Sunoco LP — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022. Sunoco LP distributes motor fuels through wholesale, dealer, commission-agent and retail channels, and earns lease income. It operated 76 retail stores at quarter-end and is managed by a general partner owned by Energy Transfer LP.
Financial and operating results
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $5.362 billion | $5.402 billion | Down 0.7% |
| Operating income | $199 million | $259 million | Down $60 million |
| Net income | $141 million | $216 million | Down $75 million |
| Diluted net income per common unit | $1.41 | $2.32 | Down $0.91 |
| Adjusted EBITDA | $221 million | $191 million | Up $30 million |
| Motor fuel gallons sold | 1.930 billion | 1.769 billion | Up 9% |
| Motor fuel profit per gallon | 12.9 cents | 12.4 cents | Up 4% |
| Operating cash flow | $326 million | $23 million | Up $303 million |
| Capital expenditures | $37 million | $26 million | Up $11 million |
Adjusted EBITDA margin was approximately 4.1% of revenue, versus 3.5% in Q1 2022; GAAP operating margin was approximately 3.7%, versus 4.8%. The filing presents Adjusted EBITDA as a non-GAAP measure and cautions that it is not a substitute for net income or cash flow.
Balance sheet and liquidity
- At March 31, 2023, cash was $189 million; current assets were $1.732 billion and current liabilities were $1.167 billion.
- Total debt was $3.494 billion, including $800 million drawn on the revolving credit facility and $2.600 billion of senior notes. Debt, net of issuance costs, was $3.472 billion. The revolver had $693 million of unused availability; its outstanding borrowings carried a 6.61% weighted-average rate.
- Sunoco reported compliance with all financial covenants. Management expected cash from operations and revolver capacity to fund 2023 growth capital and working capital needs, while noting that future financing availability is not assured.
- Operating cash flow improved substantially, primarily from changes in working capital. Investing used $31 million, versus $285 million in Q1 2022, which included a $264 million acquisition deposit. Financing used $188 million, including $88 million of unitholder distributions.
Changes, outlook and notable items
- Net income fell primarily because Q1 2022 benefited from $120 million of favorable inventory valuation adjustments, compared with $29 million in Q1 2023. These non-cash LIFO reserve adjustments increased reported income in both periods but were excluded from Adjusted EBITDA.
- Adjusted EBITDA rose on higher motor fuel profit, reflecting increased gallons and profit per gallon, and stronger non-motor fuel and lease profit. Higher operating costs partly offset the gains. Net interest expense increased $12 million, mainly due to higher rates on floating-rate debt.
- Management estimated 2023 maintenance capital expenditures of approximately $65 million and growth capital expenditures of at least $150 million. The filing provides no specific earnings or revenue guidance.
- The quarterly common-unit distribution was $0.8420 per unit, compared with $0.8255 in Q1 2022. Sunoco stated distributions depend on available cash after reserves and expenses and are not guaranteed.
- On May 1, 2023, after quarter-end, Sunoco completed the $110 million acquisition of 16 refined-product terminals from Zenith Energy and said it expected the acquisition to be accretive in its first year.
- Key disclosed risks include fuel-price and demand volatility, supplier dependence, competition, interest-rate and capital-market conditions, regulation, cyber risks, environmental exposure, acquisition execution, and conflicts related to Energy Transfer and the partnership structure. Sunoco said known litigation was not expected to have a material adverse impact; it reported no material changes to its previously disclosed risk factors.
Important facts for investors to verify
- Whether higher fuel volumes and per-gallon profit persist, and how they translate into GAAP earnings and cash flow.
- Working-capital movements underlying the quarter’s strong operating cash flow and whether they reverse in later periods.
- Debt levels, floating-rate exposure, revolver availability, covenant compliance and the effect of interest costs on distributions.
- Progress and returns from the Zenith terminal acquisition and the planned 2023 growth capital program.
- Distribution coverage and the distinction between reported net income and Adjusted EBITDA, particularly the effect of inventory valuation adjustments.