Q3 2020 Sunoco LP Earnings Call
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Good morning, ladies and gentlemen, thank you for standing by welcome to Sunoco LP is 2023rd quarter earnings call. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation.
Should you require operator assistance during the conference. Please press star zero to save on operator. Please note. This conference is being recorded I will now turn the conference over to your host Scott Crescendo, Vice President of Investor Relations and Treasury for Sunoco. Thank you you may begin.
The margin of $12 one per gallon Carl will elaborate on margins and volumes in more detail in his remarks.
Least income of $34 million was flat to last quarter non motor fuel sales gross profit was $37 million up from the $30 million, we reported in the second quarter higher merchandise sales and credit card fees contributed to the sequential increase.
Total operating expenses for the third quarter increased to $112 million from $97 million in the second quarter as a result of increased feel volume.
However, we continue to deliver on a cost reduction initiatives.
In comparison to the third quarter of last year, we are down $22 million, which is a 16% decrease.
Moving on to capital, we spent $14 million on growth projects and $6 million on maintenance capital in the third quarter we.
We expect to spend at least $75 million in Grove capital for the full year and approximately $30 million and maintenance capital.
Third quarter distributable cash flows adjusted was $139 million, yielding a very strong coverage ratio of one six times for both the third quarter and the trailing 12 month period.
That are October volumes remained around 12% off of last year's volume numbers.
Even with a more difficult comparison last year.
If you recall that JC Noland pipeline started up in the third quarter of last year.
And by Fourthquarter volumes had ramped up considerably.
The dramatic fall and crude prices in early 2020 resulted in a substantial reduction in drilling activity in the Permian basin.
While our diesel sales from volumes shift on JC Nolan have recovered since the lows in the second quarter. They still remain below 50% of the levels at the end of last year.
Taking out the JC Nolan impact on our total volumes our October volume would be off around 10% from last year.
Our geographic diversity helps us whether the larger impacts we've seen in west Texas in Hawaii.
It is however, they were down 16% compared to the third quarter of 2019.
We are well on our way to deliver on our commitment to reduce 2020 expenses to the range of $460 million to $475 million.
We acted swiftly and have delivered on expense and capital discipline.
I will now turn it over to Joe to share some closing thoughts Joe. Thanks.
We will continue to grow our fuel distribution business.
The opportunity set remains robust and we expect these organic opportunities to remain for the foreseeable future.
On the midstream side as Scott mentioned, we completed a small acquisition at a very attractive multiple will.
We will continue to look for highly synergistic opportunities while remaining financially disciplined.
Let me close by thanking our employees and our fuel distribution partners for their continued dedication and keeping sunoco strong over the last few years, we have built a very resilient business model.
We will remain proactive throughout the current challenge as well as any future challenges to ensure a stable long term future.
For our business. The first one is obvious right Reno, we're committed to maintaining a stable secure distribution.
We've been through some up some various economic impact by covered this year and commodity cycle and I think we've shown that that level that we're keeping our free cash flow that we can generate over the past and going forward. We feel very good about keeping this is very secure level. If you look back at history, a little bit.
We were probably sitting somewhere around 103 years ago. Prior to the 711 acquisition now were sitting around one point Fivex and we think we're going our businesses continue to generate free cash flow I think we're going to get a very good position.
As far as the next the next area is really about protecting our balance sheet again. This goes back to the investments that we've made in the past and our cost reduction and into free cash we're generating we're sitting already slightly below fourx and like I said on the prepared remarks, I think forex is definitely appropriate and achievable going forward.
Well that's it for me guys. Thank you.
Yeah.
Thank you. Our next question is from John Royal with JP Morgan.
Hey, good morning, guys. Thanks for taking my question.
So looking at your full year guide on EBITDA.
On the low end I think it implies about a 160 million of EBITDA for for for Q and this will be a decline from last year's Fourq. You. So just trying to square the Fourq guide with the fact that volume declines look pretty similar to Threeq margins are still strong and then within the context of the costs you've also taken out.
It seems a little conservative to me not sure if there's anything there that I'm missing.
Hey, John It's Joe Let me give you some more perspective on our 2020 numbers obviously.
Could could you see it as another way of thinking that you were you were under Leopard and you know you can do some things to get that leverage back up giving you you've had some stability in the business. So could you maybe talk through the the decision there.
Yeah, you know.
Get into four acts there's no no. That's obviously a bunch of weight math to get your leverage down I think we did the right way we grew our top line and we were very very consistent about keeping our expenses down and we didn't and so the.
The way that we look at it is that we think first of all are based business is solid and we're doing all the right things as far as cost management gross profit optimization to keep our base bits of straw, we're investing in the future on on Capitol project, We did a small acquisitions. So we're growing the top line, while keeping our our debt.
Or that flat, but that's the way that we're we're managing are are leveraged number.
Great. Thank you.
As a reminder to ask a question. Please press star one our next question is from game Marine with Mizuho.
Hey, good morning, guys.
Question on the M&A landscape finally got a deal under the Bell it sounds like just wondering where you're seeing the opportunity skew whether it's on the midstream side or whether it's on the wholesale side and if you could talk about I guess.
Pricing and multiples in the current environment, and where you see it you've seen those trendy.
He gave us to Joe again.
Seen in on both sides were saying on the field distribution side and we're <unk>, we're standing on the midstream side.
Our approach to growth hasn't changed we want to grow both fulfill distribution, we want to grow in the midstream sector, specifically the product terminal side, and we want to do it both organically and M&A. So.
Compared to a half a year ago, we are definitely seeing some more activity more kind of conversation with different companies contemplating selling so I think from our standpoint, we wanted to we want to grow both we wanted to do it organically we want to look at M&A opportunities. We're just I think we put ourselves in a very good.
<unk> with the financial position and right now we're on the right opportunity comes up at the right price will take advantage of it.
Thanks, Joe and if I could follow up with a little bit of a different question could you've seen a lot of refiners, making more and more renewables diesel investments unless familiar with how that distribution change works on the renewable diesel side that is that something.
That you've looked at her sooner because he had in Bolton.
Yes gave this this carl.
Think about renewable diesel is a little bit different than than biodiesel. That's been around for awhile renewable diesel is really a drop in fuel where it really meets most of the same specifications as your regular USD. So from a from a fuel distribution side.
Some of the diesel that we sell today already has some renewable diesel in it because it's in the system and it's definitely something that we're going to be able to is that market grows take advantage of and participate in.
Thanks, Paul.
Yeah.
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Ladies and gentlemen, we've reached the end of the question and answer session I would like to turn the call back to Scott quiz show for closing remarks.
Well, thanks again for joining us on the call today as always if you have any follow up question. Please reach asked me to discuss have a great day and this concludes today's call.
Thank you for your participation you may disconnect your lines at this time.