SUN - Earnings call transcript Q4 2020

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Operator

Greetings, and welcome to the Sunoco LP’s 2020 Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Scott Grischow, Vice President of Investor Relations. Thank you, sir.

You may begin.

Scott Grischow

morning good and you everyone. Thank

Chief and with On the forward-looking uncertainties. list team. operations assumptions Kim, Chief A the update future financial expectations filings no subsequent morning and other statements Bramhall, refer our the Joe include reminder and on that will are impact this LP’s results the including Operations of expectations events. President for obligation contain based management Dylan to partnership’s these of Fails, that our call to related with SEC risks the Sunoco Karl and earnings are Officer; COVID-XX could subject of performance, the These regarding and various call me differ statements Chief the partnership to Actual factors. as Officer; assumptions pandemic. release, Financial today’s statements as a Please and Officer; materially members Executive these and undertakes to well

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

valuation margin hedges. Fuel approximately margin from the net For quarter, inventory in of period was of XXXX, associated the million and of partnership year also of $X.XXX third fuel down ago. of million X.X prior quarter one-time $XXX to unfavorability the included Volumes XX% EBITDA relatively XXXX. related $X fourth items. million. seen from level with $X $XX but the were Adjusted Fourth included related $XXX inventory recorded unchanged to quarter compared of gallon associated and quarter million a income million fourth gallons was about billion per remain and write-offs approximately tax

Fourth his the we our $X resiliency of of X.X full per the proven turn elaborate in to margin million, over business times. a times. We declared with and of of a in The same I XXXX of $XX favoribility. the full January this adjusted flows and coverage ratio activity of results the distribution, unitholders. to the discuss our XXXX distributable year last maintain year million now as fuel will On cash has ended allowed call quarter. will secure further history quarter X.X results. and was for evaluation unit a approximately stable delivering a on remarks. distribution hedging the yielding For inventory ratio to Dylan us our full margin impact resulted year coverage XX, $X.XXXX Karl

Dylan Bramhall

Thanks, Scott.

We and XXXX challenges continued results this COVID XXXX, continue the beyond. the strong performance in expect to pandemic strong and deliver to fully despite building on of in

guidance off, through before XXXX December. some accomplishments First of XXXX, the for we to in walking unveiled I’d our like highlight that

to X.X accomplishments XXXX also XXXX XXXX. adjusted up XXXX. XX% year Distributable $XXX SUN coverage following; levels. times million, for record and full include $XXX already the cash We and in ratio up XX% from strong EBITDA from times our adjusted was Our of flows SUN improved both record from million, for X.X a up a XXXX and

Our XX% cost of from reduction XXXX total operating resulted $XXX million, was which expenses reduction initiatives of in levels. a

due to margin extending while with XXXX, $X.XXX We our increased expense, interest X.X% significantly thereby due per from average new weighted our maturity of fuel gallon $X.XXX refinanced XXXX, X.XXX% notes XXXX the Our notes senior per successfully lowering debt. gallon. senior

times hand we notes. of our And the now the senior leverage total finally, XXXX at times note times X.X maturity end adjusted senior from For reference debt for or XXXX. to on our improved X.XX is when X.X nearest cash

a free $XX enter all our these operating X.XX XXXX margin to an and and poised $X.XX million million year strategy. for backdrop, allows and are least gallons, we us range million. $XX facility volumes $X.X in $XXX in to provided for we maintenance on capital results. $XXX between this end. million. credit as generating the $XXX guidance with of billion guidance adjusted and capital cash $XXX focus strong capital between at annual EBITDA flow capability fuel allocation of per gallon, continue expenses undrawn the to business X.XX this XXXX In $X.XX remains pillars following; fuel million, between to of and revolving million deliver billion With of at growth $XXX strong of total liquidity million a Our of December, of billion The accomplishments Underpinning cash

First, unitholders; and in third our investment prudent; pay stable our to to debt when protect to sheet our for a maintain disciplined second, opportunities. down growth and balance pursue secure through distribution

from X.XX We to times. disciplined from which with coverage and remarks that a a like financially to and additional the Sunoco will financial as on turn over of up Karl to prior through the call of my X.X continues And conclude carry Karl? XXXX. in walk on times, to target this I’ll our early be of target leverage thoughts we target prior XXXX times. you strong now down to by is through gross stating enter expenses. some established X.X fuel ratio X.X our footing With ratio profit of times, that, which is I’d X target

Karl Fails

XXXX. to and us Dylan and morning, few minutes you quarter Scott Thanks, give results sense full view a how want walk of I and the Good you Dylan. these of they numbers kind through take the the and what a we give year. everyone. into for insight

start talking Let’s volume. about by

our factors surface, additional promising. very we that the third few the though, a are view fourth quarter. similar to as There On were results quarter

about the in prior restrictions, same at the quarter Even our last were during level country. off travel the moved December, across and activity additional volumes those our relative we business some finished call, around restrictions shared the volumes November experienced increase conference the for we to when with and all we I October, XX% First, and COVID the with into on held cases year. additional

The the business. than lapping second rest In off of quarter, Nolan I full the quarter. volumes explained fourth XXXX. comparing were of J.C. our against operation. even total a also volumes. Year-over-year, fourth J.C. X% Nolan diesel J.C. Last this in pipeline third volume factor much the period were pipeline impact that the of the is volume an accounted we was of more around quarter, of were for startup bigger since the our quarter We for Nolan reductions

QX our provides performance, ability which into growth to of ramping in add efforts. some our on backup continue through our that into rest focus X%, on customers, of the one impact signing the you our to and carry from own we’re forward of So recovery this the numbers, My reasons and we down that starting customers. overall for to is Nolan. will The last that and new up solid new summer, that year, would economic put grow thought volumes insight if see bottom volumes both volumes only final line Starting XXXX. see our remove J.C. started growth the we is our

to Moving over support market stronger margins, to margins. the continues

perspective margins quarter. our some you give reported fourth me the for Let on

to look prices what floor higher, little post-COVID maybe a the First, in after adjustments $X.XX environment and is and like which a history and we fourth look for for quarter lower. forward the is you close to as even you that back with claim have steady the quarter, at saw environment if resulted a Fast fairly inventory mentioned. challenging timing gallon, our most account our in would impacts RBOB one-time likely a of the dipping results market Scott margins relentless

breakeven higher both environment floor. participants, we in retail before support channels, for As higher stated margin help many wholesale the and the have industry the

continued a still tough rise We prices, some As feel the market will environments, is putting expect for pressure the RBOB margins. payment base one-time we And range in already in $X.XXX in for quarter. one-time excluding quarter a and look margins. first like catch-up items the to to provide to that we boost to on quarter, in discussed our reasonable the the quarter, first these X-Eleven fourth we floor a $X.XX steady the see we’ve issues

Finally, some color expense I around more want our to provide performance.

down timing, a and we even this fluctuations one-time always fourth have expenses further with expense be in that takeaway But favorable on our the When expense run run than year. are it the to that on for deeper show tough continued these few the in quarter For took and that are our even to some rate. there an been we’ve comfortable operate takes looking hard fourth the third few we business. made able performance we efficiently focused in our at choices, hit, last extremely our the and deliver commitments years, our quarters brought very will some COVID is little look guidance to were at a There what and levels. impacts

to want fundamentals Joe I I some Before to to turn business strong. of our share remain closing over thoughts, re-emphasize the it that just

continue volume We network. Margins bottom to our are the expense falls to to focus directly Joe? and add line. solid our

Joe Kim

came Karl. than We healthy, and stronger XXXX. where XXXX Thanks, very We the results started. into everyone. strong finished in Good year financially morning, we delivered we

Last significant the delivered and companies countless business our year, has While DCF. financial EBITDA demonstrate record we resiliency difficulties, of our results model. XXXX

coverage Over our steadily decreasing three the ratio. years, the while last improved at our we time, have leverage same

good we Looking another to forward, year. have expect

and to up both fuel early has prices diesel gone rise. per into Year steadily York costs Over a time a gasoline and about and $X.XX RBOB month that half We’re period, around the has both RBOB New continue Harbor and New gallon. Since increased. November, volume

there are you higher. this is Industry As margin consider. conducive important With other most the not to that factors said, breakevens environment. know, are

the street. increases seeing on to rack to the We’re as and pass this the out, play continues price market to

When pressure. the where some of has supportive of wide a back, quarter-by-quarter in also time prices be highly commodity that step by But Taking provides that at will business where have always lag our followed be History margins. periods long-term constant the beyond results. basis, there look quarters are in commodity does more tailwinds. short-term margin provide rise will quarters a run-ups shown costs we quality in environment or However, volatile resulting a margin falling to create prices you noticeable there will environment expect headwind. the be steady

side, weather the we’re positive events. regional increases material volume, On excluding volume seeing in

to this We of course the continue over expect year. this

deliver expect Finally, you can on expenses. us to

remain and grow strong, Moving these we for on The set and opportunities expect opportunity business. organic field to M&A to we’ll future. the to foreseeable continue remain growth, distribution our

highly right at the On price. financially continue side, for remain we looking midstream opportunity for remaining the We’ll to patient the while look synergistic opportunities right disciplined.

Let for continued by may our dedication strong ensuring distribution their and open and Operator, employees future. for a stable our thanking keeping questions. and you close long-term Sunoco line partners field me the

Operator

you. Thank

a you. session. Instructions] be question-and-answer conducting now [Operator will Thank We

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

Shneur Gershuni

you guys sound. hear to Glad are all everyone. safe morning, Good and

to the what you wanted basically margin I this If was in is quarter. off margin, Just understand type higher kind prepared your normalized results reported to just that first for to Is I during just guess of quarter. than lumpy you want clarify, of the because unevenness I CPG correctly, start with were first get to remarks? across the trying the message that that had the

Karl Fails

Yes, This is Shneur. Karl. Good morning.

why a think fair one-time way at is those we shared that’s items. look I to it, which

Shneur Gershuni

Okay, perfect.

run higher that’s more but of a to you’ve that when risk and scenario now a back quarter, forth, the strong normalized for level expected level? fact at I it be of more margin like, kind volumes until that obviously, when so the And it that that you we so kind talking sort is I been of then a over returned and stays go-forward should general? think issues you’re we competitors changed feel $X.XX out, year, or type do on industry share And that share story in about that to here adjust it about I the be a compress? that’s the and of margins said those basis? thinking the to on to how been market for behavior or trying know Or market that start compete you has a

Karl Fails

Yes.

are of possibilities. that layout both think those you I scenarios

about, bit about, look we think and remarks, conditions. talked Joe prepared talked a I have current in the and market we these little that, impacts of As about my forward

talked in So $X.XXX obviously I quarter in margins. far a in and commodity somewhere quarter, about and you floor $X.XX have these the range. that the to fourth so moving first prices tighter

XXXX then applicable levels returned that, think see. volumes after to and is that I we’ll and sales

on think about will things, to there that to inflationary be One push pressures we the continue though that of breakeven. is continue this

we XXXX breakeven So stay even returned might once higher. to the volumes,

Shneur Gershuni

point? or there stronger Okay. at That margins And is you get sense. that’s behavior sense seeing the makes change? a do sort a of could speculation that total this Everybody be

Karl Fails

probably market it’s early out. to thought it’s think and tell. too see shapes think the a I fair we’ll But how I

Shneur Gershuni

– question, you in difficult that towards that some all you then did temporary year sort you a was of decisions. cost had remarks, nature, strong very you XQ and your performance prepared say had of And of good performance and the end in follow-up Okay. you’ve applied it some made some but you cost

XXXX you handicap, much is permanently As some that may? that some savings would just able a that whatever we about, during it capture that a expect up on handicap, be sort some would come think would that basis, variable maybe how you’ll to XX%, you well cost a XX% if But too? to on go-forward be go-forward sort there to of the level, able you normal of achieve costs new return basis, as of are I

Dylan Bramhall

The Dylan. point you at giving we differences, It individual put timing level I is one is started always here. annual bit thing, little want when quarters, lumpy. This Shneur. expenses, can out look there’s be our an guidance kind so for number of a exact Yes, we to quarters

obviously, our real quarter, issues that timing little really we a rate would We the what made bit had some than fourth run So lower be. that strong in quarter performance. had

we As even into for to taught volumes. cut that of costs XXXX point with higher expectations expect – out, most our XXXX carry to in and over we we significant

with that million as So road, guidance achieved through you a upslope I we costs of little over the consistent look the $XXX little to that carry the will $XXX of if a the be back year, increase. over. vast a that’s quarter. million, if look And fairly at think million $XXX at to in you XXXX, variable But we what expect really to bit majority

Shneur Gershuni

Okay. it’s of to type little I’m thinking of inflation environment? return thinking more able and And capture of bit guidance then costs about at most flight. solicitate you to related costs? a XXXX, asking my normal Outside even for specific question about Are variable those XXXX not to into is like

Karl Fails

to about be Karl. is return XXXX I’d add This expense XXXX what volumes Yes. Dylan clearly going The XXXX were to to we below level. thing only is our once said

we’re to be the of to yes, vast going majority So it, able carry forward.

Shneur Gershuni

what I Appreciate for. and That’s power. looking Thank guys. perfect. very Okay, was hope warm And you it. stay much, you maintain

Operator

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

Theresa Chen

come I related on for I per Good morning. Thank Karl, first, $X.XX mentioned do the profit but I startup XXXX being you guess understand back up your you pretty taking have X-Eleven any gallon and questions. of my XXXX? the what since payment, just demand boost agreement with result be destruction, the the going gross deficiencies as for time of having year discussion idea a to down a this ramped make-up which up believe makes you will quarter of the any volumes on first the initial

Karl Fails

fair you be highlighted given than Yes. to XXXX, it is higher Hi, year. we’re X-Eleven, was anticipating payment their about disclose it the to all for not but On volumes makeup going that Theresa. what details last we’re factors

Theresa Chen

$X.XXX to makeup no that does Okay. your the with associated it? not payment, to not would include And comments – which $X.XX have about would that the correct, floor volumes

Karl Fails

That’s right.

Theresa Chen

we Is And with that the noise. first this quarter should given noisy CPG for? XXXX timing one-time was that expected out Okay. and the bad differences any in quarter just front, there on relatively watch

Karl Fails

would in called think is item one I we is why X-Eleven anticipate the out. that that we’ve which QX,

Theresa Chen

footprint, have to that so but clarify October And volumes pre-pandemic turning triangulate, like, the across to kind your that comments still the improved weather way any a then levels. has out not the underlying conditions extreme of quite seen – quarter shakes some of And where XXXX, rate from seems likely first just wanted quarter clearly, back run volumes, fourth as baseline to $X.XXX I in impacting XXXX? we’ve trend your Joe’s to things since billion

Karl Fails

Sure.

that billion our that and X.XX right? XX% is off somewhere XXXX you to X% If that X.XX XXXX our between think guidance billion wide range, levels. pretty for represents, about of And

in context reported on some prepared and So down fourth provided remarks. I that quarter XX% we more my obviously the for

As January. we’ve volumes X% off first moved you and to into between flavor, just a give were in around somewhere quarter, the our XX%

a little performance. that’s better So

to been relates areas in where winter extensive we the that’s across the directly operate, this some this event, it impact parts But so particularly because As temporary is weather clearly other and country. had weather’s the South event. it really of demand a

of within our a change have an bit particularly wouldn’t still run I the that be ranges. expect firmly Texas would impact in little we volume week. might that here So But guidance this should rate

Theresa Chen

much. Thank you very

Operator

of question next proceed the Please Our Instructions] question. line comes Moreen your Mizuho. from Gabe with [Operator with

Gabe Moreen

everyone. supplies your weather capacity can wondering if and what could side. just offline I bashed impacts Is And morning, being look much sort you so the here, other here? demand refining temporary? having help be is you down being here, the maybe impacts us really near-term may how on if on Maybe by with on the stick of refining Good down of on Are sort frame the what capacity that they business? impact the just

So it’s concern. not a

So in now. the are if about talk of market of supply you that can some just out kind right there the us interruptions

Karl Fails

Sure. with the members challenges. mean, community living I’ll as we’ve some ourselves; start been through I – of of Gabe these off

to need challenges it. So get first, those fuel Obviously, is our support primary terminals shutdown. focus can been wherever there’ve to with try to we who

say. refinery supply at short-term. on The of our the you providing in But I margins. are taken of event. move trucks and Theresa’s States. – mentioned pressure But question, challenged the if have refinery it’s United the couple impacts we’re I’d here’s in that’s upward on. some it with shutdown, what and There demand to distributor Obviously, independent prices network, the As mentioned, a table. fuel impact, some some roads look largest off shutdowns has a you temporary had clearly in

supply so suppliers. lot have we chains, different different of of And a a lot

of our use trucks around. own we to fleet have trucks, move We third-party partners

impact in an ways, reflected some supplies be few come days. and a we the whether these it impact, longer there’s we’ll And supply from similarities next is how and have them than the it some depends there’s ways we we but really So Clearly this refineries quickly work some over the market have in hurricane, back and where markets. different been work through up demand than impacts that’ll for through in on say some offline in our the chains. flexibility overall

Gabe Moreen

Thank I if different it. then to Got bit year? the talking And going CapEx – maybe you. about out If growth sort CapEx XXXX. of of little particular, you to of the where in spending be is shift you’re there’s anything in can a call kind within this would going growth gears the buckets

Dylan Bramhall

distribution put of and Yes. business, fueled we rebrand stations. that The year primarily our vast the up the put really a little That’s their to out majority – business. but number that contracts those signing little in it. midstream and field side capital XX customers bit growth is seven in majority growth on of on on in generally it’s to in our upfront fuel on are them new bit a help the CapEx organic of we guidance, distribution our our There’s

Gabe Moreen

Got it.

characterize terms Okay. always landscape thoughts at of M&A of kind And for you you moment? being just Joe, the then M&A in I’m your the curious patient, mentioned how as

Joe Kim

Hi, Gabe.

changed. first thing our strategy hasn’t is think I

good we’re in to any think that come opportunities about. position a on capitalize I First,

M&A seeing a organic right evaluating us really The guide focused realizable that really both standpoint. most and we and on which us approach ones to distribution the pursue. question now going going for have on we’re where terminal, synergies. That’s to fuel and we’re it and from Secondly, valuations we an is both product

As as higher landscape, a significantly for we’re obvious real And than far in position. reasons, as standpoint, XXXX well chatter good XXXX. from the as our overall are processes again, in

patient. to going We’re be

on be up, discipline valuation is overall. think then a in have we have it. the think in we’ll these what and to capitalize we opportunities whenever come in And financial position good valuations and correct significant I highlighted synergies Dylan our reflected we are

Gabe Moreen

Got Joe. it. Thanks,

Joe Kim

Thank you, Gabe.

Operator

comes proceed Suisse. of And the line our from Dounis Credit question. with next question Spiro with your Please

Spiro Dounis

morning good Hey, guys.

Just question maybe with off a that thinking few financial that and last the quick there starting about growth. discipline funding Joe and follow-ups and

some or think, cash the end the as room wiggle you’ve of little of of on after would less look going a M&A year, growth bit a guys go of more to sheet you beyond it have have at I free you But fund as lean that balance on that. on got seem math get the what guided you guided, the like little I sort the beyond bit $XXX distribution. to to you’d you’re to more beyond to, that or million,

leaning bit that So are discipline how order just on curious, even little being up potentially a achieve sheet as you temporarily thinking or define if year, financial levering in this that? to balance disciplined, you about

Dylan Bramhall

Dylan is This here. Hi. Yes.

we I for in will slightly a at very said, attractive may to there of there’s and that a there where opportunities committed little to good level. growth but significantly, growth think That bit is there. there are significant below above that at are where We opportunities unitholder opportunities are times significant look trend around X there still when that the value. that not the number, accretive little multiples times, trend aren’t flexibility periods leverage target, we bit

I what X that So this around able we plan being we’re don’t year, that to on times. on think on targeting right depending capitalize

Spiro Dounis

we Okay, sticking could. if And Dylan. then this it. got along I theme appreciate that And

there opportunity size. about deal the fairly in the December thinking Just was that set small out that terminal

within doing Sounds landscape year. kind are what curious of like. But showing like And yourselves? larger, is that something like looks it others as there think then running into those private assets just opportunities Is out these of and you are up? on equity what you go curious first it’s pretty to the up accretive, bid at scaling in all? terms competition Just I

Joe Kim

earlier the financial of part synergy, of go to great did out and financial parameters our out earlier a But back we’ll lay year. this Again, parameters, if take Spiro, a into if something – valuation If your bunch first question this too. kind and small up. one, we Joe. there’s closed realizable it’s our and roll we there size. is down like out those I I’ll one think if the that there’s we’ll I it That’s pursue too. go there, about this bigger, those those fits of

As terminals. your more about been competition, far tell it there as because hasn’t large, product a question transaction space the to early comes significant in to midstream too when

the my sellers. valuation With to is buyers that prediction to be landscape, would going to be than more attractive

As and far believe smaller. participants, as the universe number of other would that is probably I infrastructure funds

strategics, well terminals As this product have about positioned we’re we because as sectors. really We do field footprint. as far as I think our anybody short And past. fuel talked in natural distribution view and with interlinked really as distribution a the we

very shown years product So over fuel the last think terminals the come And the we to the we’ve that. confident it a synergies, real it very on expense from. on because comes I is few looking reason feel why and synergies we we when at that’s we’re being SG&A when huge that got to disciplined deliver distribution short side, what can comes

Spiro Dounis

Got it.

Joe. sneak in. it if Thanks, could quickly one, Okay. I Last

even purchase renewable with alternative ways some or partner Do group you recently and transition your obviously power finding theme. diesel at or facilities? on in do energy on renewable something work to group maybe to doing general of energy that similar projects an Your ESG launched embracing them more anticipate

Karl Fails

is this Spiro, Karl. Yes.

we’ve but Energy partners, obviously complimentary announced, to our joint have landscape the part it other even be But we not done we’re with just think J.C. opportunities what of or the like we what space. deals I past Transfer’s venture make the of commercial in necessarily Nolan sense and for with them, to are the renewable in absolutely like will looking different business do. where at

make in example. it. just about thinking I about announcing anything we’re probably renewable diesel into not how things sense I’m here. like going I’m power sector, talking So think, us the more and would for

we’ll opportunities on look for our it’s and in So always future. yes, the radar

Spiro Dounis

appreciate I well. color. it. Thanks guys. Got all the Be

Karl Fails

Thanks.

Operator

Our your next the question. Please with John Royall from JPMorgan. question line with comes of proceed

John Royall

Hey, CapEx. good had for Most growth I guys. but Thanks were asked, of my on taking just question. morning the mine one

it nature, it kind $XXX of relative and saw levels. about in talked it take roughly a kind We’ll bit You absolute high million. at I is the average in but we if to of but with of level terms pre-XXXX, XXXX XXXX

we think deferred lot about should having in is, of Or in question projects the pickup it it guide as catch a on XXXX of a activity? in up structural my XXXX? is So more

Joe Kim

it’s Joe. John, Hey,

against another. is the organic a think, I way XXXX, kind fuel opportunities. roll-up They acquisition we in M&A say, one view distribution pre-XXXX, think to and should the of if of kind about back same. of you did kind it go let’s that, compete one lot And you of we

we have that organic XXXX I’ve mentioned previous a that that years and the capital took So to XXXX, growth capability have ago. or a portion, larger portion our calls two we of as three we didn’t forward fast XXXX,

competing one So they’re against another.

an M&A deals growth flip in So the than don’t fuel that more we’ll we strategy. our fuel organic But attractive attractive if flexibility we dial up our have organic find and or M&A organic growth opportunities just attractive have to if down over is to distribution, dial our just opportunities. and distribution, M&A we as the growth,

So I think it’s flexible.

going or down the scale with that we financial to appropriately up our on based it forward, scale is capital on parameters, have come we we’ll opportunities. same the flow the But think to view flexibility within free cash based So us way growth our it I a time, budget. – at have probably up

John Royall

lot a you. sense. Makes of Great. Thank

Operator

turn reached floor over the closing We to end have like the for Grischow, back of now the I’d Mr. question-and-answer you comments. session, to

Scott Grischow

joining today. Yes. Thanks us everyone for

follow-up any you and a out reach have Thanks questions, if to usual, to great have day. me. feel As please free

Operator

this Ladies teleconference. and does conclude today’s gentlemen,

lines participation day. this for You you and Thank may wonderful disconnect your time. have a at your

Sunoco (SUN) 18 Feb 212020 Q4 Earnings call transcript