Q3 2019 Earnings Call

Greetings and welcome to Sunoco LP third quarter 2019 earnings call.

All participants are in listen only mode a.

A brief question answer session will follow the fall presentation.

If anyone should a car operate assistance during the conference. Please press star zero on your telephone keypad.

Please note this conference is being reported.

At this time I'll turn the conference over to Scott Crescendo, Vice President Investor Relations and Treasury, you may now be yet.

Thank you and good morning, everyone on the call with me. This morning are joke, M., Sunoco LP, President and Chief Executive Officer.

Tom Miller, Chief Financial Officer, Karl sales, Chief Operations Officer, and other members of management team.

A reminder, that today's call will contain forward looking statements subject to risks uncertainties and other factors that could cause actual results to differ materially.

Please refer to our earnings release as well as our filings with the FCC catalyst of these factors.

During today's call will also discuss certain non-GAAP financial measures.

Including adjusted EBITDA, and distributable cash flow as adjusted.

Please refer to this sonoco L.P. web site for a reconciliation of each financial measure.

Before I turn the call over to Tom I will review this quarter's financial and operating result.

For the quarter the partnership recorded net income $66 million.

Third quarter 2019, adjusted EBITDA was $192 million compared with.

Third quarter 2018 of $280 million.

Third quarter 2018 result included a one time cash benefit of approximately $25 million related to a settlement with the fuel supplier.

If you remove this onetime benefit this quarter's adjusted EBITDA would have increased to $192 million from $183 million a year ago.

Third quarter distributable cash flow as adjusted.

It was $133 million.

On October 25th we declared an 82.55 cents per unit distribution the same as last quarter.

Looking at our operational performance fuel volume in the third quarter totaled a record high up 2.11 billion gallons up 5% from a year ago.

Then by the contribution of our 2018 acquisitions organic growth in gross profit optimization efforts.

Fuel margin was 11.6 cents per gallon, excluding last years 25 million dollar onetime cash benefit.

Your margin increased by 0.2 cents per gallon from year ago.

I'll now turn the call over time.

Thanks, Scott and good morning, everyone.

We delivered strong results in the third quarter, let me put these results in context.

We sold record volumes with margins above our annual guidance right.

Although we're well into our gross profit optimization efforts, we still see tangible benefits.

We continue to sign up new customers with long term contracts quickly deliver added EBITDA.

And at the same time.

We remain focused on controlling expenses that allow these strong results to drop to the bottom line.

For the third quarter total operating expenses were $134 million down 4% from a year ago.

For 2019, we expect to be well below our previous annual guidance of $540 million.

Moving to capital maintenance spend totaled $13 million for the quarter, and we expect to be around $40 million per the or.

Growth capital totaled $33 million in the quarter for 2019, we expect to spend at least $115 million.

When you factor in an additional one that's been in JC Nolan of approximately $45 million are 2019 investment in growth projects will total roughly $160 million.

We continue to find and deliver high return organic investment opportunities.

These organic fuel distribution investments have been done with attractive returns consistent with our historical fuel distribution roll up acquisitions.

Looking forward, we expect to invest an additional organic projects, while remaining within the confines of our financially disciplined framework.

On the subject of leveraging coverage, our third quarter leverage was 4.5 times, including investment made in JC Nolan joint venture.

As Scott mentioned earlier, our DCF as adjusted was $133 million, yielding a third quarter coverage ratio of 1.5 with trailing 12 month coverage of 1.3.

Finally based on the strength of our year to date result, and our expectations for the fourth quarter. We now project for year 2019, adjusted EBITDA to be at the high end or above our previously guided range of $610 million to $650 million.

With that I'll now turn the call over to Joe for his closing cost Joe.

Thanks, Tom Good morning, everyone. We delivered a very strong third quarter, we had record volumes strong margin, while executing on tight cost controls.

Our underlying business is strong the resiliency of our business there are different commodity environment has been highly evidence that the 711 transaction.

We have delivered quality results quarter after quarter and more importantly, we expect us to continue.

Looking forward the fourth quarter is off to a solid start as Tom mentioned, we expect our 2019 EBITDA to be at the high end or above the original guidance.

Moving on to growth, we have identified and executed on attractive return projects within both the midstream and fuel distribution sectors.

The third quarter, we completed our first deliveries on the JC known and pipeline and when the process of evaluating and finalizing more midstream projects in the future.

With that fuel distribution, we continue to grow the Sunoco brand, we have ramped up our organic efforts and we expect this to be a ratable part of our business going forward.

We have balanced are increasing organic growth this year with fewer acquisitions, but let me be clear, we're still actively looking for acquisitions when the right opportunity comes at the right price well act on it.

Let me close by stating our results year to date have been very strong and will deliver on our 2019 targets. We expect next year to be jets is strong and we look forward to sharing or insight and our 2020 guidance. This December .

Operator that concludes our prepared remarks, you may open the line for questions.

Thank you at the site will be conducting a question answer session. If you want to ask a question today. Please press star one on your telephone keypad and a confirmation tell indicate your line is my question Q.

You mean press star too if you like to move your questions from the Q.

Participants are using speaker equipment, and maybe that's starting to pick up your handset before pressing the star Keith.

One moment, please while we poll for questions.

Thank you.

First question is from the line of Sharon Lui with Wells Fargo, because it seems your question.

Hi, good morning.

Just wondering if he can provide some color on what you're seeing and the M&A market today.

And whether you can comment on the recent Empire petroleum deal whether that package of assets for of interest.

Sure and this is Joe good morning, as far as the Empire deal in or any other deals that are out there. We don't comment on both of you know obviously, we have a very capable M&A team that has opportunities to look at very very own most deals that come across our table, but as the role we don't comment on on deals that better better a public.

That's for sure. So other question about where we're seeing the M&A environment for US I think you know in the past I mentioned, we have a really good pipeline of acquisition opportunities in the fuel distribution sector and we still have that this year, we've chosen to ER to focus on our organic growth and if you.

Got to look back to 2018. After we came out of the stuff 11 transaction, we relied heavily on or fuel distribution acquisitions to grow because as I stated the path. We're building that internal capability to do organic projects fast forward to this year and we've developed that capabilities to refocus.

More on organic growth this year, but what we're seeing and the fuel distribution sector as far as opportunities. We think that's pretty much the same and on the feel on the.

On the midstream side, you know we did the aim at acquisition.

No less than a year ago and that acquisition is doing great and where you know those opportunities. We're still looking out and we think some of those will start coming up in the future.

Okay, Great and I guess, given youre focused on organic spending do you anticipate for next year that the level gross capex could be similar to this year.

Yeah. So again I think I think like whenever you look at growth Capex I don't think you should look out in a vacuum I think you have to kind of look at in totality. So I'll work backwards and then workforce. So an 18, we spent roughly about 70 million dollar in growth capital and we did about $300 million worth.

Roll up acquisition in 2019, as Tom mentioned in the prepared remarks, we're anticipating a roughly about 160 million and year to date, we haven't done any roll up acquisition. So.

Now for us, especially even on the field distribution side and the midstream side, it's really a by bill decision for us.

We can either.

Oh, do an acquisition and fuel distribution or by terminals like we did would they met or we can go out and build like we did with J.C. Nolan or grow grow our organic growth. So next year I think we'll be more like 2019 versus 2018 and December will provide guidance for that on a very specific base.

Yes.

Okay, great. Thank you.

Thank you.

Thank you as a reminder, anyway press star one to ask a question today, we'll pause a moment to assemble the queue.

Thank you that's a sell I'll turn the floor vets cocker shelf for closing remarks.

Well, thanks, everyone for joining us on the call. This morning, please feel free to reach out to us with any follow up questions and we'll talk to everyone. Soon have a great day.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.