Sunoco LP — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021; this is an annual filing, not a standalone fourth-quarter report. Sunoco is a master limited partnership principally distributing motor fuel across approximately 40 states, with retail operations in Hawaii and New Jersey. Energy Transfer owns its general partner, all incentive distribution rights and approximately 34% of common units.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $17.596 billion | $10.710 billion |
| Gross profit | $1.350 billion | $1.056 billion |
| Operating income | $749 million | $417 million |
| Net income | $524 million | $212 million |
| Adjusted EBITDA (non-GAAP) | $754 million | $739 million |
| Net cash from operations | $543 million | $502 million |
| Capital expenditures | $174 million | $124 million |
| Total debt | $3.281 billion | $3.139 billion |
| Cash and cash equivalents at year-end | $25 million | $97 million |
- Motor-fuel sales were $17.152 billion, about 97% of revenue. Volumes distributed rose 6.4% to 7.545 billion gallons, while motor-fuel gross profit per gallon declined to 11.2 cents from 11.9 cents.
- Gross profit was approximately 7.7% of revenue, versus 9.9% in 2020; revenue growth substantially outpaced profit growth.
- Cash used in investing activities was $387 million, including $256 million for acquisitions. Cash used in financing was $228 million; distributions paid to unitholders totaled $357 million.
- Current assets were $1.192 billion and current liabilities $890 million at year-end. The $1.5 billion revolving facility had $581 million outstanding, $6 million of letters of credit and about $0.9 billion of unused availability. The partnership reported compliance with financial covenants.
- About $581 million of debt was variable-rate; the year-end weighted average rate on revolver borrowings was 2.10%. The filing reports total debt, not a net-debt measure.
Changes versus FY2020
- Revenue increased about 64% and gallons sold increased 6.4%, reflecting a recovery from the prior-year period’s pandemic-related demand disruption and higher fuel prices.
- Net income rose $312 million, but the increase includes a $272 million year-over-year swing in inventory adjustments: a favorable $190 million adjustment in 2021 versus an adverse $82 million adjustment in 2020. These are unrealized inventory valuation effects and materially affect comparability.
- Adjusted EBITDA increased only $15 million, or about 2%. Higher non-fuel and lease gross profit and lower operating costs were partly offset by lower motor-fuel gross profit per gallon.
- Operating cash flow rose $41 million. Year-end cash fell $72 million, while debt increased $142 million.
- Sunoco issued $800 million of 4.50% notes due 2030 and used the proceeds to repurchase all $800 million of 5.50% notes due 2026. It also repurchased the remaining 2023 notes for $436 million.
- The $3.30 annual cash distribution per common unit was unchanged from 2020. A $0.8255-per-unit distribution for the quarter ended December 31, 2021 was paid in February 2022.
Outlook, transactions and risks
- No specific revenue, earnings or EBITDA guidance is provided. Management expected 2022 maintenance capital spending of approximately $50 million and growth capital spending of at least $150 million.
- In October 2021, Sunoco acquired eight NuStar refined-product terminals for $250 million, adding approximately 14.8 million barrels of storage capacity. It also acquired a Maryland terminal for approximately $6 million.
- After year-end, Sunoco signed an agreement to acquire a Huntington, Indiana transmix and terminal facility for $190 million; closing is not reported in this filing. The facility’s stated capacity is 23,000 barrels per day, with approximately 750,000 barrels of storage.
- Management described inflation as having minimal impact because energy cost increases are generally passed through to customers. It cautioned that COVID-19’s effects on fuel demand, gross profit and customer collections remained uncertain.
- Key exposures include fuel-demand and margin volatility, reliance on suppliers and trade credit, competition, the energy transition and climate-related regulation, severe weather, environmental liabilities, cyber risks, debt and interest rates, and acquisition integration. The partnership structure also creates conflicts of interest with Energy Transfer.
- Environmental remediation liabilities were estimated at $19 million; underground-tank asset-retirement obligations were $79 million. Sunoco also disclosed estimated net exposure of $3 million for possible New York sales-tax liability relating to the 2019 Fulton ethanol-plant divestiture. Management said it knew of no litigation expected to have a material adverse effect.
- Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Investor verification priorities
- Separate recurring operating performance from the favorable $190 million inventory adjustment and other non-GAAP Adjusted EBITDA exclusions.
- Assess whether higher fuel volumes and the 11.2-cent-per-gallon gross profit level are sustainable as prices, demand and product costs change.
- Review the funding and expected returns of the NuStar terminal acquisition and the proposed $190 million Huntington acquisition, including integration and financing needs.
- Evaluate debt maturities, floating-rate exposure, revolver availability and covenant headroom alongside planned growth spending and distributions.
- Check environmental reserves, the potential tax exposure from the Fulton transaction, and the effect of evolving emissions and renewable-fuel rules.
- Consider Energy Transfer’s control, IDR economics, related-party transactions and the partnership’s stated limits on unitholder governance rights.