Sunoco LP — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. The filing also provides unaudited quarterly data, including fourth-quarter results. Sunoco is a master limited partnership distributing motor fuels across more than 30 states and operating retail stores in Hawaii and New Jersey.
Financial and operating performance
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $16.596 billion | $16.994 billion |
| Gross profit | $1.216 billion | $1.122 billion |
| Operating income | $464 million | $345 million |
| Income from continuing operations | $313 million | $58 million |
| Net income (loss), including discontinued operations | $313 million | $(207) million |
| Adjusted EBITDA, non-GAAP | $665 million | $638 million |
| Cash from continuing operating activities | $435 million | $447 million |
| Capital expenditures | $148 million | $103 million |
| Debt, including current maturities | $3.097 billion | $3.008 billion |
Revenue declined about 2%, while gross profit and operating income increased. Approximate gross, operating, and net margins were 7.3%, 2.8%, and 1.9%, respectively, based on reported annual amounts. Fuel volume rose 4.2% to 8.193 billion gallons, but fuel gross profit per gallon declined to 10.1 cents from 11.4 cents. Adjusted EBITDA increased about 4% to $665 million.
Fourth quarter: Revenue was $4.098 billion, operating income $98 million, and net income $83 million; basic continuing-operations income per common unit was $0.76. In fourth-quarter 2018, revenue was $3.877 billion, operating loss was $38 million, and net loss was $72 million. The filing reports these quarterly figures as unaudited.
Liquidity and distributions: Year-end cash was $21 million; the company reported $1.33 billion of unused availability under its $1.50 billion revolving facility and compliance with financial covenants. Current assets were $924 million and current liabilities $744 million. Annual cash distributions were $3.30 per common unit, unchanged from 2018. A quarterly distribution of $0.8255 per common unit was declared in January 2020 and paid in February.
Material changes and notable items
- Fuel Distribution and Marketing Adjusted EBITDA was $545 million, down $9 million; All Other segment Adjusted EBITDA was $120 million, up $36 million. The company cited lower fuel margins, the absence of a roughly $25 million 2018 supplier-settlement benefit, and an $8 million 2019 reserve for a contractual dispute, partly offset by higher gallons and lower operating costs.
- Sunoco sold its Fulton, New York ethanol and grain-malting plant for $20 million in May 2019 and entered a 10-year ethanol offtake agreement. It recorded a $21 million disposal loss and an $8 million estimated net exposure related to potential unpaid New York sales taxes by the buyer; the latter was expensed.
- The company recorded $68 million of 2019 losses on asset disposals and impairment charges. Management attributed this primarily to a $47 million write-down on assets held for sale and the $21 million ethanol-plant disposal loss. No goodwill impairment was recorded in the 2019 annual tests, although the auditor identified retail reporting-unit valuation as a critical audit matter because of limited valuation cushion and significant estimation judgments.
- A 50%-owned joint venture in the J.C. Nolan diesel pipeline and terminal was commissioned in August 2019. Sunoco reported a $121 million investment and $2 million of equity earnings for the year.
- Sunoco issued $600 million of 6.000% senior notes due 2027 and used the proceeds to repay revolving borrowings. Year-end revolving borrowings were $162 million.
- Adoption of the lease accounting standard in 2019 added approximately $547 million of net lease assets and liabilities at adoption. The filing says adoption materially affected the balance sheet but did not materially affect earnings or cash flows.
Outlook, risks, and contingencies
- Management estimated 2020 capital spending of approximately $45 million for maintenance and $130 million for growth. These are estimates, not a guarantee of spending or performance.
- The filing does not provide a specific earnings or EBITDA forecast. Management expects liquidity from operating cash flow, revolving borrowings, and potentially debt or equity issuance to support operations, capital spending, debt service, and distributions.
- Key risks include narrow and volatile fuel margins, fuel-price and demand changes, competition, seasonality, supplier credit and trade-credit availability, leverage and interest-rate exposure, and the need to access capital markets. Fuel sales represented about 97% of revenue and 75% of continuing-operations gross profit.
- Environmental and asset-retirement reserves were $29 million for remediation and $67 million for underground-storage-tank obligations at year-end. The company notes that actual remediation costs, reimbursement availability, and regulatory requirements may differ from estimates.
- Debt agreements impose leverage and interest-coverage covenants and restrict certain actions. The revolving facility requires a net leverage ratio no greater than 5.50:1.00 and interest coverage of at least 2.25:1.00; the partnership reported compliance at year-end.
- Sunoco is controlled by Energy Transfer Operating, which owns the general partner, incentive distribution rights, and about 34.3% of common units. The filing highlights potential affiliate conflicts, limited unitholder voting rights, and the general partner’s authority over distributions and reserves.
Investor facts to verify
- Whether stronger continuing-operations earnings and EBITDA can persist despite lower per-gallon fuel margins and the prior-year supplier-settlement benefit.
- Debt maturities, interest costs, covenant headroom, and actual availability under the revolving facility; also assess lease commitments alongside reported debt.
- Cash generation after capital expenditures and distributions, and whether the $3.30 annual common-unit distribution remains supported by operating cash flow.
- Progress on the Attis ethanol offtake arrangement and resolution of the estimated $8 million potential tax exposure.
- Assumptions underpinning the retail reporting unit’s goodwill valuation and future environmental remediation and tank-removal costs.
- Related-party fuel purchases, services, and distributions to Energy Transfer affiliates, and the implications of the partnership’s governance structure.