Sunoco LP — Q3 2021 Form 10-Q
Business context and reporting period. Sunoco LP is a master limited partnership distributing motor fuel across more than 30 U.S. states, with retail, terminal, and real-estate leasing operations. This unaudited report covers the three and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Dollar amounts are in millions unless noted.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $4,779 | $2,805 | $12,642 | $8,157 |
| Operating income | $153 | $147 | $573 | $273 |
| Net income | $104 | $100 | $424 | $129 |
| Adjusted EBITDA (non-GAAP) | $198 | $189 | $556 | $580 |
| Motor-fuel gallons sold (millions) | 1,971 | 1,853 | 5,660 | 5,265 |
| Motor-fuel gross profit per gallon | 11.3¢ | 12.1¢ | 11.0¢ | 12.9¢ |
| Net cash provided by operating activities | — | $512 | $462 |
Profitability and cash flow. Q3 gross profit was $307 million, versus $308 million a year earlier; higher fuel volumes and non-fuel sales supported Adjusted EBITDA growth, while fuel gross profit per gallon declined. For the first nine months, Adjusted EBITDA fell $24 million as lower fuel gross profit (down $62 million) was partly offset by $38 million lower operating costs. Operating cash flow increased $50 million year over year. Investing cash use was $65 million, including $92 million of capital expenditures, partly offset by asset-sale proceeds and affiliate distributions. Financing cash use was $456 million, including $264 million of unitholder distributions.
Balance sheet, debt, and liquidity
- At September 30, cash was $88 million; current assets were $1,256 million and current liabilities were $1,005 million.
- Total debt was $2,951 million, including $250 million drawn on the revolver; long-term debt, net, was $2,922 million. The revolver had $1.2 billion of unused availability, a 2.09% weighted-average rate on amounts outstanding, and $6 million of standby letters of credit. Sunoco reported compliance with financial covenants.
- Management said cash from operations and revolver capacity were expected to meet near-term liquidity needs. A one-percentage-point change in floating rates would change annual interest expense by approximately $2.5 million.
- Quarterly common-unit distributions remained $0.8255 per unit. The October 25 declaration covered the September quarter and was payable November 19, 2021.
Material changes, outlook, and risks
- Nine-month net income rose to $424 million, but included a favorable $168 million inventory valuation adjustment as fuel prices increased; the comparable 2020 period included an adverse $126 million adjustment. These unrealized LIFO valuation changes are excluded from Adjusted EBITDA and materially affect the comparison of reported net income.
- On January 15, 2021, Sunoco repurchased the remaining $436 million of 4.875% notes due 2023 using revolver borrowings. Subsequent to quarter-end, it issued $800 million of 4.500% notes due 2030 and used the proceeds to repurchase all $800 million of 5.500% notes due 2026.
- Sunoco acquired a Maryland terminal for approximately $6 million in September. On October 8, it acquired eight NuStar terminals for $250 million, with combined capacity of approximately 14.8 million barrels. Management expected both terminal acquisitions to be accretive in their first year.
- For full-year 2021, the partnership expected approximately $45 million in maintenance capital expenditures and $150 million in growth capital expenditures.
- Key stated risks include fuel-price and demand volatility, supplier dependence, competition, acquisition execution and integration, cyberattacks, COVID-19 impacts, regulation, and access to financing. Management said known litigation was not expected to have a material adverse impact. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported for the quarter.
Important facts for investors to verify
- How much of revenue growth reflects higher fuel prices versus changes in gallons sold, and whether fuel margins per gallon stabilize.
- The sustainability of cash generation and distributions relative to capital spending, acquisition costs, debt service, and working-capital swings.
- The effect of the October 2021 refinancing and terminal acquisitions on total debt, interest costs, liquidity, and future Adjusted EBITDA.
- Whether reported earnings comparisons are being interpreted with appropriate attention to the large, non-cash inventory valuation adjustments.