Sunoco LP — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Sunoco LP distributes motor fuel to dealers, distributors, commercial customers and commission-agent retail locations, and earns additional income from merchandise and property leases. It operates across more than 40 states and territories and had 76 company-operated stores at quarter-end.
Financial performance
Amounts are in millions of dollars except per-unit data and fuel volumes.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $5,745 | $7,815 | $11,107 | $13,217 |
| Operating income | $141 | $173 | $340 | $432 |
| Net income | $87 | $121 | $228 | $337 |
| Diluted net income per common unit | $0.78 | $1.20 | $2.19 | $3.52 |
| Adjusted EBITDA | $250 | $214 | $471 | $405 |
| Motor fuel gallons sold | 2,086 million | 1,985 million | 4,016 million | 3,755 million |
| Motor fuel profit per gallon, excluding inventory adjustments | 12.7 cents | 12.3 cents | 12.8 cents | 12.3 cents |
- Q2 revenue fell about 26% year over year, mainly reflecting lower motor-fuel sales dollars; gallons sold rose 5%. Management cited a 3% increase in profit per gallon and higher volumes as principal drivers of improved fuel profit.
- Q2 net income declined despite higher Adjusted EBITDA. A $57 million unfavorable LIFO inventory adjustment, versus a $1 million favorable adjustment in Q2 2022, was a key factor. Adjusted EBITDA is a non-GAAP measure and excludes inventory adjustments and certain other items.
- For the first half, Adjusted EBITDA increased about 16%, supported by higher fuel gross profit and contributions from acquisitions, partly offset by increased operating costs. Net income declined substantially, with inventory adjustments and higher interest expense among the factors.
Cash flow, debt and liquidity
- First-half operating cash flow was $417 million, versus $337 million in 2022. Investing used $170 million, including $87 million of capital expenditures and $111 million for the Zenith terminals acquisition. Financing used $90 million; distributions to unitholders were $180 million.
- At June 30, cash was $239 million. Credit Facility borrowings were $990 million, with $503 million unused availability and $7 million of standby letters of credit outstanding. The facility’s weighted-average interest rate was 7.00%; the Partnership reported compliance with all financial covenants.
- Total debt, including lease-related financing obligations, was $3.684 billion, up from $3.594 billion at year-end 2022. Long-term debt net of issuance costs was $3.663 billion. Floating-rate debt exposure means a one-percentage-point rate change would affect annual interest expense by approximately $9.9 million, based on period-end borrowings.
- Current assets were $1.868 billion and current liabilities $1.217 billion. Cash increased from $82 million at December 31, 2022.
Developments, outlook and risks
- On May 1, Sunoco completed its $111 million acquisition, including working capital, of 16 refined-product terminals from Zenith Energy. Management cited increased throughput and storage margin from Zenith and the Gladieux acquisition.
- For full-year 2023, management expected approximately $65 million of maintenance capital spending and at least $150 million of growth capital spending. It expected to use cash from operations and Credit Facility capacity for announced growth spending and working capital; no earnings or revenue guidance was provided.
- In July, Sunoco declared a $0.8420 quarterly distribution per common unit, payable August 21, 2023. The filing notes distributions are not guaranteed and depend on available cash after reserves and expenses. Class C units have a stated fixed quarterly distribution rate of $0.8682 per unit.
- Key risks identified include fuel-price and demand volatility, supplier concentration, competition, interest rates and access to financing, acquisition integration, regulation and environmental matters, cyber risk, and conflicts associated with the partnership structure and Energy Transfer affiliation. The Partnership reported no material change to previously disclosed risk factors and did not expect known litigation to have a material adverse impact.
- Fuel inventory was approximately $852 million for market-risk disclosure purposes; commodity positions totaled 2.5 million barrels with an aggregate unrealized loss of $2.8 million. No interest-rate swaps were in effect during the first half.
Important facts for investors to verify
- Whether higher fuel volumes and per-gallon profit persist, and how much reported earnings remain exposed to fuel-price-driven LIFO reserve adjustments.
- Whether acquisition-related contributions support ongoing EBITDA after operating costs, and the integration and performance of the Zenith terminals.
- Credit Facility usage, floating-rate exposure, covenant headroom and the capacity to fund growth spending and distributions.
- The cash available for distributions after capital expenditures, debt service and working-capital needs; Adjusted EBITDA should not be treated as a substitute for cash flow or GAAP earnings.