewhere in the 10 to low teen EBITDA when we purchased And we've already been able to increase that really through deploying working capital, optimizing our supply, Spending some capital, we've introduced the Sonoco brand to the island. So we're very happy with the results we've achieved and what the Team down there has done with kind of our strategy and our balance sheet and our ability to Deploy capital. From the overall company standpoint, even doubling that business down there isn't super material, but we think it's more An example of how we're looking at continued growth as we go into new geographies that we're not just going to live With an acquisition that we make that we're going to use that as a base and a foundation for further growth. Speaker 200:18:47So I don't know That we have a growth plan I can share with you that's going to materially change our profile in the Caribbean. But clearly, we're going to continue to grow and look for opportunities, whether that be acquisitions Or deploying continuing to deploy growth capital. Speaker 500:19:03Got it. Helpful color guys. Thanks for the time. Operator00:19:18Our next question comes from John Royall with JPMorgan. Please proceed with your question. Speaker 600:19:24Hi, good morning. Thanks for taking my question. So my first question is, you started the year with a $0.12 view on fuel margin And you're tracking much closer to $0.13 now and maybe a little bit ticking down in 4Q. But your commentary at the time When you put out the guidance was understandably about the relationship between margin and volume. If you were higher on margin, you'd probably be lower on volume. Speaker 600:19:51And clearly, you're a good amount higher on both. So my question is just high level. What do you think has led to the better than expected environment in margin? And How much of it do you think is sustainable such that maybe we should expect sort of a closer to a $0.13 level going forward, for example? Speaker 200:20:09Yes, John, thanks for the question. It's definitely something that we think about and I think is worth highlighting on our results. Going back to last year when we put our guidance together, we did do, as you said, link the volume and margin together and said, hey, let's Really look at gross profit. And then we said for each individual component of that, we said, hey, we think this is a fat part of the curve. And as we fast forward to where we are today, I think that relationship continues. Speaker 200:20:42But if you go down a level, I think it's Insightful to it kind of adds to a comment that Joe made in his prepared remarks about select companies being able to take advantage Just certain market conditions. So the relationship between volume and margin really is a market related phenomenon, right, Where if volumes are flat to declining, that's going to provide support for higher breakeven margins and then things like inflation or supply chain problems Some of the things we've seen over the last few years contribute to that higher breakeven margin. That's remained true this year, right? If you look at most market data, Whether it's EIA or other sources of demand, overall demand this year is flat to maybe even more recently, it's slightly below Last year, so that provides continued support on the margin side. With our scale, we're able to take advantage of That higher breakeven margin. Speaker 200:21:41And then the thing that we've delivered on probably in excess of What our original guide was last year is our growth. And so I talked about in my prepared remarks and I think, Teresa's question was really about how do we Where does that growth in market share come from? And so that's where our added volume isn't coming from some tailwind in the market. It's really due to us deploying capital and growing and then we're able to take advantage of that higher breakeven margin to really out deliver in both areas. Speaker 600:22:17Great. Thank you. And Carl, you answered my second question without even getting asked. So I will turn it over. Thank you. Operator00:22:26Our next question comes from Selman Akyol with Stifel. Please proceed with your question. Speaker 700:22:31Thank you. I guess I just wanted to follow-up on Spiro's questions in terms of sort of return of capital. Couple of questions there. Number 1 is, when you Scott, you outlined the things you consider. I was just curious, do you guys or the Board Have a goal or what you think the appropriate coverage ratio is to run this business with? Speaker 100:22:56Yes. Selman, we've talked as part of our capital allocation strategy to be at or above 1.4 times on the coverage ratio. So that's the general area that we're kind of targeting for the long term and where we'd like to see the coverage and how we think about any distribution increases. Speaker 700:23:16Got it. And then also within there, when you guys talk with the Board, is there consideration of any repurchases? Speaker 100:23:27Buybacks have obviously been a part of a return of capital discussion. I think we see a lot of options to create unitholder value, but view distribution increases as providing Flexibility to our unitholders and ensuring confidence in the future. Doesn't mean we haven't contemplated buybacks in the As you know, we did do one as part of the 7.11 transaction proceeds back in 2018. So they have entered the discussion, but We see distribution increases as providing the biggest return and I think the most confidence in our growth ability. Speaker 300:24:06So, Joe, I'll add one other thing to what Scott said is also we like our growth potential. We know we obviously It's a balanced approach between secure and growing distributions and maintaining a really strong balance sheet. But just as importantly as other 2 is that We look at the landscape and we see growth opportunities both from acquisition and from an organic capital standpoint. And we think that we can do that at a reasonable value with Significant synergies. So we think we can create value for our stakeholders on that particular area. Speaker 700:24:40Got it. And then Let me just ask this. And if I look back over your balance sheet and I mean and I go back to like 2021, You guys had cash less than $100,000,000 consistently, even as I go back over the model back to 15. As I look back over the last several quarters, you're running cash well above that and you ended this quarter with A $250,000,000 in cash, your receivables are up nicely as well. Is there something You guys want to hang on to more cash? Speaker 700:25:17Or is there something changing in the business? Is there any thoughts on just why all the cash are on the balance sheet? Speaker 100:25:24Yes. Simon, I'll take that. This is Scott. That cash balance that you saw at the end of the Q3 and I think at the end of the second quarter results around 2 $40,000,000 Those were booked cash balances. They were not bank cash. Speaker 100:25:38So there is obviously a timing element there. We obviously manage cash to the lowest level possible, redeploying that towards debt paid down on our revolving credit facility and obviously reinvesting In the business and acquisition. So that cash is not being trapped or held for the long term. It's being put back to the balance sheet or to growth. Speaker 700:26:00Okay. Thank you very much. Operator00:26:04Our final question comes from Ned Baramov with Wells Fargo. Please proceed with your question. Speaker 300:26:12Hey, guys. Good morning. Thanks for taking the question. Given the resilience of your business and the well documented interplay between volumes and margins, Is there a thought to provide a longer term base forecast on EBITDA and or distribution growth as opposed to your typical 1 year forward And I tried to highlight a few of the themes that in the prepared remarks, but let me try to be even clearer on this one. If you look at our business and you look year over year for the last 5 years, you've seen our balance sheet get better, you've seen our coverage Grow, you've seen our EBITDA grow. Speaker 300:27:01And every time we've done a formal guidance in December, it's been a growth. What we haven't done and what we plan to do in December is really talk about our confidence in 2024, but go even further and talk even longer term about fundamentals and how Sunoco could position ourselves to thrive in those fundamentals on a far perspective. So If you're with a little bit of patience, we're in our December is right around the corner. We'll give some good insightful thought about 2024 That's great. Thanks for that. Speaker 300:27:41I'm looking forward to the update in December. Operator00:27:48We've reached the end of the question and answer session. I'd now like to turn the call back over to Scott Grischow For closing comments, Speaker 100:27:55Well, thanks everyone for joining us on the call this morning. Please feel free to reach out with any follow-up questions and we'll talk to everyone soon.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallSunoco Q3 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Sunoco Earnings HeadlinesTexas-based Sunoco makes $9 billion deal to buy Canadian fuel distributorMay 6 at 5:24 PM | msn.comWhy Did Sunoco Stock Fall After Q1 Earnings?May 6 at 5:18 PM | benzinga.com3..2..1.. AI 2.0 ignition (don’t sleep on this)I just put together an urgent new presentation that you need to see right away. In short: I believe we are mere days away from a critical announcement from a key tech leader… One that will officially ignite “AI 2.0” – and potentially send a whole new class of stocks soaring. May 6, 2025 | Timothy Sykes (Ad)Sunoco LP Common Units (SUN) Q1 2025 Earnings Call TranscriptMay 6 at 1:24 PM | seekingalpha.comSunoco to acquire Parkland in $9.1bn dealMay 6 at 12:23 PM | finance.yahoo.comSunoco LP Q1 2025 Earnings: EPS of $1.22 Misses Estimates, Revenue Falls Short at $5,179 MillionMay 6 at 12:06 PM | gurufocus.comSee More Sunoco Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Sunoco? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Sunoco and other key companies, straight to your email. Email Address About SunocoSunoco (NYSE:SUN), together with its subsidiaries, distributes and retails motor fuels in the United States. It operates through two segments: Fuel Distribution and Marketing, and All Other. The Fuel Distribution and Marketing segment purchases motor fuel, as well as other petroleum products, such as propane and lubricating oil from independent refiners and oil companies and supplies it to company-operated retail stores, independently operated commission agents, and retail stores, as well as other commercial customers, including unbranded retail stores, other fuel distributors, school districts, municipalities, and other industrial customers. It owns and operates retail stores under the APlus and Aloha Island Mart brand names; and offers food, beverages, snacks, grocery and non-food merchandise, motor fuels, and other services. The All Other segment includes partnership credit card services, franchise royalties, and retail operations; and offers credit card processing, car washes, lottery, automated teller machines, money order, prepaid phone cards, and wireless services. The company was formerly known as Susser Petroleum Partners LP and changed its name to Sunoco LP in 2014. Sunoco LP was founded in 1886 and is headquartered in Dallas, Texas.View Sunoco ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Palantir Stock Drops Despite Stellar Earnings: What's Next?Is Eli Lilly a Buy After Weak Earnings and CVS-Novo Partnership?Is Reddit Stock a Buy, Sell, or Hold After Earnings Release?Warning or Opportunity After Super Micro Computer's EarningsAmazon Earnings: 2 Reasons to Love It, 1 Reason to Be CautiousRocket Lab Braces for Q1 Earnings Amid Soaring ExpectationsMeta Takes A Bow With Q1 Earnings - Watch For Tariff Impact in Q2 Upcoming Earnings ARM (5/7/2025)AppLovin (5/7/2025)Fortinet (5/7/2025)MercadoLibre (5/7/2025)Cencora (5/7/2025)Carvana (5/7/2025)Walt Disney (5/7/2025)Emerson Electric (5/7/2025)Johnson Controls International (5/7/2025)Lloyds Banking Group (5/7/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
There are 8 speakers on the call. Operator00:00:00Greetings, and welcome to Sunoco L. P. Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Operator00:00:19As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Scott Grigel, Senior Vice President of Finance and Investor Relations. Thank you. You may begin. Speaker 100:00:33Thank you, and good morning, everyone. On the call with me this morning are Joe Kim, Sunoco LP's President and Chief Executive Officer Carl Fales, Chief Operations Officer Dylan Bramhall, Chief Financial Officer and other members of the management team. Today's call will contain forward looking statements that include expectations and assumptions regarding the partnership's future operations and financial performance. Actual results could differ materially and the partnership undertakes no obligation to update these statements based on subsequent events. Please refer to our earnings release as well as our filings with the SEC for a list of these factors. Speaker 100:01:11During today's call, we will also discuss certain non GAAP financial measures, including adjusted EBITDA and distributable cash flow as adjusted. Please refer to the Sunoco LP website for a reconciliation of each financial measure. The Q3 brought a continuation of Sunoco's strong financial performance throughout 2023. The partnership generated Adjusted EBITDA of $257,000,000 compared to $276,000,000 a year ago. Fuel volumes for the quarter were 2,100,000,000 gallons, up 7% from the Q3 of last year. Speaker 100:01:45Fuel margin on all gallons sold was $0.13 per gallon compared to $0.239 per gallon a year ago. Total third quarter operating expenses were $141,000,000 An increase of $10,000,000 from the same period last year. This year over year increase was attributable to the Peerless and Zenith acquisitions. During the Q3, we spent $31,000,000 of growth capital and $14,000,000 in maintenance capital. 3rd quarter distributable cash flow as adjusted was $181,000,000 compared to $196,000,000 in the Q3 of 2022, yielding a current quarter coverage ratio of 2 times and a trailing 12 months coverage ratio of 1.9 times. Speaker 100:02:30On October 20, we declared an 0.84 $0.02 per unit distribution, consistent with last quarter. As you may recall, we increased our distribution by 2% in the Q1 of 2023, and we will determine our next distribution increase next year in Q1. Turning to the balance sheet. At the end of the 3rd quarter, We had $647,000,000 outstanding on our revolving credit facility, leaving approximately $847,000,000 of liquidity. Leverage at the end of the quarter was 3.9 times. Speaker 100:03:03In September, we completed an offering of $500,000,000 of 7% Senior notes due 2028. We use the net proceeds from the offering to repay a portion of the outstanding borrowings on a revolving credit facility. This notes offering not only improved our liquidity position, but it also allowed us to achieve a savings and interest expense given between the current cost of borrowing on the revolving credit facility and the fixed rate on the new notes. Finally, As a result of our strong performance year to date and our outlook for the remainder of the year, we are increasing our EBITDA guidance for the full year 2023 to The above $935,000,000 This represents a $20,000,000 increase to the top end of the revised guidance range we issued in May, further demonstrating our ability to continue to grow cash flow year after year in any environment. Reliability and free cash flow generation of our operations allows us to remain consistent in our capital allocation strategy and focus on our 3 pillars. Speaker 100:04:051st, To maintain a secure distribution with annual growth second, to protect our balance sheet and third, to pursue disciplined investment in growth opportunities. We are confident that this framework will continue to deliver strong returns to our unitholders. With that, I will now turn the call over to Carl to walk through some additional thoughts on our Q3 performance. Speaker 200:04:28Thanks, Scott. Good morning, everyone. We delivered another strong quarter Supported by continued strength in margins, volume growth, expense discipline, efficient operations and accretive acquisitions. When you step back and look at our business, it continues to perform quarter after quarter. The fundamentals are sound. Speaker 200:04:49We have put ourselves in a solid financial position and we have the strategies to take advantage of market opportunities. Our volumes this quarter were up about 7% versus the Q3 of last year. The continued growth in volume relative to prior years Comes from the contribution from our capital deployed, both organic and through acquisitions, as well as demand growth in some geographies. This quarter marks the highest volume quarter in our history in the 2nd consecutive quarter where our volumes were above the 2,000,000,000 gallon mark. When you compare this to various reports on U. Speaker 200:05:24S. Demand, it is clear that we are outpacing the sector and picking up market share, Another sign that our growth is delivering tangible results. This is all occurring as we grow in our existing geographies and enter new markets. As we look to the end of the year, we expect that volume in the Q4 would see a normal seasonal decline sequentially, but our relative position in the market will remain strong. With respect to margins, the strong margin performance of the last few years continued in the 3rd quarter as we delivered margins of $0.13 per gallon. Speaker 200:05:58There's no extraordinary story to share for this quarter. The continued combination of increased market volatility, higher breakeven margins And our gross profit optimization strategies delivered strong margins even with some rising prices in the first half of the quarter. Looking forward to the Q4, we expect the same fundamental factors to remain in place. However, just like with volume, Our margins are often seasonally lower when compared to the Q3. Even with some variability quarter to quarter, As we have said many times, when you look at our business over a full year period, we continue to deliver strong and growing results. Speaker 200:06:39I want to briefly touch on the devastating wildfires experienced on the island of Maui in August. We have 3 sites that were impacted by the fires and clearly there has been some additional business impact as a result of reduced travel to the island. So overall, it is not material to our results. More importantly, we are very grateful that all our employees are safe, Though many of them experienced dramatic impacts to their homes and families, we are extremely proud of our team in Hawaii And how they have been able to pivot from worrying about the impacts on their own lives and livelihoods and find ways to help their neighbors and contribute to the community response. Thank you to all of them. Speaker 200:07:21Turning to expenses. Consistent discipline in managing our expenses remains one of our core strengths. Our Q3 results firmly demonstrate that as they were basically flat to the Q2. Even with the increase in our EBITDA guidance for the full year, We expect our expenses to be in the range that we shared in May. Moving on to maintenance and growth capital. Speaker 200:07:44Both of these also remain in line with our If we look at our overall growth profile, We have deployed approximately $1,300,000,000 of growth, acquisition and working capital since the beginning of 2021. Our growth strategy has been focused on adding fuel distribution in midstream assets. On the acquisition side, we've been able Identify businesses that fit into our strategy and execute on those results. We find businesses where we can add value to the fuel supply chain, Grow volume, reduce supply costs or expand margin. We optimize expenses and utilize our balance sheet and capital discipline To invest in the acquired businesses in ways that unlock value, we look at integrating our fuel distribution business with midstream assets, Even where that might appear to be a step out like our Transmix or Puerto Rico acquisitions, at the core, the strategy is the same. Speaker 200:08:48I already talked about how we are growing our fuel volume. We are also now one of the largest refined product terminal operators in the United States And the largest transmits operator. These represent high quality infrastructure assets that will continue to have value for decades to come In any energy transition scenario, while also supporting our growing fuel distribution portfolio. Simply put, our acquisitions and subsequent operational results speak for themselves. Before turning the time over to Joe, I will end on this. Speaker 200:09:24Sunoco remains a growth company. I talk a lot about the stability of our base business, the strong Market foundation, our expense discipline and gross profit optimization. Ultimately, those are all tools that both deliver results in our current business and enable us to continue to grow. We will do that through investing in high return organic projects and focusing on making accretive acquisitions at attractive transaction multiples, which will deliver immediate results for our stakeholders and ultimately drive continued appreciation in our unit price. Speaker 300:09:59Joe? Thanks, Carl. Good morning, everyone. We delivered a very strong Q3. Although 2023 is not quite over, I want to provide some perspective on this year as a whole. Speaker 300:10:11On a macro level, Fuel distribution has remained highly attractive within the energy sector. The combination of higher breakeven margins and commodity volatility Has supported strong earnings for select companies that can optimize gross profit and manage expenses. Obviously, this is what Sunoco does well. In addition, our growth in the terminal business has enhanced our overall portfolio, providing further stability and growth opportunities. As a result, we're on pace for another record year. Speaker 300:10:41As Scott mentioned, we increased our EBITDA guidance for the full year 2023. We expect more of the same in 2024. This December, we'll provide a new investor presentation, which will include our formal 2024 guidance And business outlook, I'd like to preview a few key themes. We expect to grow and have another strong year in 2024. We expect industry fundamentals to remain supportive and we expect the continuation of our proven track record of optimizing our business in various macro environments. Speaker 300:11:15Regardless of one's outlook on fuel demand, inflation recession risk and geopolitical uncertainty, we Our stable portfolio to deliver strong results in various environments. With our increasing cash flow, we expect to grow both organically and through acquisition. The opportunity set remains ample and attractive. And finally, We're in a position to increase our distribution again next year. All of this while maintaining strong coverage and leverage ratios. Speaker 300:11:44Operator, that concludes our prepared remarks. You may open the line for questions. Operator00:11:49Thank you. At this time, we'll be conducting a question and answer session. Our first question comes from Theresa Chen with Barclays. Please proceed with your question. Speaker 400:12:28Good morning. Thank you for taking my questions. I wanted to go back to the comments about Sunoco So, being and remaining a growth company. Carl, to your comments about gaining market Sure. In these tumultuous volatile markets, can you talk about if this is primarily Driven by the acquisitions or how have you been able to organically grow market share? Speaker 200:12:58Yes, Theresa, thanks for the question. And if you think about the components and kind of the contributions to Market share growth. I think you hit on the 2 biggest. So from an acquisition standpoint, clearly the biggest difference In volume, this quarter, Q3 this year versus Q3 last year is our acquisition of Peerless at the end of last year. But in addition, there are investments that we've made both in growth capital and I'd say generically in working capital in growing our business. Speaker 200:13:36And that's signing new customers to long term agreements and then I think finding opportunities To take advantage of market demand, whether that's through consolidating our supply And selling that through various wholesale channels and coupling that with additional branded growth Where we spend growth capital. So it's really a combination of both of those. I'd say Probably a little more towards the acquisitions, but I would not discount the growth that we've had coming from the investments in growth capital and working capital. Speaker 400:14:15Got it. And on the M and A landscape, can you talk about what you're seeing as Evolution of valuation assets coming to market that you're interested in, how is that changing? And Particularly to midstream assets outside of wholesale distribution and for on the infrastructure side, are there opportunities where it may make Thanks to invest along with your parent. Speaker 300:14:43Hey, Trish, this is Joe. Assessing the M and A landscape, I would probably put it this way. I know for probably for the last 2 or 3 years, I've said pretty much the same thing that the opportunities out there It looks robust. Looking forward probably to this year and to next year, I would expect it to be exactly the Same or maybe even better. So the situation that we're in right now is, I think people like Sunoco with a strong balance sheet, We bring synergies to the table. Speaker 300:15:15I think we're very well situated whenever opportunities come up and trying to separate out between field distribution and midstream. We like both sectors and some of the acquisitions we've done actually is not one or the other, it's actually both. So We're equally interested in both. I think if there's an opportunity that pops up Sonoco alone or with Energy Transfer, we're in a really good position To take advantage of that and when the right opportunity comes up, we'll take advantage of it. Speaker 400:15:46Thank you. Operator00:15:50Our next question comes from Spiro Dounis with Citi. Please proceed with your question. Speaker 500:15:56Thanks, operator. Good morning, team. Joe, I want to come back to your comment around the distribution increase. You sound pretty constructive once again as we head into next year. And so Just wondering if you could remind us some of the factors that you and the Board will be looking at when you determine what the right size of that distribution increase could be? Speaker 100:16:15Hey, Spiro, this is Scott. I'll take that one and maybe Joe can follow-up if necessary. But I think there's really three factors primarily that come into play when we evaluate the distribution and increases moving forward. And those are really staying true to our capital allocation strategy, right? We want to ensure surety of the distribution moving forward. Speaker 100:16:36We want to continue to protect the balance sheet and operate at or below our long term leverage target. And we want to be in a continued position to grow the company. So I think those are the 3 primary factors. And then subsequent to that, I think we want to ensure Ongoing growth opportunities in the distribution, right? So sizing it to where each year we can continue to evaluate Future growth opportunities and distribution increases. Speaker 100:17:05As Joe said, we're in a position To with our announcement in 2024 to talk about another distribution increase. And I think as we sit here today, you should expect Something at or above the 2% that we announced earlier this year. Speaker 500:17:22Helpful. Thanks for that, Scott. Second question, maybe just going to Peerless. Just curious if you guys can update us any potential opportunities coming out of that asset. I think you've owned it for almost a year now and it sounded like you were pretty excited About what you'd be able to sort of spring out of there under your new ownership. Speaker 500:17:37So one, any update there? And as we think about the size and magnitude, whether it be CapEx or EBITDA contribution, how should we be thinking about that? Speaker 200:17:46Yes. Spiro, this is Karl. That asset was, Call it roughly somewhere in the 10 to low teen EBITDA when we purchased And we've already been able to increase that really through deploying working capital, optimizing our supply, Spending some capital, we've introduced the Sonoco brand to the island. So we're very happy with the results we've achieved and what the Team down there has done with kind of our strategy and our balance sheet and our ability to Deploy capital. From the overall company standpoint, even doubling that business down there isn't super material, but we think it's more An example of how we're looking at continued growth as we go into new geographies that we're not just going to live With an acquisition that we make that we're going to use that as a base and a foundation for further growth. Speaker 200:18:47So I don't know That we have a growth plan I can share with you that's going to materially change our profile in the Caribbean. But clearly, we're going to continue to grow and look for opportunities, whether that be acquisitions Or deploying continuing to deploy growth capital. Speaker 500:19:03Got it. Helpful color guys. Thanks for the time. Operator00:19:18Our next question comes from John Royall with JPMorgan. Please proceed with your question. Speaker 600:19:24Hi, good morning. Thanks for taking my question. So my first question is, you started the year with a $0.12 view on fuel margin And you're tracking much closer to $0.13 now and maybe a little bit ticking down in 4Q. But your commentary at the time When you put out the guidance was understandably about the relationship between margin and volume. If you were higher on margin, you'd probably be lower on volume. Speaker 600:19:51And clearly, you're a good amount higher on both. So my question is just high level. What do you think has led to the better than expected environment in margin? And How much of it do you think is sustainable such that maybe we should expect sort of a closer to a $0.13 level going forward, for example? Speaker 200:20:09Yes, John, thanks for the question. It's definitely something that we think about and I think is worth highlighting on our results. Going back to last year when we put our guidance together, we did do, as you said, link the volume and margin together and said, hey, let's Really look at gross profit. And then we said for each individual component of that, we said, hey, we think this is a fat part of the curve. And as we fast forward to where we are today, I think that relationship continues. Speaker 200:20:42But if you go down a level, I think it's Insightful to it kind of adds to a comment that Joe made in his prepared remarks about select companies being able to take advantage Just certain market conditions. So the relationship between volume and margin really is a market related phenomenon, right, Where if volumes are flat to declining, that's going to provide support for higher breakeven margins and then things like inflation or supply chain problems Some of the things we've seen over the last few years contribute to that higher breakeven margin. That's remained true this year, right? If you look at most market data, Whether it's EIA or other sources of demand, overall demand this year is flat to maybe even more recently, it's slightly below Last year, so that provides continued support on the margin side. With our scale, we're able to take advantage of That higher breakeven margin. Speaker 200:21:41And then the thing that we've delivered on probably in excess of What our original guide was last year is our growth. And so I talked about in my prepared remarks and I think, Teresa's question was really about how do we Where does that growth in market share come from? And so that's where our added volume isn't coming from some tailwind in the market. It's really due to us deploying capital and growing and then we're able to take advantage of that higher breakeven margin to really out deliver in both areas. Speaker 600:22:17Great. Thank you. And Carl, you answered my second question without even getting asked. So I will turn it over. Thank you. Operator00:22:26Our next question comes from Selman Akyol with Stifel. Please proceed with your question. Speaker 700:22:31Thank you. I guess I just wanted to follow-up on Spiro's questions in terms of sort of return of capital. Couple of questions there. Number 1 is, when you Scott, you outlined the things you consider. I was just curious, do you guys or the Board Have a goal or what you think the appropriate coverage ratio is to run this business with? Speaker 100:22:56Yes. Selman, we've talked as part of our capital allocation strategy to be at or above 1.4 times on the coverage ratio. So that's the general area that we're kind of targeting for the long term and where we'd like to see the coverage and how we think about any distribution increases. Speaker 700:23:16Got it. And then also within there, when you guys talk with the Board, is there consideration of any repurchases? Speaker 100:23:27Buybacks have obviously been a part of a return of capital discussion. I think we see a lot of options to create unitholder value, but view distribution increases as providing Flexibility to our unitholders and ensuring confidence in the future. Doesn't mean we haven't contemplated buybacks in the As you know, we did do one as part of the 7.11 transaction proceeds back in 2018. So they have entered the discussion, but We see distribution increases as providing the biggest return and I think the most confidence in our growth ability. Speaker 300:24:06So, Joe, I'll add one other thing to what Scott said is also we like our growth potential. We know we obviously It's a balanced approach between secure and growing distributions and maintaining a really strong balance sheet. But just as importantly as other 2 is that We look at the landscape and we see growth opportunities both from acquisition and from an organic capital standpoint. And we think that we can do that at a reasonable value with Significant synergies. So we think we can create value for our stakeholders on that particular area. Speaker 700:24:40Got it. And then Let me just ask this. And if I look back over your balance sheet and I mean and I go back to like 2021, You guys had cash less than $100,000,000 consistently, even as I go back over the model back to 15. As I look back over the last several quarters, you're running cash well above that and you ended this quarter with A $250,000,000 in cash, your receivables are up nicely as well. Is there something You guys want to hang on to more cash? Speaker 700:25:17Or is there something changing in the business? Is there any thoughts on just why all the cash are on the balance sheet? Speaker 100:25:24Yes. Simon, I'll take that. This is Scott. That cash balance that you saw at the end of the Q3 and I think at the end of the second quarter results around 2 $40,000,000 Those were booked cash balances. They were not bank cash. Speaker 100:25:38So there is obviously a timing element there. We obviously manage cash to the lowest level possible, redeploying that towards debt paid down on our revolving credit facility and obviously reinvesting In the business and acquisition. So that cash is not being trapped or held for the long term. It's being put back to the balance sheet or to growth. Speaker 700:26:00Okay. Thank you very much. Operator00:26:04Our final question comes from Ned Baramov with Wells Fargo. Please proceed with your question. Speaker 300:26:12Hey, guys. Good morning. Thanks for taking the question. Given the resilience of your business and the well documented interplay between volumes and margins, Is there a thought to provide a longer term base forecast on EBITDA and or distribution growth as opposed to your typical 1 year forward And I tried to highlight a few of the themes that in the prepared remarks, but let me try to be even clearer on this one. If you look at our business and you look year over year for the last 5 years, you've seen our balance sheet get better, you've seen our coverage Grow, you've seen our EBITDA grow. Speaker 300:27:01And every time we've done a formal guidance in December, it's been a growth. What we haven't done and what we plan to do in December is really talk about our confidence in 2024, but go even further and talk even longer term about fundamentals and how Sunoco could position ourselves to thrive in those fundamentals on a far perspective. So If you're with a little bit of patience, we're in our December is right around the corner. We'll give some good insightful thought about 2024 That's great. Thanks for that. Speaker 300:27:41I'm looking forward to the update in December. Operator00:27:48We've reached the end of the question and answer session. I'd now like to turn the call back over to Scott Grischow For closing comments, Speaker 100:27:55Well, thanks everyone for joining us on the call this morning. Please feel free to reach out with any follow-up questions and we'll talk to everyone soon.Read morePowered by