SUN - Earnings call transcript Q3 2017

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Operator

Greetings and welcome to Sunoco LP's Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Scott Grischow, Senior Director of Investor Relations and Treasury. you. Thank Mr. begin. may you Grischow,

Scott Grischow

you. Thank

uncertainties based Before objectives, we of that have few anticipated comments statements divestment remarks, call assumptions expectations that may plans, that of our the usual the perspective retail transactions. and results are materially items strategies, completion risks cause prepared to include anticipated company's announced as are These fully could the statements. reminder the the with contain I management's and capital to beliefs, will the and actual described company's timing for the a SEC. expenditures, regarding in to They forward-looking begin and on targets, cover. filings today's subject A differ costs and the more

also of non-GAAP adjusted certain Please our call financial During that liabilities to financial flow adjusted. of will are reconciliation today's into our and operations note EBITDA last operating quarter's some of Please we a each discontinued and including this for as retail operations. of assets, refer cash part the distributable quarter results, measure. divestitures, that release measures, news discuss

of may that this longer otherwise company's call As continuing information unless on on replay. no at remind of today, noted. any as time the view so call on you information such be Also XXXX, today's are reported speaks time-sensitive operations only I the the presented results based to the X, November accurate

will You the on in earnings find information quarter's replay this release.

other Chief like the morning and and members Operating team. over Chief to Officer; President Executive me Officer Chief the now with to LP's call would management this Miller, Joe Tom call are Bob. turn Bob of the Sunoco Owens, I On Officer; Kim, Financial

Robert Owens

by would do areas. operating we within the and affected comments everyone, I for a us. back you needed storms other results identity. to the Getting family aid morning, hurricanes affected the us and Harvey provide and that financial which This for and in begin short morning in efforts Rarely those Sunoco Good hit recent by business, two joining quarter markets have activities. the mobilizing quickly third fuel thanking we like in period with Irma. time my such will merchandize review along Scott, for Thanks, thank

We were are happy to employee report no injuries. there

Additionally, Sunoco's had two affected some major and community hurricanes partnered The Sunoco with groups point a stores to the repairs. requiring vendors about From about damage assistance leading only that in stores third modest of XXX impact dozen suffered and perspective provide of a quarter. we the was store across financial communities. minimal

to insurance fourth repair XXXX. largely to While the up we the show cost the proceeds expect XXXX, of the first the half will in affected get stores of quarter in

remained to recorded $X million, last flow Distributable income third million coverage to X.XX year $XX year XX million was EBITDA third $XX as XXXX, was mainly operations a resulted ratio from which basis. of quarter by wholesale adjusted and months detail strong of trailing a million $XXX $XX.XX at charge. ago, more a year and $XX EBITDA ago. Sunoco's cash to increase million $X million the for an distribution maintenance an quarter $XXX quarter will the in second distributable $XXX in a as of XXXX increased compared year compared higher impairment wholesale adjusted This on provide from year coverage from X.XX quarter turning well $XX results; year million. Total million a the $XX as call. quarter adjusted the due ratio a of the in a Now ago. lower net later the of third Partnership unchanged third net to adjusted in $XX of compared flow. per of in the to distribution unit. including combination times income of ago, Tom contributed to times million, cash The a EBITDA from increase million increase This million, expenditures last capital to

at retail from were gallons of an Wholesale in compared Sunoco's gallons, volumes a from increase a decreased year. to retail. favorable experience year to year X Total $X.XX operational margin margins billion $XXX sales quarter as restaurant gallons Wholesale in per compared last year. quarter-to-quarter or to margins even, $XX.X $X.XXX ago weighted X average the fluctuations profit beverage, with retail margin and not of was $X.XXX increased ago. business, and wholesale for million, X% last and cents X% a year gallon of lower versus which X% XXX as increased second $X.XXX ago share performance; Merchandize per view total margin future. of beer continued due last XX.X% business from third market flat margin same gallon Merchandize a increased with were our year looking was billion the year X.X in was gallon Now quarter. million per sales. typically we of last million fuel by Retail gross of gallons an X.X%. three-tenth from gains packaged gross cents does percent of increase also a consistent a profit

one-tenth same hurricane in results; same total decreased by merchandize to operations gallons X% declined Texas retail impact impacted percent. positive posted despite store were a same trends Irma. the Florida during and total That said retail store turning negatively our Sunoco's Now of store hurricane the by sales quarter same store Harvey. operations of

for the XX%, gallons. getting for third quarter, sites with the our these strength XX are Basin producing the X% in also Ford. The the regions store Same merchandize over in progressively producing fuel quarter. same sales Eagle in stores to retail store increased remainder with region approximately market stronger oil notably in primarily in particular increased improved diesel the months. last throughout has sites located six XXX Permian the approximate oil the Texas of gallons Our In the

in as of put Joe we the regions corner trends producing reminder, out a in joined Xst this Kim positive a oil turned will CEO a business development XXXX press has quarter week M&A across next our in since. Partnership the brings since for and first over stating take Joe January have release want positioned on growth that thank Sunoco this and for and planning the on years team experience As call On the as posted of goes expertise quarter earnings dealer of past time. transformation each their the also investors strategic execution stores to Monday Sunoco support. starting in and will activities initiatives a all on responsible take the year. a moment wealth been of that all call He I Sunoco well. of and last now thanks Joe. my and wholesale this be present I the analysts a and and LP to and employees the will premier turn lead its to Thus call distributor into to And fuel Sunoco partners distributor. and over Sunoco is to and many

Joe Kim

of and years to Thanks of experience Bob. your we and On XX team, us for advantage for next definitely two behalf leadership We're of the service. you expertise. for the entire years your you your will we consult take have fortunate thank want dedicated Sunoco and to

we're currently process you the Sunoco. of As know in transforming

supply transactions of operated Our an leverage will ratios. coverage along road to stores. map attached these long-term allow any starts proceeds address our from and divestment with agreements company with The efficient completing our us

involved overheads. Our also optimizing transformation our

We for growth for us will in right overheads as future. efficient and our size just the forward business going the importantly position

provide rate for run divestment post comments. the historic have details more our than less G&A Tom projections will initial rate. Our about his XX% in expenses run

capital. addition, right In sizing we're our maintenance

years. For about projecting XXXX run XX% run to as rate. less This capital and capital lower in forward we're than also $XX the XXXX rate be projections than the be is to Growth maintenance going compared million. significantly will around half XXXX previous

of are from projecting the reduction XXXX. is around is but a operations, for from $XX We incentives. Based our more clearly criteria. Part return of aforementioned business on company new exit in some model overhead million capital stringent less is the the

on update divestment Now two the packages. let you me provide an

our with to FTC. towards transaction X-Eleven We the the of latter the closing. stages work continues the First, is in the process approval team package; diligently believe regulatory

the of completion process. subject We XXXX of regulatory to for closing fourth-quarter continue in late work the to

until is that does quarter there possibility a closing occur first of early XXXX. not However

about X packages total will income to quarter track buyer. trade annually. for As to transactions. quality and completion for off final on negotiations this with of of to billion X.X purchase the West let we first the agreements this turn it me gallons year, of are due billion balancing fourth and retained our Scale growth We're the us Texas stable and gallons diligence of negotiations year. Upon is package Similar with with combination price we vital X-Eleven Texas over the a fuel to With scale over our fuel we we a supply contribute accretive X-Eleven close In the future. are sometime for the of in West Sunoco. the higher agreement. a position business quarter purchase that currently next both The to complete EBITDA estimate [final] which sign we of the will leverage in in can will negotiations of believe we in Tom. distribute for on

Thomas Miller

everyone. Joe, morning, Thanks, and

operations. related a I Before the I items third discuss company quarter, the financial to exit on results our retail for will from touch couple

appropriate. have past requires the using over in make series the agreement on notes us feature call of stated X-Eleven or provision we as each the obtain purchase As the discharge to consent a asset whole either

On make that We and market. those refinance our notes. is to our have We to in stakeholders' notes. launched XXXX issued and best We whole to we instead process interest October XXXX a yield in strong a our high we conditional solicitation terminated for on XXXX today's intend our notes. XXth notice call consent it notes believe amend

amended facility the transaction. necessary XXth, Additionally conditions to the on we October X-Eleven agreement close our satisfying credit

divestures We continue gross tax retail impact roughly proceeds. combined of estimate of the to the to be XX%

sales Texas the assets this We matter expect additional West color to wraps up. provide process for after the on

the first. to use for As reducing of are proceeds debt committed we

carry X.XX Our accretive amount adjusted times X.X to EBITDA. will used acquisitions. leverage equity target to fund or and in be the debt where between either The it's proceeds is remaining to repurchase

unit units. we A we proceed we Series with ETP the reminder, equity the can to repurchase required common $XXX to million way. meaningful are a repurchase, participate expect common we preferred As repurchase a in would any If before

X.X Going distribution coverage we a will ratio forward target of times.

Total of drawn million $XXX September under the a the where accordance the at liquidity; in we ended of quarter This is with down times agreements to adjusted year. EBITDA end nearly debt second credit quarter X debt we billion XX, the full term Moving including total started revolving $X.X down of calculated facility. with our from and credit to as the times. was X.X

We million X.X%. $X also credit. The unused credit facility cost on debt of capacity leaves letters of $XXX in the XX, our average had at at standby million. This was weighted September

was X.XX Bob times As third X.XX the a on coverage times trailing basis. in quarter distribution and XX previously month mentioned,

As from increase of continuing Scott Revenue operating earlier, from associated driven XX%, have increase operations by as wholesale divestitures an operations with $X.X inventory quarter XX%. for our retail continuing classified adjustments. valuation were operations. was Gross $XXX mentioned billion, assets we and of third profit an discontinued results, liabilities the million,

million net Additionally million third quarter $XXX for a continuing compared year from ago. the to income $XX operations was

year. our what We was expense of operations ago, Dallies. expense Required charge. $X.X XX%. than Revenue a a half of will loss forward billion, G&A approximately operations $XXX headquarters overheads million, million, from million, going of net discontinued $XX from from year included $XX to $XX significantly impairment was million which driven discontinued last That discontinued required. year historical million the GAAP $XXX adjusted ongoing increase million, rate. relocating was of a compares flat profit ago. income million from G&A margins operations be compared Gross $XXX EBITDA $XX of from EBITDA was Third is the to annual run to per was million less from gallon averaged an project down cost a ago. from profit by previously of quarter was increase Retail our an per net compared year Adjusted a from was year XX.X% increase $XX a year fuel was $XXX Gross the retail $X.XXX year merchandize $X.XXX gross an $X XX.X% margin million to operations segment of gallon quarter $X increase was for a ago. million, Retail ago. $XX profit million $XXX year a discontinued ago. million, a ago. to Total million, from third which

capital increased from $XX in $X year Now sold. a gallons $XX year million Sunoco due invested million gallon. million million margin turning a third the capital business; was maintenance consisting adjusted ago per quarter, for up ago, to primarily the EBITDA to $XX capital. third of $XX with growth the quarter fuel Wholesale flat wholesale at was expenditures, $X.XX million, of In and of motor

For approximately $XX approximately of million XXXX, expect continue and million. to capital to we growth projections lowering our $XXX are we capital maintenance

More said capital importantly I've which earlier; I million. would annual like will go to forward for restate the $XX be about business maintenance

and guidance. complete wholesale we when depend in will we quarter an margin times maintains XXXX XXXX promised Last capital X.XX capital our transactions. with a we will on reported on total that Our capital Longer-term and growth range. evaluate to leverage these any spending structure that X.X maintenance update

$X.XX For $X.XX years, the past couple above per our of to guidance. have consistently gallon been we

business. increased the We focused of continue future wholesale divestiture radical our nature to assess post guidance wholesale to reflect margin

the that more this cannot Texas at time. expect we raise will have once but sale, we specific we We finalized West guidance be

will that range to growth. as business regular updates the We provide

Bob. last prepared that concludes to would too the our about best. Bob, for business, may brought any questions. you like I Finally, for I'm from remarks, Operator to outside grateful. has year line I wish He thought open now this the the you and thank that me Sunoco me

Operator

of first Please Andrew your comes Instructions] [Operator with line Our question from the from question. Burd proceed JPMorgan.

Andrew Burd

Hi, good morning.

couple been and certainly it's the you of with thanks. over last have Bob, so be and missed, off were great we First lucky will you working to you years

of markets? across footprint? in on you're to on decline if directionally volume a noted these broadly that thinking of more Coast. a question, in entire kind fuel competitive little just First or give clarify you could for what those your your these in demand you some pressures you softening sense maybe expand Can on thinking And just the in virtual the XXXX, ball about look are volume just and East the crystal the have Thanks bit, and trends

Robert Owens

hurricane East pretty the impact correct to this. biggest for certainly Andy is is with us the My demand start a guess Florida. is the area essentially in I guess wise flat. was volume the way I about hard big view think Coast and But, that I hit us which would

about, [capage] thing total year's continues sharing trends trends will all a it's miles this in will economy that think we continued I see see standpoint positive and you improve and we be that gains name employment from the driven to as economy, we by the the read whether it. offset economy under

view I So it. that's how

positioned take brand As I pressures, I up And the given that's and well of the in and about East to in place. look well infrastructure the as economies to is as Coast, it and the are from way flat the there down various competitive but think think for demand us very correct my advantage strength Sonoco scale compete area. driving essentially, our is prospective

Andrew Burd

do fuel down overall parts, impact X% Great. the but on number? know you And gallons on hurricanes sales in it's or I hard store just what to had following were hurricanes, that up total the X%. think Appreciate that down quantify same roughly

Robert Owens

and I Irma. order overall back you Scott But exceeded well we I I that. get to Florida. -- road to closures -- power with Harvey We don't, XX it flooding, will in municipalities had we million or had both outages, of mean hurricanes closures with can -- both hundreds either, to on due closed were locations gallons just Andy.

that. we So for a will you can to helpful you. pencil get little That sharper with on bit back be

Andrew Burd

be for Maybe helpful. bigger the in items some year there appreciate your Illinois or we finishing of the question and of targeting you just maintenance the And what some well? as light Thanks. thoughts reduced highlight as growth comments could for areas last of that's capital what business road in on lumpier kind No, toll CapEx. in policy terms the then maybe just that Joe, the is are your up and will are CapEx other sort next

Joe Kim

have remember business we we terminals I got Hawaii transmix on retail have we [indiscernible], U.S. in to and in and the still the the still business have also Andy. Hey, will maintenance we capital basis, a in Hawaii break

our really dedicated have kind good own a businesses us asset which where we for our real we business revenue So the a is business we rent have business ratable That's of in future of dealer is towards more also the and environment we estate and the really capital maintenance the get lot land. hard for where incredibly us.

Bob XX capital. business we really last look a like we So margin have basis expand said, to we On capital our very the that on basis positioned business at with capital maintain will quarters, eight they asset of well if type our you growth hard maintenance on is announced we're that's bulk very which -- the quarters, I think there. and going the wholesale have high back forward a a

of would up capital new Our of should up, with going distributors -- really more it of our new competitive a call some forward an a highly and be growth in people part capital. is signing growth scale I we And is basis. organic kind growth us that signing on of a dealers using

Operator

next Our comes the of Please line your with with question. proceed Theresa Barclays. from Chen question

Theresa Chen

X-Eleven are Good early there question delay you service stages do latter process, are regular quarter. you you has has remaining? many morning. what well. color first given a to to been why Any thank first we about My you comments the the into you Bob talk about I considerations to can modest Can your that originally with delay would the and expected? like of on what best years Andy's talk the you in of wish the key of as from and go closing, for for

Joe Kim

Joe. is this Theresa

color. some you give me Let

think and prepared are going expect Sunoco, process the think We from close minor to be and the think it's process think ordinary the are are latter both in regulatory of very and from we we through going the think order are remedies as we this the to we more we it's we I need definitely remarks the immaterial. in just expected remedies in stages minor. -- very we that all, of First those and We close. X-Eleven FTC parties to stated

We the guidance. you give to process. are better of We awaiting want some kind just

Theresa Chen

minor of of? consist give examples remedies those Can you what any might

Joe Kim

we can't regulatory the respect now to gave than FTC really into to you the kind the earlier. comments right other we of you provide process details that With and get prepared

Theresa Chen

Understand.

the to returning proposed -- of common units terms a at you about smaller Should would purchase way. be to threshold of closing they In your post Texas, meaningful the comments at portion think we much public it primarily held the balance earlier will repurchasing or up how Tom's units, and holders to comments on West and taxable will transaction X-Eleven do the coverage given remainder the maximum parent your the parent unit versus that we of as, to participate public? about kind in between about read then at of parent the consist purchasing the would

Thomas Miller

and a with flow. Theresa, they doesn't us leave approximately own lot of that XX% us of

to will they in, be amount pro it interested The they that still we is will open way. discussing time. meaningful a above So sort participate and over are have in rata's of their

Theresa Chen

talk far? you what capital have by forward versus thus can about What return XXXX, terms guidance criteria going the meant -- of what can you you had criteria? you exactly In talk stringent growth for more about that is on Joe,

Joe Kim

that not the But obviously stringent when is years. make that that the Sunoco manage volatility see can four think for we I make put we when some term that part quicker distributed sure we thing the off to want and got and and it [MCV] can with we want our where think of manage some we accretive is, want other to we of net that growth a say I longer are to for projects. is we of we of measures streams. manage or capital credit accretive diversity will two other consider value to IRR. that use that spends income income different have portfolio our make of we so traditional We that diluted balance And high the to projects projects sure I first all bunch as, a sure those we three

So our more a capital. that's look meant at what growth stringent by I

Theresa Chen

be what deductible? lastly, insurance quantify will you then quarter can the hurricane what And the be settlement you costs fourth expected versus that in on post receiving will to

Robert Owens

kind estimate, thinking Theresa, a this at are in $XX range the It's million. point, we but of rough of

Theresa Chen

net basis? On a

Robert Owens

basis Well, Yeah. gross in prepared remarks we the proceeds. now right are mentioned I insurance as expecting

my out policy is expectation the that that. it Given now right covers

will We in the next those year. see dollars

Operator

line your Our question. [Operator question with proceed Baird. Patrick from the Instructions] Wang next from of comes Please

Patrick Wang

originally that the or So -- us sale remind we X-Eleven portfolio haven't on of that the packages? on that just other the been XX many the could site and Texas stores were moved the so sale, still have West how into two in either you remain included sold

Robert Owens

now are many? NRC exact I we think the believe number the holds and you pipe have that we referring still to right I bulk, have how the

Thomas Miller

About XX.

Joe Kim

than sold outstanding, are the kind XX think We there XX, are than divestitures. I point. is less half, half two of less Patrick I of so the other this that It's went of XX% outstanding them around about at think to

Patrick Wang

general that's Okay. more helpful. some then Great questions. And just

about been outside seeing diesel have volumes longer than that of as been also to have flat to So you the And in apply have oil the seemed earlier talking [sitting] demand mentioned gasoline? term. a comment you which resurgence about more been fuel resilient Does total -- patch. being you bit

Robert Owens

regions there seen I'm kind total guess significant where over We've with waxing motor I pretty demand. no in diesel last for a the tracks vehicles. my better is seeing well perspective, diesel demand the from waning and Certainly shifts fuel and economy example gallons. in happened. surge the oil popularity of passenger we're What has producing talking decade

haven't overall my perspective. two, So from parsed between I it think the flat I assume

Operator

with line comes question the from Fargo. of Our Wells Lui Sharon next

Sharon Lui

a in question just guidance the luck the future. My XXX for assumption reasonable still wishing wondering, also Texas you Bob, is if transaction, the I the about provided best West million? you of of X-K, is that guess

Thomas Miller

area our structured. the the amount estimate deal looking in at solicitation is the depending I'm was on and the we're that's is way. in is how right That consent

about Joe in of is talked EBITDA. proceeds there As future a act balancing

Joe Kim

Tom's as support metric to Eleven to as as -- used we per well, value in noted a comment was dollar indicative just Sharon that there. a we used way And X- store put

related that. anything So based to It outstanding on a like any as or think was the offers Eleven it was not X- estimate. metric I directional

Sharon Lui

Okay.

I pro not does guess from forma fuel potential supply guess like So the include EBITDA a I agreement? benefit a

Joe Kim

is this Sharon Joe.

of kind like me I the think key underwent place guidance. Again in give deal is point the consent Let you for process. we and didn't a we have Texas West

was So guidance at to the process. a it the use most, I good think Eleven as X-

You take by X.X divided [indiscernible].

you You right X,XXX times million, stores look XXX come there. number to at times and $X [X] out that over [XXX] out at you are

of So talk the of And but again ball I fuel that deal as are think that going number have [congressionally] about and to Does and be a type we we distribution -- math as using think park same then we and use also is Tom stated, use firm a to definitely I that potential help? contracts. that size. it the wouldn't the kind that forward, as for that

Sharon Lui

And you. whole can estimate premium at just thank make the point? bonds the this an on have helpful, That's [indiscernible] on I

Thomas Miller

going down. That's

we million and it's roughly think down about if that whole month. a currently make million I $X $XX goes today,

Sharon Lui

on update pursuit M&A an of perhaps, just And traditional type midstream of market assets? more and the the

Joe Kim

parts. of two kind So kind I -- will it's think well I start of

mentioned so gallons. were to we this billion then is scale wide distribute business going and As Bob X far on as the

our an core right now, M&A kind standpoint distribution. sticks from with So of in what fuel businesses

fragmented. and scale incredible have We market remains still very the incredibly

fee, about Xx if sales you think area a distribution reasonable kind XXx. at So somewhere to trades trades about and between fuel multiple of very

top can definitely be of accretive you going there us for post acquisitions You M&A us. and our digits see synergies now activities synergies single doing would which out the on add that, in

area. obvious one that that's at. look where we area So The

is on And traditional types product fee say example other activities. of The more terminals. prime area probably based would more a be would I

to the us. if think that bring it Then for gallons synergies product are to X we we that Given there out of additional it want connect stored, see kind shorts can way, there terminal. that markets billion some have with you of particular our some and you

looking we diversify that time that to to same at going definitely bring. So kind to to and are balance while at -- our want we sure we core want distribution, of think we off we fuel at portfolio. the we look And more And our balance fee-based but have time forward. the maintain goal making our synergies that the whole sheet we can business

Operator

Raymond Our from comes question your next proceed Please Ben of the question. Brownlow line with with James.

Ben Brownlow

Just color short-term? you looking the refinance to notes prior on utilizing at the about you 'XX the XXXX revolver and thinking redemption the would any how consider or close, the are that rate in

Thomas Miller

advantage is We these hot of high-yield market with would The take to long-term and right like expect to refinance notes. particularly now we would to that. able be

clean good balance here. is have of sheet here coming we a out the things of One

long-term adjust appropriate. always no We debt, debt. any have We floating-rate can as short

will things forward. one that the of be So consider moving we

Ben Brownlow

it changed really on balance that where notes between really the the equity to fair say given the versus it overall? on or repurchases targeting debt Is hasn't redemption are you

Thomas Miller

a invest will And including target multiple that's we is what debt our preferreds. As forward go what then the of repurchase out mentioned in adjusted equity have we EBITDA. that to of a I projects level to falls or either

Ben Brownlow

kind around And color same of to-date? any demand trends quarter store sales

Robert Owens

we regions. stores earlier view well forward of certainly is was remarks numbers in the of saw just the that of that resources my But one near-term. in the resilient not economy going -- don't that offerings that going impact demand forward. the well. of Again convenience our We've different hurricanes, store kind to felt a the in as store have of and by be around remains, the you reported echoing certainly People growth. kind the the Well today to convenience decades one seen and new changing continues time best is we offering the feel retail their trend of see dearest immune,

So forward. that our -- that the better number than grow or and view with -- my view better pick is, going X.X% X% it than CPI a will

Operator

would I to back There over are like closing hand comments. no for in queue. further Bob to Owens the the call questions

Robert Owens

this your everybody call. your for and support continued kind concludes Thanks. and Thanks certainly comments our

Operator

gentlemen this Thank your Ladies teleconference. participation. and you does conclude for today's

day. this You disconnect have wonderful your a time may and lines at

Sunoco (SUN) 8 Nov 172017 Q3 Earnings call transcript