SUN - Earnings call transcript Q2 2018

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Operator

Greetings, and welcome to Sunoco’s Second quarter 2018 Earnings Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Scott Grischow, Senior Director of Investor Relations and Treasury. ahead. go Please

Scott Grischow

Thank you.

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

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

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

on call. today’s our Certain on slides website. quarter's You'll earnings presentation an to presentation be release. the referenced this information replay in posted in find investor Last night, updated we will that

team. members On are Officer; management Miller, Chief Chief Financial and Commercial the Fails, President the Kim, Tom of call Officer; me Executive and with this morning other Chief LP's Joe Karl Sunoco Officer

XX On the I of end our the XXX of review and part April, channel, partnership's I remainder which of resolution, former activities located we the locations. additional outlets an from X-Eleven, since commission sites Texas retail conversion quarter. turn to the the in Tom, of would to Later acquired sites. commission of to in like with first XX the West April as FTC completed some being agent Before company-operated agent over fuel call accomplishments converted we the first Sunoco were X, to

to The of of component X guaranteed XX growth million began included agreement. Remaining the April the agreement each the million on and XXXX in and April and XXXX. Turning XXXX million step were gallons. with each of components commitment XXX growth April fuel X-Eleven year gallons first annual XXX our supply in take-or-pay gallons in of phased XXX volume growth

are volume to agreement of stable We I and agreement which and factors, agreement, provides. while supply pricing quantity include metrics the optimizing do under the X-Eleven product are committed gross decisions. an said, pleased of source the with for the fuel essential of and That income want supply note that profit the the through number X-Eleven are a timing strategy fuel of deliveries volumes

result, the the to occurring related that approximately made volume important annual a guarantee keep payments XXXX that is dollar a impact in is tax mind of one we second facto it total commitment. We an of fourth and a X-Eleven total to tax supply be in two the million. payments, As believe additional in agreement quarters. minimum not In million SUN $XXX payment one quarter, of margin, de sale, $XXX will third and anticipate the each under

The in accordion also provides includes the our that we expense five facility reduce the $X.X commitments. will flexibility interest moving by margin to which restated an size at was lender credit on facility. date years up closed facility to The amended agreement, and were improve forward. able pricing to $XXX new credit help increase July, subject additional maturity Next, million, an billion to We remains feature to credit XXXX. July extended in at late and

now completed our last acquisition the We and Sandford Oil to April in acquisition closed week. on Superior Turning acquisition Plus the late activity.

the included gallon Sandford of cash also service in is the customers. fuel and the see credit opportunities funded XXX X on York for We in million below reminder, between drilling marketplace upstate and to the gallon a distribution market. exploration, acquisition As multiples a to we times of to Superior the facility. a example available Superior acquisition post-synergy year three G&A business and amounts commercial material XXX and New Sandford synergies bolt another hand and times in X includes a with the terminals on The bring acquisitions year continue distribution oilfield million on that operations The field acquisition. both with resulting these acquisitions for X concentrated business a a and acquisition of

both acquisitions be our expect the year. in to first unitholders accretive We to

segment we Other Hawaii facility, to over that fuel The the segment. Fuel also the income Distribution to former highlight reportable former Distribution Before ethanol the which and All in to sales locations, changes over Tom. I results to includes properties our Other. our business. turn retail call services all to renamed reflected partnership's segments segment I card merchandising the sales the Marketing the royalties. majority be our remaining The Consistent lease from want Fuel segment Wholesale the the includes in financials. credit retail Retail All Tom, of made Marketing the sublease to also The from call rental we and segment. We renamed fuel retail, now will I former some Other the included and segment, All and segment XX segment in will previously or and this turn Wholesale includes with our from includes franchise

Tom Miller

and Scott, morning, good Thanks, everyone.

what Plus for demonstrate strategy outlined Scott financial XX. support bolt-on quarter, I want make acquisitions our acquisitions. results said Oil reemphasize to a cover to I the prudent willingness Before our Slide acquisitions manner. Sandford the financially our Superior in regarding recent Both on and growth

Superior the acquisition multiple, our see expands our provides channels. that the fuel the of in that channels. various our business within In business the M&A manage portfolio fit of We distribution, from cash opportunity attractive a at attractive terminals We flows approach. our buy acquisition opportunities addition Sandford to while oilfield as to other the an growth

pursue will our and operational opportunities We deliver those parameters. financial on that

Turning million of was net million, $XXX second includes million compared to the quarter the expenses. $X million income transaction-related to a EBITDA net of $XX year a recorded Adjusted results, $XXX loss partnership a ago. which of

trailing trailing agreement, quarter X.XX was times X.X adjusted, by at DCF Our materially On times. coverage basis. distribution, year we result coverage transaction. XX, a $X.XXXX than X.XX. Last year X.XX quarter-end month as was was our balance leverage last by Last and year's restructuring leverage XX quarter are second the a for X-Eleven the declared as ratio as time times of Both the as million. leverage, second defined last credit and was was stronger cash X this Distributable same afforded flow, the quarter. $XXX the times. coverage July unit XX-month per sheet on

we within As we to coverage leverage X.X a will forward, of X.XX distribution least and target ratio look ratio times a X.X at manage times. of

remained our strong revolver. with Our $X.X available billion on liquidity

of cost weighted average is Our X.X%. debt

trend our throughout the fuel organic seasonality. performance, businesses X recently billion first in operational our our approximately will higher year, second the a over business, driven acquired quarter the of that was volume at increase half gallons, and quarter. X.X% volume growth total We in typical the anticipate second fuel Looking by

margin while margin on cents not the was It long-term month think gallon profit, quarter, the and for gross margins second versa. separately. seen XX and up, where For the is gross was manage volume $X.XXX to down trailing and together. We’ve fuel business and vice quarters was basis. per volume $X.XXX important cents about profit We volume

expenses. We any see short-term provided to margins X Slide guidance volatility. That stable, various items, focus controlling muting on we that how expect in annual continue Last said, December, to fuel be for expense future. the to and tend shows we those

for you look provided at we’ve Slide If updates X, XXXX.

second expense feel totaled quarter million with continuing retail we with from with operations closing G&A was in guidance. the in out million. remove $XX cost operations, line XXXX continuing comfortable $XX you expense operations. in Rents million, associated transaction When $XXX During

Our $XX guidance remains million. at XXXX run rate

Second million. quarter was expense other $XX operating

year West Although both this of agent with retail sites commission to move run the had of expenses a FTC higher-than-guidance first the half and sites, nonrecurring the Texas sites. implies associated rate,

QX with these good run run these expense to guidance and operating XXXX We cost Excluding the even million. cost, rate QX other considering feel sites, $XXX estimates additional Sandford. operating remained Superior and unchanged Plus with at associated

operating of this our million growth capital the second million, $XX the review, of In the we As this half low year. will Because revamped of acquisitions, first accordingly. our for and atypically $XX the approval year, continue we G&A $X capital, invested to capital. half quarter, process. maintenance of increase first we million was process capital and our In allocation of make other expenses spending

will which our we normalized remainder million Joe growth the on to year, leads call the For closing for to million by capital XXXX will estimate spend to over $XX $XX maintenance capital a of $XX and more $XX us million I million. by now lower turn the to basis, for thoughts.

Joe Kim

everyone. morning, Good

we second business it to underlying solid a strong, continue. stated, is Tom had As The and expect quarter. we

margins a were we to on out continue July, continue plan. balance show a we In fixed the year our December, financial to is our and will our grow. plan, Last quarter executed forward, third strong discipline. start. and good to and this this Looking We off laid sheet we volumes

leverage guided our range. within be to expect We

rent on per G&A, expect deliver gave OpEx, expense and back the guidance As in to we December. we

a stated over to targeted be coverage X.X. also We

acquisition Sandford plan. two to growth of this meet well We’re positioned target. examples and solid Plus Oil our Superior are delivering stated on of The

immediately of made of statement acquisitions that LP show-me fragmented pursue ago. I’ve marketplace. like continue Sunoco We’re to a a accretive positioned I These we by are type a to is story. referencing close stated for in will more. couple I quarters the opportunities

continues remain concludes our in execution out grow proven we into to plan story. and on proven deliver by financial to goals. our our ability that I prepared Operator, will As our quarter stated quarter, evolve be remarks. confident

You for may line open questions. the

Operator

question-and-answer be you. with we Please session. today with Thank a question. be Instructions] question your coming of this will proceed will [Operator from Theresa line Chen First At time, Barclays. conducting the

Theresa Chen

have your wanted branding, an can kind good wholesale trending? quarter volatility is margins price give think in achieve given to gasoline the to some this historically just First, are how this update that and and us able been still environment, consistent? has quarter-to-date The and on scale check you of current I margins seen

Karl Fails

consistent. it This Yes, is Karl. is

volume As margins quarter strong. in so are remarks, in Joe his far and mentioned the looking prepared both

Theresa Chen

is of the ratable terms the new in all gross how And in that profit segments, segment? other

Tom Miller

you at slightly the rather volatility of them over flat margin where itself restated margins we and our itself them and stable. that But on it’s we’ve basis, see a trailing as on the move we’ve believe some remain slide rather quarter. margin long look XX-month we CPG, over may profit, -- think If shown to and a will quarter gross the period upward, margins time therefore, volumes the we

Joe Kim

Theresa, it’s Joe.

I on not download about that. think not Let income me and fuel just but income, other other the area, you’re referencing commentary think side. the you distribution, area a that’s When rental

is you you operation think that, turnpike merchandise up our it’s income, in we about about and have operation up of made really only So Jersey. our amount think moderate if if which Hawaii a New

amount. moderate a that’s So

Then see And revenue is in a area. of our royalty then which fixed that, you’ve a so stores, other franchise or that’s number. stable. big You the income, items Then that’s on is a out don't top of fluctuations miscellaneous again, the top have a pretty some of fee which credit that very there. franchisor number we there’s on where card type

comfortable I pretty a I think you telling that other stable feel income. is So

Theresa Chen

comment And much to equity acquisition do instead the you that market, about front excess deals coverage that used think regarding the can flat of you am on the just needing I equity? curious in size, how we keeping to coming distributions before partly fund getting do

Tom Miller

terms are in to don't see we any don't we equity right and you on you out We can forward cash It of we how But now. look and want I need -- as Sanford of -- said very be -- the where with would that this far we issue with speculating feel comfortable Superior right and would depend any now flow. go? that size year we if

Theresa Chen

with you adjustments terms to denominator two while can in -- of your with still sense of to kind how can made associated you increasing your the of leverage, provide borrowings us guidance EBITDA to on a make color leverage taxes And transaction? some X-Eleven to that be give just plan the achieve payments last on what the

Tom Miller

That’s a question. fair real

the forma For $XXX a the target. million that pro X-Eleven, year, instead and rest going basis, associated adjustments have on added as this the of we’re Sanford year get to see with our going we covering and Superior and leverage within forward

Scott Grischow

contribution. our add on future Scott. a agreement acquisitions, moving forward this basis to EBITDA pro to the put and additional able credit forma we’re able full And Theresa, is in year

X-Eleven adjustment that to So as that as then Superior we’ll benefits agreement get moving the will acquisition said, and Sanford as be well an the field forward, Tom we for the EBITDA. were made also supply

Operator

The JPMorgan. is your coming of from next line questions. Jeremy with question the with Please proceed Tonet

Unidentified Analyst

Yes, morning. in for actually Jeremy. on was Kelsey curious good last you just This I week. is touch [indiscernible] could comments if from

for On you pipeline business. think curious of call, how sense use and would SUN? the was about mentioned refined they those they like I comments had see merger products more that a that how of make just to would you

Joe Kim

Joe. is This

have I our talking the what is. goal think first start we about overall

growth. we’re stable have smart to use as anything And that would we refined is in we’re MLP, going means areas more products. obvious and do larger look with a that for going be to to is discipline. into goal financial want that go to some income to and And do overall opportunities, we Our with

We the and insight us biggest capabilities. of are biggest that products of one out and the there, refined gives markers we’re --

at with yes, Kelsey more a have able. done and smart synergies. looking last potential with we become sense insight we for capabilities to bell some be sure right finding the a we’re So stable, The opportunity MLP right week growth and synergies to that at and us. bring the more making that want price and being capabilities, assets there’s diversified mentioned of But, the and we’re

Unidentified Analyst

apologies And you’ve this a touched if -- on here little got on late. then

and expectations? feel in. curious and you’re of looking connecting year-to-date just volumes I the on lining guidance Just half at any may kind both there second

Karl Fails

few Karl. to prepared Tom comments I’ll his a This made remarks. is what add on

not business point and margin First, profit expectations. short-term in biggest that from and managing we variables. our we remember manage look other -- is it as seasonably And are I both gross our line for it QX volumes our independent mean, with the long-term QX, rose we’re to volume and dollars. at

year times volume we’ve positive up and where and for half traded manage the at margin a there’re we taken how volume and over or overall margin last results. fresh places relationship So so we’ve look a that some with

XX% And did. gross his the profit as remarks, sold about is could number Specifically gallons for then X-Eleven. that in as profit easily but with of have take-or-pay Scott remind that are point we out you last sold is QX, you think mentioned more it, of our on put we the X-Eleven our gallons not But to based volume. gross dollars, not I'll

Operator

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

Ben Brownlow

of and volume? of -- per gallon last Just thinking a of to balancing that as $X.XX And of clear $X.XXX kind that gallon, be to that’s per just XXXX, we to about your kind answer, $X.XX indicative think more are the range so not still raise $X.XX expectations half year? long-term on than first it’s this really you with

Joe Kim

you the our Joe. out back first to would half it you use number, $X.XX, year the and is if to $X.XX say, comes I obviously of look $X.XXXX. to That This recap

$X.XX. That that but rest So point good I At that first the I that continuing think with market, out achieved foresee the for $X.XX is definitely to of reevaluate XXXX, the we've certain we for and on looking always you and a feel so. half.

Ben Brownlow

adjusted -- $X curious discontinued EBITDA But million you just in financials. $XXX And expense. some the that and there’s their. -- transaction clarify the also When on on oscillators million includes

you Or other $XXX be any we closer of million So are is just exclude should of? mark -- is ops? that aspects the discontinue aware to when a number there

Tom Miller

you you presentation This we that number took XXX. a I took think time, go reported from -- quarter XXX to just our to think we should had last from a we XXX XXX.

Operator

Please question of questions. from Patrick Baird. with the with next comes line Wang The W. your Robert proceed

Patrick Wang

in moving fuel sector? has traditionally to landscape fragmented how product’s you some compared Joe, would more characterize comments, back role refined consolidator earlier played your the the to acquisition the distribution

Joe Kim

the us. attractive of So on, broke two them both are if to you

at and the me the about for executing think the more with of smaller and be that there's think what Sanford and we’re start we growth M&A we go a there. ratable as half, there in and half do power in we these accretive. we that and like both scale And going are but a said, did these and more we acquisition. there that is we to would rollups do of that and of synergized ideal year we The our where to When of gives pipeline can those bit acquisitions. robust out of is with we these runway doing last a infrastructure, first we’ve the things us of that you let Superior we’d one of example, buying we by a this about possibility we’re take talking type more achieved. we first smaller good obviously, for our year continuing With XXX kind our million multiple highly ratable long don't about think digits the -- this they’re is: So off talked little if think situation a talked mid-single XXX think the pipeline hand-in-hand, think talking year acquisitions, what be the on necessarily and about basis. to And we bring over our of

side what fuel number to, the higher refined Ben other typically think the of I referring a that’s at earlier product, the multiples On than the trade of sector. distribution

where right opportunities find to us the of. advantage take have we is this and evaluating opportunity to for So we’re

Patrick Wang

wondering of Or and us any if if help writing turning or that understand reflecting quarter, that outsized am delivered fuel to offs should performance strong of the other recurring any Aloha you one any then you the be in in we and those just business? just aware puts there's the is were this that And this takes can of? I assets? number margin wholesale

Karl Fails

is I make Karl. can This on a that. comment

I at that our as is we distribution of you look about portfolio various have channels. ways of margin, talk the think, fuel we one a

list we an and of on gross are of those think I those our Slide presentation, channels X outsized portion profit. fuel our of none

performance don't typically one out break the sector. we So any of

puts might can have a that a I recast the the and we our that So we in of that of but have those takes don't in X in that quarter on that with think graph channels necessarily shows Slide on one we I some stability basis, quarter one highlight, happen lot margin. in even have

Joe Kim

This is Joe.

Let me additional one top comment on other Karl’s. of add

you in at we strategy on -- look greater that you If break And take no there, is one that that basis have XX%. have our referencing, business. segments income profit gross a we the slide Karl fuel different distribution out multichannel a channels we than if out is

income, rental up point, pick you stable incredibly the of our it’s If group. our the is most which biggest one actually out

fuel we’ve have take So keep on we one strategies and highly want in growth, stability we of -- to that particular so because as said M&A overweight basis. growth channel, an be conscious we organic do we always a don't we’re and this can distribution ongoing balance multichannel we keeping

Operator

with is Please with line [Operator from next MUFG Instructions] of Barrett proceed The Blaschke question the your question. Securities.

Barrett Blaschke

quick kind Just a question. of

the of longer looking sort goal X given leverage the more whole shifting at term, that targets their As lower? is leverage is seen we’ve longer-term goal of sort a over near-term of the to group for that X.XX, a we’re picture, or that

Joe Kim

Right said actually X.X now, X.XX. X. to a that want. you we goal long-term That’s I It’s think

by long strong based quarter, weak in that when But achievable. we in quarter. going We’re we period, on over it but quarter look and see the try given margins stay change quite margins, could any that to

Barrett Blaschke

from follow-up, rollup see out just -- and looking impact of done then and and [indiscernible]. the one Is of should we immediate for any to And you the your ETP lot there? units anything be They there ETE? that’s the a

Joe Kim

some week earlier is that: I think and comments I I made his last stronger there think Kelsey are made comments entities.

a our and financially about a very there a third own, very they of LP own supportive have units. GP, parents, stable also are We they

aligned that they along LP value I have highly with grow to they So and want think incentivized GP values. were

our we I we’re aligned separate of benefit future very we So as -- highly think we a get good feel have them, the long-term having about and entity.

Operator

line proceed question next of with Gyure Mike Please with from Our your is Janney. the question.

Mike Gyure

expectations? term year. level how should that? you guess, some new longer How guidance a we You Can bit think that’s significantly? going that the of about million I talk for going your that about $XX increase to this capital you you’re kind the Or think of think at think is growth is number strategy? this I relatively looking do with forward?

Joe Kim

This is Joe.

help me better ongoing this year Let kind give insights walk try at and on of some think that you will you then an through I look basis. and you

comments of that a look a getting So things cap far one basis. a maintenance our at more Tom we and mentioned in, at took did of rigid we’re in his put would down growth that on beginning year the all maintenance the that prepared hard is capital I And process the to ensure we say, our capital.

So we Is to to way to there slowed down a So Is there it? a do? way that’s what program. our do cheaper better do. have

the Same I capital. process with we’re very think the that thing with we have happy now. growth

far On with Sanford that million the XX signing with life projects out on and Oil new the making be we of synergies a we as with for for with. sure million ongoing for basis, the transformed that we’re returns capital maintenance for bring look we new and both we and our customers. at going projects side, reasons too, Superior, same the in XX a the our to gross to for as new doing up rest think year that logic is growth. that that organization, these guidance an plays With we’re of growth types satisfied growth As said same take have table the

from in not our ratable would point passes point, number to and M&A starts up costs organic but basis. after year we growth the have is where fuel intent distribution where inflection we forward have growth capital that year, that in to the sector, be especially inflection and M&A point side, an a there’s So might organic the like on to growth as grow going to get -- our

As and later look more number beyond. might that of year, on of known we get in like clarity this we the half provide what XXXX

Operator

the you. session. to now Thank for the of we’ve Scott would gentlemen, end I and like turn back closing question-and-answer Ladies now call reached the to Grischow remarks.

Scott Grischow

Well, thanks for joining on call. this everyone quarter’s us

As always, feel out any me follow-ups. free to this call. reach concludes to with today’s And

Operator

disconnect time. You lines Thank for you your may now at participation. this your

Sunoco (SUN) 9 Aug 182018 Q2 Earnings call transcript