Sunoco LP — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing also reports unaudited fourth-quarter results. Sunoco distributes motor fuel across more than 30 states and Hawaii, primarily to independent dealers, distributors, commercial customers, and commission-agent sites; it operated 78 retail stores at year-end. The pandemic affected fuel demand and retail activity.
Key financial metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $10.710 billion | $16.596 billion |
| Gross profit | $1.056 billion | $1.216 billion |
| Operating income | $417 million | $464 million |
| Net income | $212 million | $313 million |
| Adjusted EBITDA (non-GAAP) | $739 million | $665 million |
| Cash from continuing operations | $502 million | $435 million |
| Capital expenditures | $124 million | $148 million |
| Cash distributions to unitholders | $354 million | $353 million |
Fuel volume was 7.094 billion gallons, down 13.4%. Motor-fuel gross profit was $764 million, with gross profit per gallon rising 17.8% to 11.9 cents. Based on reported figures, gross margin was approximately 9.9%, operating margin 3.9%, and net margin 2.0% in 2020, versus approximately 7.3%, 2.8%, and 1.9%, respectively, in 2019.
At year-end, cash was $97 million; total debt was $3.139 billion, including $3.0 billion of senior notes. The $1.5 billion revolving facility had no borrowings outstanding and $8 million of standby letters of credit; Sunoco reported compliance with its financial covenants. Long-term debt, net of current maturities and issuance costs, was $3.106 billion. Current assets were $847 million and current liabilities $653 million.
Fourth-quarter results
Fourth-quarter 2020 revenue was $2.553 billion, down from $4.098 billion in Q4 2019. Operating income increased to $144 million from $98 million, while net income was $83 million in both quarters. Basic earnings per common unit were $0.78 versus $0.76. The filing does not provide quarterly cash-flow figures in the supplied text.
Material changes and unusual items
- Revenue fell 35.5% year over year, reflecting lower fuel volumes and prices during the pandemic; motor-fuel gallons declined 13.4%.
- Adjusted EBITDA rose $74 million, primarily from higher fuel gross profit per gallon and $54 million of lower operating costs. The cost reduction was partly offset by a $12 million charge for expected credit losses related to COVID-19 and weaker merchandise and credit-card-related gross profit.
- GAAP net income declined by $101 million. 2020 included an $82 million adverse inventory valuation adjustment as fuel prices fell, a $13 million loss on extinguishment of debt, and $24 million of income-tax expense. The 2019 comparison included a favorable $79 million inventory adjustment and a $17 million tax benefit.
- In November, Sunoco issued $800 million of 4.5% notes due 2029 and used the proceeds in part to repurchase approximately $564 million of 4.875% notes due 2023. It repurchased the remaining 2023 notes in January 2021.
- Sunoco acquired a New York terminal for approximately $12 million in December 2020. FY2020 capital expenditures included $35 million maintenance and $89 million growth spending.
Outlook, risks, and contingencies
Management expected 2021 capital expenditures of approximately $45 million for maintenance and $120 million for growth. It stated that operating cash flow and revolving-credit capacity were expected to meet liquidity needs, while cautioning that financing availability and terms were not assured. The filing does not provide specific earnings or revenue guidance.
Management identified COVID-19-related demand, customer credit and collections, fuel-price and margin volatility, supplier and trade-credit dependence, competition, severe weather, environmental obligations, and changing climate and fuel regulations as risks. Distribution payments are not guaranteed and depend on available cash, reserves, debt obligations, and other factors. The partnership paid $3.30 per common unit for 2020; the Q4 distribution was $0.8255 per common unit.
Environmental liabilities included an estimated $20 million for remediation and a $75 million reserve for underground-tank removal obligations. Sunoco also disclosed an estimated $19 million potential net exposure related to New York sales taxes if the ethanol buyer fails to remit certain taxes. Management said it did not believe pending ordinary-course litigation would materially affect financial condition or results.
Investor verification points
- Verify the sustainability of higher fuel gross profit per gallon and whether volumes and customer collections recover as pandemic conditions change.
- Assess debt maturities, interest costs, refinancing execution, and covenant headroom; include lease and other contractual commitments when evaluating liquidity.
- Reconcile Adjusted EBITDA with GAAP earnings and cash flow, particularly the effects of inventory valuation, credit-loss charges, and other adjustments.
- Monitor the $19 million potential tax exposure, environmental reserves, and any changes in remediation estimates or regulatory requirements.
- Confirm the status of the 2023-note repurchase completed after year-end and the exchange offer for the 2029 notes.