Sunoco LP Q2 FY2025 earnings call

Management Statement and Operational Highlights

• The partnership had a record second quarter with adjusted EBITDA of $464 million and distributable cash flow as adjusted of $300 million.
• Declared a second quarter distribution of $0.9088 per common unit, a 1.25% increase from the previous quarter, with a trailing 12-month coverage ratio of 1.9x.
• On track to meet 2025 projected capital spend, including at least $400 million of growth capital and $150 million for maintenance capital.
• Parkland acquisition has over 93% shareholder support, working on regulatory approvals with expected close in Q4.
• Expect to close on TanQuid acquisition of terminal assets in Germany and Poland in early Q4.
• NuStar acquisition has enhanced scale and efficiency of Pipeline and Terminals segments, expected to deliver double-digit accretion.

Segment Performance

• Fuel Distribution: Adjusted EBITDA was $214 million, excluding $8 million of one-time transaction-related expenses. Volumes were 2.2 billion gallons, up 5% from the previous quarter and flat compared to the second quarter of the previous year.
• Pipeline Systems: Adjusted EBITDA was $177 million, excluding transaction-related expenses, compared to $172 million in the first quarter and $111 million in the second quarter of the previous year. Segment throughput was 1.2 million barrels per day.
• Terminal: Adjusted EBITDA was $73 million, excluding $2 million of one-time transaction-related expenses, compared to $66 million in the first quarter and $43 million in the second quarter of the previous year. Segment throughput was 692,000 barrels per day, up from previous periods.

Guidance

• On track to meet 2025 projected capital spend.
• Aim for annual distribution growth rate of at least 5%, with third consecutive quarterly distribution increase.
• Confident in achieving full-year EBITDA guidance.

Risks

• Regulatory approvals for acquisitions (Parkland and TanQuid) may face delays or uncertainties.
• Macro factors like EV tax credit expiration and market volatility could impact refined product demand and margins.

Question and Answer

• Q: About Parkland synergy target and tax side of SUNCorp dividend parity.

A: Karl Fails mentioned confident in achieving $250M synergies by year 3, Scott Grischow discussed tax planning and favorable legislation supporting dividend parity beyond 2-year period.

• Q: Follow-up on Parkland financing and dividend equivalents.

A: Scott Grischow talked about 2-year equivalency period and financing plan using senior notes and preferred equity.

• Q: Underlying demand backdrop and trends.

A: Austin Harkness discussed elevated breakevens, hyper-fragmented industry, and continued bullish margin environment due to flat price volatility and sticky inflation.

• Q: Capital allocation post Parkland and TanQuid.

A: Joe Kim mentioned top priorities are integrating Parkland and deleveraging to 4x, using criteria like stable cash flow, growth opportunities, synergies, and attractive valuations for M&A.

• Q: Parkland roll-up acquisitions and second half outlook.

A: Joseph Kim discussed whole build buy strategy, ample roll-up opportunities, and expected payoff from first half investments in second half with noticeable volume increase and attractive margins.