Q2 2025 Sunoco LP Earnings Call
Greetings and welcome to sonoko elps, second quarter 2025 earnings conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad,
As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Scott gisho. Thank you. You may begin
Thank you and good morning everyone on the call with me this morning are Joe Kim, sonoko peas, president and chief executive officer, Carl fails Chief Operating Officer, Austin Harkness, Chief commercial officer. Brian Hahn, Chief sales officer and Dylan brandal Chief Financial Officer.
Today's call will contain forward-looking statements. Please refer to our earnings release and SEC filings for risk factors and reconciliations of non-GAAP financial measures.
Including adjusted Ava and distributable cash flow as adjusted.
Our second quarter financial and operating results continue. The good start to the year that we reported last quarter, the partnership delivered a record second quarter with adjusted Eva of 464 million excluding approximately 10 million dollars of 1-time, transaction related expenses and distributable cash flows as adjusted of Millions.
In the second quarter, we spend approximately 120 million dollars on growth capital and 40 million on maintenance capital.
This includes the Partnerships. Proportionate share of capital expenditures related to our 2 joint ventures with energy transfer of 15 million for growth capital and 2 million dollars for maintenance capital.
We remain on track to meet our 2025 projected capital spend, which includes at least $100 million of growth capital and approximately $150 million for maintenance capital.
Turning to the balance sheet as of the end of the second quarter, our 1.5 billion revolving, credit facility, had approximately 200 million in outstanding borrowings.
Leverage at the end of the quarter was just under 4.2 times.
On July 24th, we declared a distribution for the second quarter of 90.88 cents per common unit or approximately $3.63 on an annualized basis.
This represents an increase of 1.25% compared with the previous quarter and resulted in a trailing 12-month coverage ratio of 1.9 times.
This marks the third consecutive quarterly increase in soko's distribution and is consistent with our Capital, allocation strategy in 2025 business Outlook, which includes an annual distribution, growth rate of at least 5%.
I would like to conclude my remarks by stating that our financial position remains strong and we are on track to achieve our full year ebit. Dog, guidance.
Term, we expect to continue our record of generating increasing distributable, cash flow per unit which will position us for ongoing distribution increases and additional growth.
With that, I will turn the call over to Carl to discuss our operational results.
Thanks Scott. Good morning everyone.
The second quarter of 2025 marked, another good quarter across all 3 segments.
Supported by solid fundamentals and continuing Returns on invested. Capital, our business is positioned to grow in the second half of the year.
Starting with our fuel distribution segment.
Adjusted Eva came in at 214 million, excluding $8 million of 1 time transaction related expenses.
Volumes came in at 2.2 billion gallons. During the quarter up 5%, from last quarter, and flat compared to the second quarter of last year.
Reported margin for the second quarter was 10.5, cents per gallon, compared to 11.5 cents per gallon in the first quarter and 11.8 cents per gallon in the second quarter of 2024.
Remember that our first quarter results, included the annual makeup payment from 711, which contributed about 1.5 cents per gallon to our reported margin.
When you take a step back and look at our fuel distribution business, it continues to perform very well.
Over the last 12 to 18 months, there have been changes to our portfolio, which reduced our reported cpg margin.
Including the sale of our West Texas assets last spring and the reclassification of transmix processing margin under our new segment reporting structure we introduced last year.
In addition, there are always quarter to quarter fluctuations and overall flat volume in the market.
But year after year, we have consistently grown our volume and fuel profit dollars by delivering on gross profit, optimization strategies and deploying Capital effectively.
This year is no exception. As we expect our increased investments in this segment to yield increased volume and EBITDA in the back half of the year, it will support another record year in the segment.
In our pipeline system segments.
Adjusted ebit. Now for the quarter was 177 million compared to 172 million for the first quarter and 111 million for the second quarter of last year. All excluding transaction related expenses.
Segment throughput was 1.2 million barrels per day compared to 1.3 million barrels per day in the first quarter.
Overall, we continued to see solid demand across our system. Despite macro volatility with some minor impacts from planned turnaround activity on our crude system.
Gross profit was up with positive support from longer haul tariffs, and a few areas, strong blending margins and overall strong agricultural demand in the Midwest.
Turning to our terminal segment.
We delivered adjusted ibida of 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 last year. All excluding transaction related expense expenses.
Segment, throughput was 692,000 barrels per day.
Up from 620,000 barrels per day in the first quarter.
And 638,000 barrels per day in the second quarter of last year.
The second quarter results benefited from strong, throughput growth and good performance in our transmix business.
As we look forward to the back half of the year, we anticipate continued strong performance in both of our midstream segments.
as we continue to grow our asset base, our Focus Remains the Same
Strong operational, execution.
Expense discipline, commercial creativity, and profit optimization.
And ensuring we deliver strong results on Capital, that we deploy.
I will now turn it over to Joe to share his final thoughts. Joe.
Thanks, Carl. Good morning everyone. We're halfway through 2025 and as expected, our business continues to perform well.
Scott and Karl discussed a key details related to the second quarter results. Let me provide some additional comments about our business as a whole and an update on the Parkland acquisition.
As I stated in our previous earnings, call, we continue to raise the standard for sonoko year. After year, we provide a strong guidance for 2025, given our results to date, and our expectations for the remainder of the Year, we're on track to deliver on our full year guidance.
All three business segments are performing well. Our field distribution business continues to demonstrate resiliency and growth.
The back half of this year is expected to outperform a good first half, and we anticipate continued strong performance for years to come.
Our Pipeline and terminal segments. Also, continue to perform at a high level. The new Star acquisition greatly enhanced the scale and efficiency of both segments.
Overall, the new Star Edition has been outstanding this quarter. Acquisition will deliver double-digit accretion as a result. We recently announced another distribution increase and, just as importantly, we expect further distribution growth over a multi-year period.
Continuing on the subject of growth, we expect to close on 10 quid, our acquisition of terminal assets and Germany, and Poland sometime early in the fourth quarter.
As for the Parkland acquisition, their shareholders strongly endorse the transaction with more than 93% of the votes.
On the regulatory side, we're working diligently with the various Regulatory Agencies to get final approvals. We continue to estimate the close date to be sometime in the fourth quarter.
Since we announced the Parkland acquisition 3 months ago or even more confident that we will deliver on the acquisition economics.
Parkland's based business is solid and improving. In fact, Parkland announced yesterday a record second quarter showing that they have improved materially from their 2024 results,
Combining the 2 companies will be a win for Equity holders. Debt holders employees as well as the countries we operate in
as the process plays out will provide more specific details. But for now, we can tell you that, we're highly confident that we will deliver double digit accretion while maintaining a strong balance sheet.
Let me wrap up with some brief thoughts on recent macro developments.
The announcement that the federal EV tax credit will expire later this year further as to the evolving Market consensus. That refined product demand will remain robust for decades to come. This is always been our long-held belief. We've executed our strategy based on this conviction as a result. We have grown materially over the last 5 plus years.
Our industry-leading, refined product short, in key markets throughout the Western Hemisphere positions us to capitalize on continued resilient refined product demand. Operator that concludes our prepared remarks. You may open the line for questions.
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Our first question comes from Spiro Donis with City. Please receive with your question.
Thanks operator, Morning theme. Uh, first question, maybe a 2-part question on on Parkland. If we could, uh, part 1, you know, Joe's, you mentioned been a few months since, uh, you've announced a deal.
Sounds like you've got some time to get in and take a look under the hood. A little bit further. Um, so so curious maybe more specifically how you're thinking about your initial Synergy Target at this point. Uh and then there's also been some favorable movement on the tax side. With the 1, big beautiful, Bill curious. What does that do to your initial sort of 2 year? Tax-free window for that C Corp and the ability to pay that that parody dividends.
Hey spos Joe. Hey, I'll let Carl take the Synergy question Scott. Why don't you follow up with the tax side?
Yeah, good morning. This is Carl. Um as far as synergies is Joe mentioned on on in his prepared remarks
You know we're a few months in the planning process on integration and kind of digging under the hood a little bit is going is going really well? And I'd say we feel as good or better about the acquisition in totality um, than we did when we announced it.
He you know, whenever you put 2, big companies together like this and then you overlay our discipline and track record on controlling expenses. There's clearly going to be um expense opportunities that we find and deliver on. But then also Joe mentioned in his remarks we're going to have 1 of the largest um refined products shorts in in the Western Hemisphere. So that's going to provide a lot of opportunity on the commercial side. So
Here's what I'd say is as we um, get closer, uh, to close and and getting into next year, we will provide more updates on the timing of the synergies, as well as maybe a little more granularity on on what will make those up. But as we sit here today, we feel very good on all aspects of the deal.
And sphere on on your second question. Regarding the the cash taxes and the profile there for suncorp. I think, first off it, it's helpful to provide some context for how that 2-year equivalency period was established. Uh this was a feature of the transaction, that was included at parkland's request. It was an easy ask and 1, we were very comfortable granting, uh setting all that aside, based on the long term forecasting and tax planning work. We did during diligence, we're confident that that the suncorp. Dividends will remain at parity with Soco LP distributions. Well past the 2-year period. Uh, additionally, as you mentioned the elements of the recent budget Bill like the permanent extension,
Of bonus depreciation and the restoration of of higher business. Interest expense limits will also help minimize cash tax leakage at suncorp while also lowering cash taxes at at Sun, LP, moving forward. And I think the fact that we will continue our focus on growth, both organically and through Acquisitions. Which with that brings additional opportunities to further, manage future, cash tax drag.
Great. That's uh that's all helpful color. Thanks for that gentleman. Uh, second 1, maybe just Switching gears a bit back to to fuel margins. Um, within that fuels distribution segment, um, you know, to your point when you sort of exclude, the make whole payments, you did have a sequential increase in 2q versus 1 q. And I guess, as you look forward, it sounds like you guys are pretty confident in the back half of the year. So curious, if you could just give us your expectations around fuel margin into the back app. And as we head into 2026,
Yeah. Hey, good morning Sparrow. This is Austin. Uh, happy to share some commentary on both, our reported numbers and kind of the, the overall broader margin of environment as we see it. Um, you know, I'll just start by just reminding folks. We we manage for fuel profit and ibida. Uh, when we manage the business versus solving for uh, particular number with volume or CBG independently, um, that said, you know, is it relates to our reported numbers? I would just go back to, uh, some of Carl's prepared remarks and some of the, uh, commentary that we've shared in the past. Um, you know, there's 2, higher margin businesses. That I think it's important to remember are no longer included in our segments, uh, reported numbers, the first obviously, following the new new
Start transaction. We move the transmix business into the terminal segment and then the second was uh the sale of our West Texas uh, retail business in the second quarter of last year. And so that said, while our reported cpg number has been reduced
Um, the fundamentals in the and and the macro environment, remain bullish for for margins overall, and that's really due to elevated. Break evens remaining in place and and I know you're familiar with this and and know this. But I think for folks who might be newer to the story, uh, it may be worth providing a little bit of context on what we're talking about. When we mentioned elevated break evens. Um, you know, the, the just quickly, the the first thing to know is, um, our industry is hyper fragmented. Um, the the majority of sites are managed by single unit owner operators in our space and so, when you couple that with, um, any exogenous shocks to the business, whether it's demand destruction. Like we saw in Co, um, inflation or flat price volatility, um, that has the impact of raising, uh, fuel margin Break Even levels for all operators in the space. Um, now that said, uh, for those operators that have significant scale or a fundamental cost of goods sold Advantage. Like so it actually creates a bullish margin environment. Um, and so as we think about the margin environment that we're in today, and what we see,
Going forward 2 of those 3 elements remain in place, um, from our view. So flat price volatility, just starting their, um, you know, if you look longitudinally at, you know, uh, daily arbab or ulsd movements, uh, volatility is only increased postco. Um, and so we we think that that's going to be a feature that that remains in place uh, for for the foreseeable future. And then separately with recession or with uh inflation.
And costs tend to be sticky downward particularly if you think about things like labor. Um, so with all that said, you know, we're regardless of how our portfolio evolves. We're going to continue to take advantage of and leverage, our significant scale, our supply chain. Optionality, our cost to get sold Advantage, um, to create asymmetrical, uh, upside in flat price volatility environments, um, and minimize the downside risk and exposure that we have. Um, and so, you know, with all that said, I think, you know, the the so what that'll that, all all end with is the fundamentals for for the field distribution. Business remain, uh, very healthy. Um, and and we're on track for a very strong second, half of the year, um, on the heels of some organic and roll-up m&a Investments that we made in the first half of this year that I think you're going to see are going to drive noticeable. Volume growth at healthy margins and ultimately results in year-over-year. Eva dog growth for the segment, despite the fact that we don't benefit from uh the aforementioned businesses no longer being in our reported numbers in 25.
Very helpful, Austin. I'll leave that there for today. Thank you, gentlemen.
Our next question comes from Justin Jenkins. With Raymond James, please proceed with your question.
Great thanks. If if I could just wanted to to start, Maybe by following up on Spiros. First question is, is there a point in time estimate or or maybe a range of years, you have now for dividend equivalents at suncorp and then I guess as we get closer to to the deal, how are you thinking about turning out the the financing for the cash part of of the Parkland deal?
Yeah, Justin this this is Scott. Um look I I think I already mentioned on how the 2 year equivalency period was established. Um and and past that I I just stick to the remarks I made earlier. We're we're confident that that equivalency period uh can continue uh past the 2 year. Uh Mark just based on our our tax planning uh some of the favorable legislation that that hit the market this year, as well as the fact that we're going to continue to uh to use sun sea and sonoko. If he is growth vehicles.
With respect to uh the transaction financing uh uh process. The plan still is to fund the 2.7 billion dollars of cash consideration through a combination of senior notes and preferred Equity. I think we've had, you know, shown a proven ability to be opportunistic with our Capital markets activity in the past, whether for refinancing efforts or to fund, uh, new capital for for Acquisitions. The current backdrop. And the credit markets is is positive right now. And so I think, given that and where we are in the process with
Respect, uh, to the line of sight on closing. Uh, sometime in the fourth quarter, we're actively monitoring the markets and we'll be pragmatic on how. And when the appropriate time is to assess them.
Great. That's helpful Scott, I guess. Second question maybe for for Carl or Austin just on on the underlying demand backdrop, uh, within the US and and outside any impacts in the second quarter from Headline volatility that that we've seen and and what if the recent Trends been in terms of of the, underlying demand backdrop here?
Uh, yeah, this is Austin. I think, you know, the, the trends that we saw kind of heading into the end of last year, continued into the beginning part of this year. And, and continued in the second quarter, we haven't seen, uh, we're seeing a lot of the same things. I think that you're probably seeing, you know, we we've mentioned we don't have a crystal ball when it comes to to volume or cpg, margin. Um, but we're seeing some of the same things with, uh, you know, year-over-year demand from an eia standpoint, uh, for gasoline being, you know, flat to maybe slightly off. Uh, diesel came out of the, you know, out of the gates at the beginning of the year, strong, but as as waned, um, along with some other, uh, economic activity. Indicators, uh, that that said, we expect to continue to outperform these Trends, I think, as a result of our, our, uh, growth capital and capital deployment strategy, uh, whether it's organic or role of m&a. And, um, and overall we feel really good about the fundamental health of the business. Um, and like I mentioned previously, anything that results in demand destruction ultimately, um, we see as both
For, for the margin case.
Awesome. Okay.
Our next question comes from Jeremy tinette. With JP Morgan. Chase. Please proceed with your question.
Hey, good morning everyone. This is Eli on for Jeremy. Um maybe you just wanted to touch on Capital allocation post Parkland and tankwood um you know obviously a meaningful free cash flow inflection coming.
whether there's more bolt-ons or larger sized deals out there again, recognize you're still digesting here, but just, um, the longer term approach as you see it now,
This is Joe. Uh, after we close on Parkland, our top 2 priorities are are very clear uh integrating the uh acquired asset and getting this energy. And secondly, get our balance sheet back to our Forex Target. We feel very confident will deliver on both. And after that, we'll assess the market and see what the market opportunities are. And to give you a little bit more insight into. It is really kind of going back to what I think. I've said, you know quarter after quarter when it comes to growth and when it comes to evaluating opportunities we use the same lens that we've used over and over we're looking for first. A stable cash flow profile. Second growth opportunities on an acquired asset uh third material, son synergies and finally and obviously attract evaluation. So I guess regardless of you know geography size or business segments that we look at uh those are the criteria we're going to use to create value for our stakeholders if you look back at our history we've done small roll up. Domestic.
Fuel distribution Acquisitions. We did a big Midstream acquisition last year with NuStar and now we're going to do a big International opportunity. Our history shows that we've consistently delivered and we're in a good, a very good position to continue uh continue to be in a creative Growth Company and having all these multiple options be at various businesses
Thank you, Mr. Geographies. Uh, size, uh, it's a good position for us to be in.
Awesome. I appreciate the color there and then just a quick 1. Um interesting. You know, shifting back to Parkland. Can you guys remind us exactly when the uh ICA was filed was that in June um just thinking, you know, about that 4225 timeline and obviously that's kind of a key item to keep an eye on
Ya, ya Eli. Uh, this is Scott, you know? I I think, um, what what I couch for for all of the regulatory items is that we're working through the approval processes for each. They're all proceeding as expected and we're tracking, uh, to close in the fourth quarter.
So I'll leave it there. Thanks.
As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad 1. Moment please while we polo for questions,
Our next question comes from NED bahramov with Wells Fargo. Please proceed with your question.
Hi, good morning. Thanks for taking the question. Based on Karl and Austin's comments, it seems that the typical seasonal slowdown in fuel distribution volumes in Q4 is not expected to occur this year. So, can you maybe provide more details on some of the initiatives you have in place and the investments you're making that will...
Will drive the stronger second half results.
Yeah, sure, this is Austin happy to provide additional context. I mean, just to confirm, you know, we are poised for for a very strong second half of the year in the field distribution segment. Um, and and we expect that our performance, even when you include the 32 million makeup payment from 711 in the first quarter, um, you know, you've heard Joe and and and others that talk about the build versus buy decision that we make from a capital, allocation standpoint. And this year the markets presented opportunities for us to execute against both. Um, so we've made organic Investments that allow us to grow and expand our footprint particularly in and around waterborne markets, where we can leverage our scale and supply chain optionality. Um, and we've also executed multiple roll-up Acquisitions that we're going to be able to quickly integrate and synergize, uh, that'll be accredited to the business in the second half of this year. So when you add all that together, I think that's what is driving the um the confidence uh in the back half of the year for ibid out growth. It's ultimately going to result in year-over-year growth for the segment. Um driven on the heels of of volume at at noticeable, volume growth at healthy margins.
Understood. And regarding those rollouts and acquisitions, can you maybe talk about the size or if there are additional inorganic opportunities for the second half of the year?
Reason why we purposely provide a minimum when providing, uh, annual growth Capital, uh, guidance for 2025, uh, back in December. We stayed at our guidance, was going to be 00 million plus. What this does is this acknowledges that we know that we have enough, uh, organic growth opportunities as a Baseline and we have the ability to flex up when highly attractive, uh, roll-up opportunities present itself, this year, whenever we started planning out, uh, 2025. We thought that was a material number of roll-up opportunities for us to do, and we got off to a very strong start on that side. And that's what Austin's, referring to where the back half of the year. He used a couple of, I think key words, noticeable, volume increase, and continuation of attractive. Uh, attractive margins, these Roll-Ups and organic uh, opportunities that we performed in the first half of the year. We'll start seeing the payoff. Starting in third and fourth quarter as far as uh as far as the continuation of these opportunities on a long term basis organic
we have a multi-year good pipeline of that remaining at a very consistent, high level, and the, as far as, uh, roll-up opportunities
You know, small, I guess the way I would classify Smalls under 100 million uh, dollars total purchase price. We think there's a lot of those opportunities out there. Awesome mentioned. This is a highly fragmented Market, where 60% plus of the market, a single store operators. So we think that opportunity is is, is robust
This year, what we did is like I said, we got off to a fast start. We anticipated a fast start, we pulled back a little bit whenever we uh we were working on the Parkland uh transaction. We knew we were going to get that signed. So we pulled back a little bit so we can allocate the appropriate amount of time to do, due diligence and integration but we're in a good position. Hopefully that provides you the inside while we're so confident that second half of the year is going to be strong for us.
Very clear. Thank you.
We have reached the end of the question and answer session. I'd now, like to turn the call back over to Scott grischow for closing comments.
Well, thanks for joining us on the call. Today, as we said, there are a lot of great things to look forward to in 2025 for SoCo, and we look forward to updating you across the year. Please feel free to reach out if you have any questions. Thanks for tuning in, and we always appreciate your support.
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.