Sunoco LP 2020 Q2 Form 10-Q Summary
Business and period: Sunoco LP distributes motor fuel across more than 30 states, operates retail stores in Hawaii and New Jersey, and earns lease income. This unaudited filing covers the three and six months ended June 30, 2020; comparisons are with the corresponding 2019 periods. COVID-19 disrupted economic activity and reduced fuel demand.
Key financial metrics
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $2.080 billion | $4.475 billion | $5.352 billion | $8.167 billion |
| Operating income | $208 million | $97 million | $126 million | $249 million |
| Net income | $157 million | $55 million | $29 million | $164 million |
| Adjusted EBITDA | $182 million | $152 million | $391 million | $305 million |
| Net cash from operations | Not provided for quarter | Not provided for quarter | $255 million | $184 million |
Q2 motor fuel gallons sold were 1.515 billion, down 26.3% year over year; reported motor fuel gross profit was 13.5 cents per gallon versus 9.1 cents. Six-month gallons sold were 3.413 billion, down 14.6%, while gross profit was 13.3 cents per gallon versus 9.5 cents. Total gross profit, excluding depreciation, amortization and accretion, was $358 million in Q2 versus $269 million and $466 million for the first half versus $639 million.
At June 30, cash was $33 million; current assets were $642 million and current liabilities $598 million. Total debt was $3.087 billion, including $158 million drawn on the revolver; reported long-term debt, net, was $3.052 billion. Revolver availability was $1.3 billion, and the partnership reported compliance with financial covenants. Six-month investing cash outflow was $57 million and financing cash outflow was $186 million. Capital expenditures were $59 million for the first half.
Material changes and unusual items
- Revenue fell sharply year over year, reflecting lower fuel prices and reduced sales volumes during the pandemic. Despite lower volume, Q2 Adjusted EBITDA rose $30 million, primarily from stronger fuel gross profit per gallon and $26 million of lower operating costs; lower non-fuel gross profit partly offset those gains.
- Six-month Adjusted EBITDA increased $86 million. Higher fuel gross profit, including a $13 million make-up payment under the 7-Eleven fuel supply agreement, and lower operating costs contributed; lower volumes and reduced non-fuel gross profit were offsets.
- Net income comparisons were materially affected by fuel inventory valuation: Q2 2020 benefited by $90 million from reduced lower-of-cost-or-market reserves, while the first half recorded a $137 million adverse inventory adjustment. First-half 2019 had a $97 million favorable inventory adjustment. Accordingly, six-month 2020 net income was $29 million and basic loss per common unit was $0.12, despite higher Adjusted EBITDA.
- The partnership recorded $16 million of expected credit losses on receivables in the first half in connection with COVID-19 impacts. The allowance for expected credit losses was $18 million at June 30, compared with $2 million at year-end 2019.
Outlook, risks and contingencies
Management said COVID-19’s future effects on fuel demand, gross profit and customer collections were uncertain. The filing identifies potential risks from reduced demand, customer credit deterioration, fuel-price volatility, access to capital, and possible impairment of goodwill or other intangible assets. Interim goodwill testing in the first quarter identified no impairment.
Management expected to use operating cash flow and revolver capacity to fund 2020 working capital and announced growth capital needs. Full-year 2020 capital expenditure expectations were approximately $30 million maintenance and $75 million growth. The filing gives no earnings or revenue guidance. A quarterly common-unit distribution of $0.8255 was declared, payable August 19, 2020; management noted distributions are not guaranteed. Litigation was described as ordinary-course, with no known matter expected to have a material adverse impact based on currently available information.
Important facts for investors to verify
- How much of Q2’s net-income increase reflected the $90 million inventory valuation benefit versus recurring operating performance.
- Whether fuel volumes, gross profit per gallon, and customer collections recovered or weakened after June 30, 2020.
- Whether expected credit losses, customer defaults, or additional inventory valuation changes materially affected subsequent results.
- Ability to fund debt service, distributions, and projected capital spending while maintaining revolver covenant compliance and access to financing.
- Related-party transactions and obligations involving Energy Transfer affiliates, including fuel purchases, services, and cash-management advances.