Sunoco LP — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015. Figures are unaudited. Sunoco distributes motor fuel and operates convenience stores across more than 30 states and Hawaii, with wholesale and retail reportable segments.
Financial performance and liquidity
| Metric | Q3 2015 | Nine months 2015 |
|---|---|---|
| Revenue | $4.49 billion | $13.26 billion |
| Gross profit | $381.1 million | $1.12 billion |
| Income from operations | $84.9 million | $273.2 million |
| Net income | $27.4 million | $171.9 million |
| Net income attributable to partners | $27.5 million | $57.3 million |
| Operating cash flow | Not separately stated for the quarter | $335.9 million |
- Q3 gross margin was approximately 8.5%, operating margin 1.9%, and net margin 0.6%.
- Q3 common and subordinated earnings per unit were $0.30 and $0.52, respectively. The declared distribution was $0.7454 per unit; the filing says it was payable November 27, 2015.
- Cash and cash equivalents were $47.8 million at September 30, 2015, down from $125.4 million at December 31, 2014. Current assets exceeded current liabilities by approximately $307.7 million.
- Total debt was approximately $2.46 billion, including $875 million drawn on the revolver. Revolver availability was $613.2 million after outstanding letters of credit; the partnership reported compliance with financial covenants.
- Cash used in investing was $2.12 billion, largely reflecting acquisitions. Capital expenditures were $257.7 million, and intangible-asset purchases were $63.3 million. The filing classifies $50.4 million of capital spending as maintenance and $270.6 million as growth capital.
- Adjusted EBITDA attributable to partners, a non-GAAP measure, was $171.7 million for Q3 and $331.9 million for the nine months. Adjusted distributable cash flow attributable to partners was $112.4 million and $182.1 million, respectively.
Changes versus comparable periods
- Q3 revenue rose from $2.67 billion on a combined 2014 basis to $4.49 billion; gross profit increased from $81.5 million to $381.1 million. Management attributed much of the increase to acquired operations, including Sunoco LLC, Susser, MACS and Aloha, as well as business growth.
- On the same combined comparison basis, adjusted EBITDA attributable to partners increased from $41.6 million to $171.7 million, and adjusted distributable cash flow from $12.2 million to $112.4 million.
- Nine-month revenue increased from $5.26 billion to $13.26 billion, and adjusted EBITDA attributable to partners from $72.3 million to $331.9 million. These comparisons are substantially affected by acquisitions and expanded consolidation, not solely organic growth.
- Comparability is limited: the 2014 GAAP statements distinguish predecessor and successor periods following the ETP merger and push-down accounting. Management presents combined 2014 data for certain comparisons, which it says is not GAAP or pro forma financial information.
- The partnership acquired a 31.58% economic interest but 50.1% voting interest in Sunoco LLC and consolidates 100% of its results, with the remaining interest shown as noncontrolling interest. It acquired Susser on July 31, 2015 and retrospectively included operations of businesses under common control from September 1, 2014.
Outlook, commentary and risks
- Management expects to continue pursuing acquisitions or drop-downs from ETP and organic growth. For 2015, it projected capital spending of $260–$290 million, excluding acquisitions, and planned 35–40 new Stripes stores. On a 100% consolidated basis, projected spending was $285–$315 million.
- A planned purchase of a Northeastern wholesale fuel distribution business for approximately $57 million plus inventory was expected to close in Q4, subject to customary conditions.
- Q3 inventory fair-value adjustments added $94.5 million in the company’s Adjusted EBITDA reconciliation; the non-GAAP measure excludes these adjustments. The company reported a $34.3 million inventory write-down for the nine-month period due to fuel-price changes.
- Q3 income tax expense was $29.0 million, with a 51.4% effective rate. Management cited increased corporate-subsidiary earnings, particularly following the Susser acquisition, and tax-rate changes.
- Key stated risks include acquisition execution and integration, dependence on major suppliers and customers, fuel-price and inventory exposure, competition, regulation and environmental obligations, interest-rate exposure, and conflicts of interest with ETP/ETE affiliates. A 1 percentage-point change in floating rates was estimated to change annual interest expense by about $9.1 million.
- Management reported effective disclosure controls. Evaluation of Susser’s internal-control structure was underway and expected to continue through the remainder of 2015. The filing says it was not party to litigation believed likely to have a material adverse impact.
Most important facts for investors to verify
- Underlying organic performance versus acquisition-driven growth, including how Sunoco LLC’s 31.58% economic ownership relates to consolidated and partner-attributable results.
- Debt levels, revolver availability, covenant headroom, interest costs and capacity to fund distributions and planned capital spending.
- Cash generation after maintenance capital expenditures and debt service; compare GAAP operating cash flow with non-GAAP distributable cash flow.
- Acquisition integration, purchase-price adjustments, the pending Northeast transaction and the company’s ability to deliver planned store growth.
- Fuel inventory valuation and hedging exposure, affiliate transaction terms, and the effect of tax and qualifying-income requirements on partnership status.