Sunoco LP — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with the three months ended March 31, 2020 unless noted. Sunoco LP distributes motor fuel across more than 30 states and operates retail stores in Hawaii and New Jersey. It reported two segments: Fuel Distribution and Marketing, and All Other.
Financial and operating results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $3.471 billion | $3.272 billion |
| Operating income (loss) | $204 million | $(82) million |
| Net income (loss) | $154 million | $(128) million |
| Diluted earnings (loss) per common unit | $1.60 | $(1.78) |
| Adjusted EBITDA (non-GAAP) | $157 million | $209 million |
| Cash from operating activities | $152 million | $38 million |
| Capital expenditures | $18 million | $41 million |
| Cash distributions per common unit | $0.8255 | $0.8255 |
- Total motor fuel gallons sold were 1.756 billion, down 7.5%; fuel gross profit per gallon, excluding inventory adjustments, declined 20.7% to 10.3 cents.
- Adjusted EBITDA fell $52 million. Motor fuel gross profit declined $78 million and non-fuel and lease gross profit declined $17 million; lower operating costs, down $43 million, partially offset these declines.
- GAAP earnings benefited from a $100 million favorable fuel inventory valuation adjustment as fuel prices rose, compared with a $227 million unfavorable adjustment in Q1 2020. These unrealized LIFO reserve changes are excluded from Adjusted EBITDA.
- Operating cash flow increased to $152 million, primarily reflecting a $155 million year-over-year improvement in cash flow from operating assets and liabilities; cash-basis net income was $41 million lower.
Balance sheet, debt and liquidity
- At March 31, 2021, cash was $95 million and total assets were $5.380 billion. Current assets were $1.000 billion versus current liabilities of $754 million.
- Total debt was $3.092 billion, compared with $3.139 billion at December 31, 2020. The partnership repurchased $436 million of 4.875% notes due 2023 in January, using revolver borrowings. Revolver borrowings were $381 million at quarter-end; unused availability was $1.1 billion, with an outstanding rate of 1.86% and $8 million in standby letters of credit.
- Sunoco reported compliance with all financial covenants. Management expected operating cash and revolver capacity to cover 2021 working capital needs and announced growth capital expenditures.
- Operating cash flow, less capital expenditures, was $134 million. Financing cash outflow was $145 million, including $88 million of unitholder distributions and the note repurchase. Cash declined $2 million during the quarter.
Outlook, developments and risks
- Management expected 2021 maintenance capital expenditures of approximately $45 million and growth capital expenditures of approximately $150 million; Q1 spending was $5 million maintenance and $13 million growth. The filing does not provide earnings or revenue guidance.
- On April 22, 2021, Sunoco declared a $0.8255 distribution per common unit, totaling $69 million, payable May 19 to holders of record May 11. Management cautioned that distributions are not guaranteed and depend on available cash after reserves and expenses.
- COVID-19 continued to create uncertainty around fuel demand, gross profit and customer collections. Other identified risks include fuel price and demand volatility, supplier dependence, competition, credit-market conditions, regulation, and conflicts related to the partnership’s Energy Transfer affiliation.
- After quarter-end, Energy Transfer Operating merged into Energy Transfer on April 1, 2021; Energy Transfer assumed guarantees on Sunoco’s 2026 and 2028 senior notes. The merger did not occur during the reporting period.
- Sunoco reported no known litigation expected to have a material adverse impact and no material changes to the risk factors in its 2020 Form 10-K.
Key facts for investors to verify
- Whether fuel volumes and gross profit per gallon recover, and how those trends affect Adjusted EBITDA.
- How much reported GAAP earnings and operating cash flow reflect fuel-price-driven inventory valuation and working-capital timing.
- Debt, revolver usage, covenant headroom and refinancing needs following the 2023 notes repurchase.
- Whether planned 2021 capital expenditures and distributions remain supportable from operating cash and available liquidity.
- How COVID-19, fuel-market volatility and affiliate relationships affect operating results and cash flows.