Business context and reporting period
Sunoco LP’s Form 10-Q covers the quarter and nine months ended September 30, 2022. The partnership primarily distributes motor fuel to dealers, distributors, commercial customers and commission-agent retail locations, and also earns income from merchandise sales and leasing. It operated 77 retail stores at quarter-end and is managed by a general partner owned by Energy Transfer LP.
Key financial results
Amounts are in millions of dollars except per-unit data, gallons and where noted.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $6,594 | $4,779 | $19,811 | $12,642 |
| Operating income | $150 | $153 | $582 | $573 |
| Net income | $83 | $104 | $420 | $424 |
| Diluted net income per common unit | $0.75 | $1.00 | $4.27 | $4.33 |
| Adjusted EBITDA | $276 | $198 | $681 | $556 |
| Operating cash flow | Not separately reported | Not separately reported | $640 | $512 |
- Q3 motor-fuel gallons sold were 1,986 million, versus 1,971 million; reported motor-fuel gross profit was 13.9 cents per gallon, versus 11.3 cents. For the nine-month period, gallons were 5,741 million versus 5,660 million, and gross profit was 12.9 cents per gallon versus 11.0 cents.
- Q3 total revenue increased about 38%, while net income declined about 20%. For the nine months, revenue rose about 57% while net income was slightly lower. Higher fuel prices and volumes lifted reported sales; revenue growth should be considered alongside the comparatively modest change in gallons and improved per-gallon profit.
- Nine-month net cash used in investing was $326 million, including $252 million paid for the April acquisition, net of cash acquired. Capital expenditures were $97 million. Net cash used in financing was $143 million, including $265 million of unitholder distributions.
- Cash was $196 million at September 30, 2022, compared with $25 million at December 31, 2021. Current assets were $1,863 million and current liabilities were $1,323 million.
- Total debt was $3,398 million, including $704 million drawn on the revolving credit facility; long-term debt, net of issuance costs, was $3,374 million. The facility had $0.8 billion of unused availability, and the partnership reported compliance with its financial covenants. The weighted-average rate on facility borrowings was 5.11%.
- Common-unit distributions remained $0.8255 per unit for the quarter. A quarterly distribution of $69 million was declared after quarter-end for payment November 18, 2022.
Material changes and unusual items
- Q3 Adjusted EBITDA increased $78 million year over year, primarily from higher motor-fuel gross profit and terminal-related and other non-fuel gross profit, partly offset by $18 million of higher operating costs.
- Q3 net income was pressured by a $40 million unfavorable inventory adjustment as falling fuel prices increased LIFO lower-of-cost-or-market reserves, compared with a $9 million favorable adjustment in Q3 2021. Q3 also included a $23 million unrealized commodity-derivative loss, versus $2 million in the prior-year quarter.
- For the first nine months, inventory adjustments were favorable by $81 million, compared with $168 million in 2021. This reduced the year-over-year comparison benefit despite stronger underlying Adjusted EBITDA.
- Interest expense rose to $49 million in Q3 from $40 million and to $135 million for the nine months from $124 million, attributed to higher average debt and interest rates.
- On April 1, Sunoco completed its acquisition of a transmix processing and terminal facility in Huntington, Indiana for $252 million, net of cash acquired. On October 28, it signed an agreement to acquire Peerless Oil & Chemicals for $70 million, subject to working-capital adjustments.
Outlook, risks and contingencies
- The filing provides no earnings or revenue guidance. Management expected to fund 2022 working capital and announced growth spending with operating cash and the revolving facility, while noting it may issue debt or equity if considered prudent.
- Management estimated 2022 capital expenditures of approximately $50 million for maintenance and $150 million for growth. Growth projects include the Brownsville, Texas terminal and dealer and distributor supply contracts.
- Management said current liquidity sources were expected to meet short- and long-term needs, but noted that operating performance, market conditions, acquisitions and other factors could affect funding needs and financing availability.
- Key disclosed risks include fuel-price and demand volatility, supplier dependence, competition, acquisition execution and integration, inflation and interest rates, regulation and environmental matters, cyberattacks, operational hazards, and conflicts arising from the partnership structure and Energy Transfer affiliation.
- The partnership reported no known litigation expected to have a material adverse impact and no material changes to the risk factors in its 2021 Form 10-K. It also reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
- A 1 percentage-point change in floating rates on quarter-end variable-rate debt would change annual interest expense by approximately $7 million. Fuel hedging positions were described as not significant to operations; outstanding positions totaled 1.8 million barrels with aggregate fair value of $5.5 million.
Important facts for investors to verify
- Whether improved fuel gross profit per gallon and higher Adjusted EBITDA persist, given fuel-price volatility and the effect of LIFO inventory adjustments and derivative marks on GAAP earnings.
- How the Huntington acquisition and proposed Peerless acquisition contribute to earnings and cash flow, and whether integration or funding requirements change.
- Debt, revolving-facility utilization, borrowing costs and covenant headroom as interest rates and working-capital needs change.
- Whether operating cash flow continues to cover planned capital expenditures, distributions and acquisition spending.
- The sustainability of the $0.8255 quarterly common-unit distribution; the filing states distributions are not guaranteed and depend on available cash after reserves and expenses.