Sunoco Q1 2025 Earnings Report

Sunoco EPS Results

• Actual EPS: $1.21
• Consensus EPS: $1.69
• Beat/Miss: Missed by -$0.48
• One Year Ago EPS: $2.26

Sunoco Revenue Results

• Actual Revenue: $5.18 billion
• Expected Revenue: $5.58 billion
• Beat/Miss: Missed by -$400.00 million
• YoY Revenue Growth: -5.80%

Sunoco Announcement Details

• Quarter: Q1 2025
• Date: 5/6/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, May 6, 2025
• Conference Call Time: 10:00AM ET

Sunoco (NYSE:SUN) (NYSE:SUN) is a publicly traded master limited partnership focused on the distribution, transportation and storage of motor fuels and other petroleum products. The company supplies gasoline, diesel and other fuels to independent dealers, commercial customers, distributors and retail operators, supporting fuel sales under the Sunoco brand and other brands.

Sunoco operates a broad logistics network that includes fuel terminals, pipelines, storage facilities, marine assets and other transportation infrastructure. Its operations are primarily concentrated in the United States, where the company provides wholesale fuel distribution and related logistics services across multiple regional markets.

Sunoco traces its roots to Sun Company, which was founded in 1886. In 2017, the company sold most of its company-operated convenience stores and focused more heavily on fuel distribution and logistics. Sunoco expanded its midstream capabilities through the acquisition of NuStar Energy, which was completed in 2024 and added refined-products and crude-oil transportation, terminaling and storage assets to its operations.

Sunoco Q1 2025 Earnings Call Transcript

Key Takeaways

• Sunoco announced a $9.1 billion acquisition of Parkland Corporation, expected to close in the second half of 2025, expanding its North American and Caribbean fuel distribution footprint and delivering first‐year accretion.
• The partnership signed a definitive agreement to acquire Tankwit, Germany’s largest independent storage operator, for approximately €500 million (including €300 million of assumed debt), which is also expected to be accretive in the first year.
• In Q1 2025, Sunoco reported adjusted EBITDA of $458 million and distributable cash flow of $310 million, keeping the business on track to meet full-year guidance.
• The board declared a quarterly distribution of $0.089076 per unit (annualized $3.59), up 1.25% from the prior quarter and marking the second consecutive increase with a trailing-12-month coverage ratio of 1.9×.
• Sunoco issued $1 billion of 6.25% senior notes due 2033, using proceeds to retire $600 million of maturing debt and revolver borrowings, which extended its debt maturity profile and maintained leverage at 4.1×.

Presentation

[Operator]

Greetings, and welcome to the Sunoco LP's First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Scott Grischow, Senior Vice President, Finance and Treasurer. Thank you, sir. You may begin.

[Scott Grischow, Senior VP of Finance and Treasurer at Sunoco LP]

Thank you, and good morning, everyone. On the call with me this morning are Joe Kim, Sunoco's President and Chief Executive Officer; Karl Fails, Chief Operating Officer; Austin Harkness, Chief Commercial Officer; and Dylan Bramhall, Chief Financial Officer. 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. During today's call, we will also discuss our non-GAAP financial measures, including adjusted EBITDA and distributable cash flow as adjusted. Please refer to the Sunoco website for reconciliation of each financial measure.

[Scott Grischow, Senior VP of Finance and Treasurer at Sunoco LP]

Before I begin my remarks on the first quarter results, I want to start with the announcement we made yesterday that Sunoco will be acquiring Parkland Corporation in a cash and equity transaction valued at approximately $9.1 billion. We expect to close in the second half of 2025, subject to customary closing conditions and other regulatory clearance. On today's call, we would like to focus on our first quarter results in our European acquisition. We would refer you to what was disclosed in the news release, subsequent AK filings, investor presentation, and joint conference call we held on May 5th for details on the Parkland acquisition. Please keep that in mind as we enter the Q&A portion in a few minutes. 2025 is off to a good start following our first quarter performance. We remain on track to achieve our full-year financial guidance.

[Scott Grischow, Senior VP of Finance and Treasurer at Sunoco LP]

Our balance sheet and liquidity are strong, and we are well-positioned to continue our growth objectives. I'd like to start with a brief review of our consolidated results. The partnership delivered a solid first quarter with adjusted EBITDA of $458 million and distributable cash flow as adjusted of $310 million. In the first quarter, we spent $75 million on growth capital and $26 million on maintenance capital. This includes the partnership's proportionate share of capital expenditures related to our two joint ventures, with Energy Transfer of $18 million for growth capital and $2 million for maintenance capital. Now turning to the balance sheet. On March 20th, we completed an offering of $1 billion of 6.25% senior notes due 2033. Net proceeds from the offering were used to repay $600 million of senior notes that matured this October and all outstanding borrowings on our revolving credit facility.

[Scott Grischow, Senior VP of Finance and Treasurer at Sunoco LP]

This transaction extended our debt maturity profile, improved our financial flexibility, and de-risked our balance sheet for the remainder of the year. Combined with our strong liquidity, this financing put us in an advantage position to execute on future growth and deliver on our other capital allocation priorities. As of March 31st, our $1.5 billion revolving credit facility had no borrowings outstanding. Leverage at the end of the quarter was 4.1x, in line with our long-term target. In March, we signed a definitive agreement to acquire TanQuid, Germany's largest independent storage operator, for approximately EUR 500 million, including approximately EUR 300 million of assumed debt. This acquisition consists of a portfolio of 16 terminals, including 15 terminals across Germany and one terminal in Poland.

[Scott Grischow, Senior VP of Finance and Treasurer at Sunoco LP]

The transaction is expected to close in the second half of 2025, subject to customary closing conditions, and will be accretive to unit holders in the first year of ownership. Karl will provide some additional thoughts on this acquisition in his comments. Finally, on April 23rd, we declared a distribution for the first quarter of $89.76 per common unit or $3.59 on an annualized basis. This represents an increase of just over 1.25% compared with the previous quarter and resulted in a trailing 12-month coverage ratio of 1.9x. This marks the second consecutive quarterly increase in Sunoco's distribution and is consistent with our capital allocation strategy and 2025 business outlook, which includes an annual distribution growth rate of at least 5%. Since 2022, Sunoco has increased distributions by approximately 9%, underscoring the partnership's ongoing commitment to returning capital to its unit holders.

[Scott Grischow, Senior VP of Finance and Treasurer at Sunoco LP]

To close, Sunoco entered 2025 in a position of strength. Strong results and cash flow generation over the past several years have allowed us to execute on our capital allocation strategy. With leverage at our long-term target and healthy distribution coverage, we have been able to reinvest capital back into our business through organic growth and acquisitions. The result is a record of increasing distributable cash flow per common unit that has, in turn, positioned us for ongoing distribution increases to our unit holders and additional growth. Sunoco's financial stability, distribution yield, and growth prospects make our equity a compelling value proposition in any environment. With that, I will now turn the call over to Karl to walk through some additional thoughts on our first quarter performance and recent growth initiatives.

[Karl Fails, COO at Sunoco LP]

Thanks, Scott. Good morning, everyone. We have had a solid start to 2025 with good performance across all three segments. Let me walk through segment results and then add some perspective on our exciting growth announcements this week. Starting with fuel distribution, adjusted EBITDA was $220 million compared to $192 million in the fourth quarter and $218 million for the first quarter of 2024. Volumes came in at 2.1 billion gal, down 3% from last quarter and flat to the first quarter of last year. Finally, reported margin was $11.50 per gal compared to $10.60 per gal in the fourth quarter and $10.90 per gal in the first quarter of 2024. Our results in the first quarter included the benefit of $32 million from the 7-Eleven makeup payment. As we've said before, our strategy is to capture what the market provides.

[Karl Fails, COO at Sunoco LP]

The efficient use of capital continues to support our volumes, which can be seen by our volumes being flat compared to the first quarter of last year, even with the sale of our West Texas marketing assets. This volume growth continues to beat industry benchmarks. On the margin side, elevated breakevens and commodity market volatility continue to provide support to our fuel profit as our teams deliver on profit optimization strategies in various market environments. Moving to the pipeline system segment, we reported $172 million of adjusted EBITDA compared to $188 million for the fourth quarter. Throughput on the system was approximately 1.3 MMbpd compared to 1.4 MMbpd in the fourth quarter. Overall, the system performed well even in light of some headwinds as a result of a few reliability challenges at refineries that feed our system.

[Karl Fails, COO at Sunoco LP]

When we step back and look at full-year performance, we remain very happy with how the system is performing, as well as some of the optimization opportunities we have going forward. Turning to terminals, we delivered adjusted EBITDA of $66 million compared to $59 million in the fourth quarter and $24 million in the first quarter of last year. Throughput was 620,000 bbl per day, up from around 600,000 bbl per day in the fourth quarter and a little over 400,000 bbl per day in the first quarter of last year. Performance was consistent across our network, and we're excited about the addition of our second European acquisition to this segment that Scott mentioned earlier. Yesterday, we discussed in detail our announced acquisition of Parkland.

[Karl Fails, COO at Sunoco LP]

That deal will expand our geographic reach in North America and the Caribbean and builds on the same strategy we have employed over the past seven years in our fuel distribution business of growing scale, focusing on fuel profit optimization and integration with midstream assets. Our purchase of TanQuid also builds on the same strategy we discussed last year when we first entered Europe. TanQuid is the largest independent operator of terminals in Germany. The strong network of 16 terminals across Germany and Poland has delivered consistent cash flow stability and growth over the last decade. These terminals serve an important role in the fuel distribution supply chains in Germany and Poland. The cash flow is supported by a long-term and high-credit quality customer base.

[Karl Fails, COO at Sunoco LP]

We are also looking forward to adding the TanQuid team members to our organization and finding ways to optimize with our existing European assets in Amsterdam and Ireland. There are many aspects to like about growing our business into new geographies. Our core business is distributing refined products that fuel the transportation of people and goods around the world. Globally, over 90% of transportation energy consumption comes from refined products, with another 5% coming from renewables, which we also distribute. As we look forward, our view is that the importance of refined products to fuel our economy will remain, whether here in the U.S. or across the world, a fact that is often overlooked and undervalued.

[Karl Fails, COO at Sunoco LP]

As we turn to Europe more specifically, while they are ahead of the U.S. in reducing the carbon content of their energy mix, many of these lower carbon solutions are also liquid fuels that need to be stored and distributed to customers. Existing infrastructure will always have an advantage over building new supply chains, and as the energy portfolio continues to develop, we are confident that these assets will only become more valuable. One can only look to California as an example where, even with a focus on lower carbon fuels, terminal assets in California have been trading at a premium to other regions of the U.S. Looking at the growth of our portfolio over the last few years, each of our acquisitions has hit our target criteria: stable cash flows, synergies with our existing business, good valuation, and opportunities to grow.

[Karl Fails, COO at Sunoco LP]

These most recent deals hit all four of these. As we continue to grow our asset base and face new and evolving challenges, our focus remains the same: strong operational execution, expense discipline, commercial creativity, and profit optimization, and ensuring we deliver strong returns on capital that we deploy. I'll now turn it over to Joe to share his final thoughts. Joe?

[Joe Kim, President and CEO at Sunoco LP]

Good morning, everyone. As Scott and Karl both mentioned, we talked about the Parkland acquisition yesterday. Thus, for my comments today, I'll focus on our current business. Year-after-year, we continue to raise the standard for Sunoco. Embracing higher expectations, we delivered a solid first quarter. Given our results today and our projections going forward, we remain confident in our full-year 2025 guidance. Each year presents a new set of challenges, but it also presents opportunities. Persistent inflation and possible recession would obviously be problematic for the U.S. and the world. Of course, we would like to see inflation subside, and we all want economic growth. However, we have proven year-after-year and crisis after crisis that we can distinguish ourselves in challenging environments. During COVID, when volumes fell, we still grew EBITDA. During peak inflation, we held expenses flat while others saw significant increases.

[Joe Kim, President and CEO at Sunoco LP]

As we look towards the future, which always includes various challenges, we're well positioned to continue to grow and create value. Our confidence is supported by the following. First, our business model performs well in volatile environments. Why? We're anchored by our pipeline and terminal assets, critical infrastructure that provide long-term stable income. As for our fuel distribution business, it's anchored by our 7-Eleven take-or-pay contract and our real estate income. Furthermore, volatility creates margin capture opportunities. We are positioned to gain market share and optimize fuel profit in these environments given our scale, our supply expertise, and our strong balance sheet. Second, we continue to effectively manage expenses. Even within the current environment where inflation persists, we're proactively managing our expenses to be below the operating expense guidance that we provided in December. Finally, our investments, both organic and acquisitions, continue to meet or exceed our expectations.

[Joe Kim, President and CEO at Sunoco LP]

This will drive our EBITDA growth, our DCF per common unit growth, and our distribution growth while maintaining a strong balance sheet. Bottom line, we're uniquely positioned to be both an offensive and defensive play. We fully expect to deliver another record year and continue distribution growth for our unit holders. Operator, that concludes our prepared remarks. You may open the line for questions.

[Operator]

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. We ask that analysts limit themselves to one question and a follow-up so that others can have time to ask a question as well. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Our first question comes from Spiro Dunn with Citi. Please proceed with your question.

[Operator]

Hi, this is Chad on for Spiro. Starting off, how do you think about future capital allocation among your regions post-Parkland close? Are some regions delivering more attractive returns than others?

[Karl Fails, COO at Sunoco LP]

Yeah, hey, Chad. This is Karl. I think if you think about our overall growth capital program and how we look at it, and that might include even some of the roll-up M&A that we've done, we don't have a particular target per region. We do look at it in totality across all the segments and across all the geographies. It really is kind of best projects win. The kind of projects that we have in our growth capital plan, generally, we try to focus on items that have a shorter time frame between when we spend the cash and when they deliver. Clearly, we look for opportunities that might benefit multiple segments, right? We might have a fuel distribution project that increases utilization in some of our midstream assets, or we might spend money in the midstream assets that enables additional fuel distribution opportunities.

[Karl Fails, COO at Sunoco LP]

We don't start the year with particular targets. We also have flexibility as the year shapes up or as we have opportunities in M&A or other growth opportunities to either flex that down or up depending on the circumstances.

[Karl Fails, COO at Sunoco LP]

Okay. That makes sense. Just second question. In 2024, you added more conventional midstream assets to the portfolio, and Parkland is a heavy shift back to fuel distribution. What do you see as the right mix between the two assets for your business longer term? How should we think about adding more conventional midstream assets from here following a large investment in fuel distribution?

[Joe Kim, President and CEO at Sunoco LP]

Hey, Chad. This is Joe. We are going to continue to execute our capital allocation strategy and ensuring that our portfolio becomes stronger and stronger over the long run. At different points in time, the portfolio may not be perfectly balanced at 50/50, but directly, we want a diversified portfolio. Parkland gave us an opportunity. You do not get too many opportunities where you have this powerful industrial logic and excellent financial benefits. We took advantage of that, and we are going to take opportunities to get more accretion, keep our balance sheet strong. This happens to be on the fuel distribution side, but over the long run, we want to have a very balanced portfolio.

[Joe Kim, President and CEO at Sunoco LP]

Okay. Got it. That makes sense. Thanks for the time.

[Joe Kim, President and CEO at Sunoco LP]

Thank you.

[Operator]

As a reminder, to ask a question, please press star one on your telephone keypad. There are no further questions at this time. I would now like to turn the floor back over to Scott Grischow for closing comments.

[Scott Grischow, Senior VP of Finance and Treasurer at Sunoco LP]

Thanks, everyone, for joining us on the call this morning. As always, if you have any follow-ups, feel free to reach out. Thanks and have a great day.

[Operator]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• Scott Grischow, Senior VP of Finance and Treasurer
• Karl Fails, COO
• Joe Kim, President and CEO

Analysts

• Analyst at Citi