SUN - Earnings call transcript Q2 2019

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Operator

Greetings, and welcome to Sunoco LP Second Quarter 2019 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host, Scott Grischow, Vice President of Investor Relations and Treasury.

Scott Grischow

Thank you, and good morning, everyone.

On the call with me this morning are Joe Kim, Sunoco LP's President and Chief Executive Officer; Tom Miller, Chief Financial Officer; Karl Fails, Chief Operations Officer and other members of the management team. call other forward-looking actual factors differ today's risks, subject results that materially. and uncertainties that reminder will statements contain to to A could cause with as to factors. these as earnings refer for release, Please our list our filings the of SEC a well

and we to EBITDA the of website a cash During Sunoco including today's non-GAAP each measures adjusted. reconciliation also LP will call, flow financial certain as discuss financial adjusted distributable refer measure. Please for

will on the provide pipeline We turn Before deliveries quarter July call commissioned pipeline customers on JC Energy Tom, I Xst, week. earnings agreements update over diesel first the an to this I in joint Transfer to on that our call. with and venture August final our successfully we signed announced first completed

Transfer venture joint Texas benefit As Texas Hebert, the capitalizing Texas midstream on Both the West a for on the Coast operates marketing diesel side, operations. transports a fuel area. pipeline reminder, splits Midland differentials. which agreement the from a to the sharing Energy from the The terminal in to profits Gulf venture through joint parties

fill with LP's million of capital million, cash $XX comprised the capital. working $X balance investment of growth is Sunoco that is line and approximately

turn I operating this quarter's results. Tom call financial the will who now and Tom? to over will cover

Tom Miller

Thanks, Scott quality and good morning, everyone. Again delivered this quarter results. we

income million. net $XX partnership of the recorded the For quarter,

million. of adjusted XXXX $XXX XXXX quarter EBITDA Second quarter compared was million, second $XXX to

leverage leverage X.Xx. quarter was Our second second than of X.Xx of year lower last quarter

coverage X.XX. $XXX Second trailing of a and second of quarter yielding quarter million, XX-month ratio a X.XX DCF adjusted coverage the was as ratio

one-time contractual related a the prior dispute earnings reserve release, for a expense $X of million open in to As from periods. an these results noted include

would remove have you been million. DCF million; a adjusted as adjusted $XXX EBITDA $XXX one-timer, If this

been have coverage X.XXx. leverage and of would of coverage XX-month trailing X.XX X.XX quarter Second

how at you quarter it. Another look matter solid no

last we distribution, On the unit as July declared XXth, same a quarter. per $X.XXXX

growth totaled by was quarter from of X the impacted performance, Philadelphia organic one-time It volume by XXXX Fuel efforts. over up Solutions optimization as June mid operational from Refinery fuel was which our a aforementioned at was gallon expense, billion driven record fire. acquisitions, profit $X.XXX as gallons the contribution and in second Energy ago. Looking per well gross X% the year that's high margin a

response, PES, gallon guidance. long-standing gasoline and in without contractual Spot the PES early been guidance. prices size the suggest July other and impact largest operating in Coast; told back our given one multiple our $X.XXX second ran East one-time quarter June to our suppliers. the margin of up end annual half $X.XXX from All annual margins $XXX the of we the pressuring on our have below with expense dispute good is the toward million half however, options suppliers rate run per basis, full-year our a we lower and first On would numbers have of into

also result amount. the be the will gross expect we by guidance, plant. the quarter-to-quarter in expense operating to annual XXXX lower Fulton primarily due That fluctuations, Fulton ethanol essentially said ethanol below will sale same While our of total sale profit

we year's capital to million now $XX capital. in spent on million around growth to on million last maintenance quarter, expect Moving capital, million. million capital and million, $XX growth Last capital. we in $XX $XX the XXXX invested second from up $X $XX We maintenance be year,

million to capital Nolan up JC current is projection the $X which now $XXX Our includes growth JV. million towards

sales developed our the we have we've past, strong and projects. of team As organic pipeline distribution a discussed fuel strengthened in

in short organic deliver additional would high capital We a in million with that be returns $XXX growth comfortable investing paybacks. exceeding projects by

second quarter, our well. Looking underlying at the performed business

strategy optimization a our to control. and target. target, allow will we to profit coverage things us leverage strategy X.X to our X.Xx believe gross and Expenses, the X.Xx on maintain focusing within ratio remain We financially disciplined continue investing We wisely.

will adjusted remains I Joe? the for EBITDA now will XXXX Kim believe closing very We over turn reasonable. some thoughts. guidance to the Joe call

Joe Kim

Tom. continue results. everyone. Quarter-after-quarter, we deliver to morning, quality Good Thanks,

example another performance a Our an price We also mentioned the resilience and earlier. April quarter in these face is that we $X of issues. second a with of business. an million Furthermore, refinery June. the Even headwinds, Tom good by solid environment commodity we quarter. our We're impact negatively expense delivered both upward had PES one-time

remains we at business select a yet of last We're take expected And we our building in the foreseeable model year. of business future. to time can strong. continue also like into the fourth saw same withstand model underlying headwinds, advantage Our business various the to tailwind, quarter

off quarter expect more the is forward, third annual importantly, a to And good our to guidance. start. deliver Looking on we

Moving growth, was to pipeline Nolan month. JC on service into this the placed

Since dollar and a JC last in shifted large, of Although is have of And year, of is project. we last of accretive midstream year. amount acquisition ability this the create personnel dollar completion example off build resources our not business. Nolan prime And terminals growth outside two is exceedingly December paid of distribution. the to the fuel to with our the

growth right We temporarily slowed it. To organic have we short-term right price, earlier. the as decrease we'll comes the our have pipeline acquisitions, opportunity Tom field strong. at our remains however, balance act acquisitions; distribution detailed our When increased in the on

that stating on continue continue by XXXX to delivering to in beyond. targets. confident Let remain deliver our close establish the track and me we of We will we record

prepared our concludes that Operator remarks.

line questions. You may open the for

Operator

Instructions] [Operator

question. Our from UBS. line with comes with Gershuni first question of the Shneur Please proceed your

ShneurGershuni

right your can start half think about morning, this are of for back sort the good as quarter. outlook this guidance your around expectations XQ for full above, and moving direction your Hi, color for in we off for year of margins the XQ? margins with Any Maybe guys. your

KarlFails

constructive as This Shneur. the like That's you us. QX Yes, year. definitely prices a for tailwind in Hi, we fallen mentioned last provides Karl. is saw of very

look volume separately. them talked the over at look -- look we've last as at number we we and general quarters, together profit. with in think margins of We as gross I don't at

little I nicely. side. think results than with our towards profit was very Joe and our But volume Tom have guidance we're It margin mentioned QX more a And a shaping is QX. prepared efforts CPG up side gross our on comfortable optimization yielded the remarks. as in

JoeKim

Shneur. Hi, is Joe. This

Let me a little add bit to that.

I way, there look and think the if for at some that look to of XXXX, kind similarities. XXXX you what's at are

was first for of the half this refinery averaging somewhere $X.XXX. million of look issue, you look north at think in year year, XXXX the of the year. half If margin And just $X average if on at the we're our you with I somewhere even the around $X.XXX first

the drop, Karl the going year. volume I going think to we're that is in profit our shape for and mentioned RBOB still up. thing good I We're that optimization gross of is important to with very think the be back this do half

ShneurGershuni

about the that enhance ninth had that sense, I wondering opportunity long how we was presents as Whether inning? then sort that was can the I'm you're just given we to you And getting us in? what part inning? optimizations, place. sense actually you've an opportunities with guys. And well. if great wondering wondering in in you PES talk closure. the can the fifth I it's your optimization as if Are considering also taken inning success Are was makes That I of give to

KarlFails

then comment is I'll I'll be piece first take to might the Joe able I other. and the PES on think Karl. take, this

As on PES of mean mentioned far suppliers as we goes, one I they East our earlier, as were Coast. larger the

coming think the alternate find I market supply a the Philadelphia into saw we area. very quickly

supplied. well very it's So

million is there saw that needed supply we rebalance. to and $XX We that what the QX think I in some QX to to was estimate where needs logistics as of split the range between probably $X it costs million impact. get getting

mean to working notice, still I it not from that's but standpoint to enough be through. material. our And enough was

were part So we're largest -- for be in before, large that shorts country. one the we're a going a the have demand of to fuel. we still of large And

going And so, opportunities as yes, creates think I stated us forward. for you it

JoeKim

conference optimizing business, up. on price deep we as And we're the opportunities the I real really us I opportunity growth as comes also mentioned when those it. for future the pretty gross think acquisitions. question ramping that into on optimization, that far to and the organic as about think are far And at is base it profit Shneur, our as last I call

that Our bring table. ability brand. to optimize, price our to we believe We the our skill with and

As far process. as is our a continuous business base

innings yes, our when analogy So it think a of, latter to I that deeper we other in we opportunities terms using comes have but the into we're base. internal probably have some baseball

ShneurGershuni

And comment. first just paraphrase to the

first been that part So because answer? what in expense. as actually part XQ headed to that of are saying you earnings your higher have for the Is higher PES essentially of up could

KarlFails

Yes.

we look at-- mean think as as we've whole. our stated, I a we look I at business

on should that overall and we're a we tailwind So statement now a other It's EBITDA there our that. guidance QX in forecast not the just little force headwind that think going overcome is hit And a was to that's in a year bit QX and both right probably overall coverage. QX. that we think don't for in that

JoeKim

Okay, go ahead.

ShneurGershuni

finish. No, go please

JoeKim

I to I I little think think have depth the a PES issue. more bit

over do in keep million to between We kind quarter it's as and $XX million quarter somewhere the both all second the us third impact want did quarter? to impact you If of analysis kind third equal, the the internally lapped in of us in PES an what try variables to that second think what's and combination. $X

want in So middle each X.X the quarter. somewhere right if between down just it you X to call to

an And so on have second did it the quarter. impact

leftover this our I worked that is think the mentioned third the the system. of earlier, drop of that through quarter, on And in year back prices far the RBOB optimism much As it variable. definitely over as But that pretty had little And all factors jumped impact. half out in. a bit of yes, you been as has

ShneurGershuni

potential see to final you on one an question. when starts solution and the XX former it take market? up? Is into Mariner a capacity filling Do some PES East Okay supply there to opportunity

KarlFails

Yes.

in at the the Philadelphia, by the area. I refineries pipe supplied it's has I into supplied continue imports been East Gulf in from It's supplied Europe certain Coast. say Coast world. markets. to mean always think And as opportunities to been other we pipeline interested I'd by case. That's with primarily always the from look at looking going of we're the or be parts

something look definitely that's out shapes we'll that how at. on depending So

Operator

Our with of comes from the proceed line your Ethan Bellamy Baird. with question. next question Please

EthanBellamy

and downturn venture line? impact Gulf put Texas in if potentially could Hey, oil If spread see that context big volumes Does the gas some how pipe respect to guys. on West you there. Coast With development in us and we give the then that is? from out on that market the a Good risk morning. will the joint you line big at think

KarlFails

take that. to happy is be This Yes. Karl. I'll

we I every at the as in truck week. Texas, diesel that's rail definitely of pipeline and there's area day diesel demand in think of beat been by look come economics the by that that and should

so can absorb impact but we're more XX,XXX JV -- that day JC comfortable Energy market of capacity --we can market supply the looked the comes that with of that barrels Transfer, as Nolan in those at And a the line. as bake we into the Obviously, the differentials, we're the economics.

looks. how So that we're comfortable with

And as going things the on a downturn a there's the It's quarter-to-quarter crude West to that of company commission lot you as agent, But as and think capacity as that away stores there's from those in never to with as As as business, large a at Permian, now think that prices market as XXXX-XXXX. operated we We far move EBITDA our operated market. the we as our have impacts smooth in stores operator's a around. how agent operated far commission comes of we in lot take during Texas we recall if be downturn it customer. happen look we the runway perspective, large downside upside.

we know an like EBITDA looks that perspective. from what So

not And our more so potential slowdown as this Permian company. significant limiting a see as to a in we the upside downside

EthanBellamy

more this for view or future helpful. template Energy operability one Or with, with Got we transactions in Should it, as this a of very Transfer? concert off? is that's

JoeKim

midstream is inning. Joe. first comments yield. was off traditional a the Shneur's This Ethan. earlier kind And we're analogy. second growth about of say Nolan that using JC I as projects, midstream, first baseball definitely our as with or I'd far in Hi, And kind of looking kind play the organic of at

Transfer. So And that are with Transfer $X that opportunities we're is there plus we billion Energy or business. either out we're billion, have vast way looking an X at it fuel without at Energy distribution the gallon looking

us. for going synergy opportunities So working further upstream create is some to

question The us find for We going many. that feel other confident to we're opportunities. how

So further us some I'll definitely we say early think there upstream. move stages, for are but to opportunities

EthanBellamy

peers. quarter, of we've the last your question. one IDR elimination from Since and partnership seen yet Okay last

Just you make that when got to a concern? it pressing does ask more see the question, that of

JoeKim

is said Ethan, efforts Transfer by think I've no or what elimination. I Energy spent IDR in on being Sunoco that the past there's

have And for as excess We that we for we And as X.X. a stay we're see we hovering we're now to and IDRs given currently right think within leverage. ability a our around don't our can think plan I value. executing. And that growing, create our us targeted prohibitor somewhere coverage

So see don't right prohibitor. we as now this a

Operator

the of your Please JPMorgan. with line question. from Tonet comes question proceed Jeremy next with Our

CharlesBarber

Hey, good Jeremy. for morning. This is Charlie on

if news and, in seek impact the got tax I there out reinstatement that biodiesel SUN. be how wanted I've that. you've of for been blenders I'm some just the curious would just rumblings much First color really, of was color to credit. one potential any the on any on hearing an

KarlFails

Karl. do I way This going that as We as is our not on probably material for say is obviously would a look say is guess yours. it's goes and good Yes. would Congress I what at us. follow that. either there that to

CharlesBarber

Texas I to then follow And up make to sure here. understand. wanted I just wanted on I West Okay. just

much it it's demand there I term. more for balance the like negative less from in trucking a might differentials on as mean, the On sound maybe guess there this thinking in of side, be maybe near the come at your and pull least to year of you, as and I in XXXX -- the then expectations I maybe guess side, doesn't the

KarlFails

Yes. That's right.

the joint think truck at us look with production entered diesel into operation, project to I Texas venture or in West is And into diesel you backing to rail that. out you that frac going every as the we've in be for the Transfer. Energy beneficial to and beneficial growth is to and need run rig area then

forward very relates in projections business excited So and West the to about and comfortable our we're as Texas. diesel it

JoeKim

I'll to of commentary add little a bit comments. Karl's the

prepared my I investments in remarks large. our about think It's million. I said not $XX exceedingly

we I it think So begin at to a look perspective Sunoco with. paying tariffs to from were pipeline way the is

joint venture. a of part we're Now

picking we commission a So to stores exposure. now at that, some so up we the least is we market XXX the exposure half begin of are with marketing that paying there half, But ourselves, because have other for and had agent.

diesel distribution And we that have other market. in

our our standpoint revenue revenues flipped we for ratable from some into more ourselves. pipeline of So over

Operator

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

SharonLui

touch growth I Maybe Hi, little more a guys the good I guess wanted if guidance you that are some exploring. opportunities to you looks talk bit that your about morning. It just CapEx. of the opportunities on for are robust. like

KarlFails

say to our to of we in that Sharon. part Hi, towards the CapEx Sure. contribution is This JC I'd related mentioned growth Karl. $X that million Nolan. that increase about

in come capital. working portions other in our investment JC The really Nolan of contribution as

same growth our in growth other about talked capital, the areas as before. we've it's far that As in the

our distribution ramping really I sales up. is our organization think fuel on side,

lot renewing of and their other those up new in business. expanding customers or And projects a signing so are customers

are mentioned are And we then money set midstream Joe as our time spending the before, to increase opportunity and world. in we

a so have announce, that we going we're forward. next project that's we And have growth -- don't on our but of capital definitely the working component and to

SharonLui

to one-time that give contract on a particular that And you charge. just Maybe -- the Great. question some is this just Is potentially color impact can isolated dispute? on it quarter?

TomMiller

an additional as pardon suit, color. Tom. said. really you this is contractual provide is me, We any Well, open can't It

are feel this. appropriately time looking So this. on reserved we And of spent we we at a lot

Operator

would session. Scott closing And call I to the and we reached for the end Ladies to turn back remarks. of the have like question-and-answer gentlemen,

Scott Grischow

day. joining on for any me Have again the today's Feel thanks to And morning. to Well, call us great this questions. call. this free concludes with out reach a

Operator

This conference. concludes today's

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

Sunoco (SUN) 8 Aug 192019 Q2 Earnings call transcript