Earnings call transcript: Sunoco’s Q1 2025 financial performance and strategic acquisitions

Sunoco LP (SUN), with a current market capitalization of $7.32 billion, reported robust financial results for Q1 2025, highlighting a strong performance in its core segments and strategic acquisitions. The company announced an adjusted EBITDA of $458 million and a distributable cash flow of $310 million. According to InvestingPro analysis, Sunoco is currently undervalued, presenting a potential opportunity for investors. Sunoco also increased its distribution by 1.25% from the previous quarter to $0.896 per common unit, maintaining an attractive dividend yield of 6.58%. The company’s focus on fuel distribution and midstream assets remains strong, bolstered by recent acquisitions, including Parkland Corporation for $9.1 billion and Tanquid for €500 million. InvestingPro data shows the company has maintained consistent dividend growth, with a 6.6% increase over the last twelve months.

Key Takeaways

• Sunoco’s Q1 2025 adjusted EBITDA reached $458 million.
• The company announced acquisitions totaling over $9.6 billion.
• Distribution per unit increased by 1.25% to $0.896.
• Fuel distribution volumes remained stable at 2.1 billion gallons.
• The company maintains a leverage ratio of 4.1x, aligning with its long-term targets.

Company Performance

Sunoco demonstrated resilience in Q1 2025, maintaining stable fuel distribution volumes at 2.1 billion gallons, despite a challenging market environment. The company’s diversified portfolio, including pipeline, terminal, and distribution assets, helped optimize profits amid market volatility. Sunoco’s strategic acquisitions further strengthen its presence in North America and the emerging European market.

Financial Highlights

• Adjusted EBITDA: $458 million
• Distributable Cash Flow: $310 million
• Growth Capital Expenditures: $75 million
• Maintenance Capital Expenditures: $26 million
• Distribution: $0.896 per common unit (1.25% increase)

Outlook & Guidance

Sunoco remains confident in its full-year 2025 guidance, targeting an annual distribution growth of at least 5%. The company is focused on operational execution, expense discipline, and strong capital returns. Analyst consensus is notably bullish, with price targets ranging from $61 to $68 per share. For deeper insights into Sunoco’s valuation and growth prospects, investors can access the comprehensive Pro Research Report available on InvestingPro, which includes detailed analysis of the company’s financial health score of 2.65 (GOOD) and other key metrics. Sunoco’s strategic acquisitions and investments in existing infrastructure position it to capitalize on market opportunities and enhance shareholder value.

Executive Commentary

"We have proven year after year and crisis after crisis that we can distinguish ourselves in challenging environments," said CEO Joe Kim, highlighting Sunoco’s resilience and strategic positioning. COO Karl Fails emphasized the importance of existing infrastructure, stating, "Existing infrastructure will always have an advantage over building new supply chains."

Risks and Challenges

• Market Volatility: Fluctuations in fuel prices could impact profitability.
• Regulatory Changes: Evolving environmental regulations may require operational adjustments.
• Economic Uncertainty: Global economic conditions could affect demand for fuel products.
• Competitive Pressure: Increased competition in the energy sector may challenge market share.
• Supply Chain Disruptions: Potential disruptions could affect distribution efficiency.

Sunoco’s strategic focus and robust financial performance in Q1 2025 demonstrate its ability to navigate a complex market landscape, supported by significant acquisitions and a strong operational foundation. Trading at a P/E ratio of 9.04x and maintaining a healthy current ratio of 1.27, the company shows strong fundamentals. Discover more detailed financial metrics and exclusive ProTips about Sunoco’s performance by accessing the full analysis on InvestingPro.

Full transcript - Sunoco (SUN) Q1 2025:

Conference Operator: Greetings, and welcome to the Sonoco LP’s First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Scott Grishel, senior vice president, finance, and treasurer.

Thank you, sir. You may begin.

Scott Grishel, Senior Vice President, Finance and Treasurer, Sunoco LP: Thank you, and good morning, everyone. On the call with me this morning are Joe Kim, Sunoco LP’s President and Chief Executive Officer Karl Fails, Chief Operating Officer Austin Harkness, Chief Commercial Officer and Dylan Bramhall, Chief Financial Officer. Today’s call will contain forward looking statements that include expectations and assumptions regarding the partnership’s future operations and financial performance. Actual results could differ materially, and the partnership undertakes no obligation to update these statements based on subsequent events. Please refer to our earnings release as well as our filings with the SEC for a list of these factors.

During today’s call, we will also discuss certain non GAAP financial measures, including adjusted EBITDA and distributable cash flow as adjusted. Please refer to the Sunoco LP website for a reconciliation of each financial measure. Before I begin my remarks on the first quarter results, I want to start with the announcement we made yesterday that Sunoco will be acquiring Parkland Corporation in a cash and equity transaction valued at approximately $9,100,000,000 We expect to close in the second half of twenty twenty five, subject to customary closing conditions and other regulatory clearance. On today’s call, we would like to focus on our first quarter results and our European acquisition. We would refer you to what was disclosed in the news release, subsequent eight ks filings, investor presentation and joint conference call we held on May 5 for details on the Parkland acquisition.

So please keep that in mind as we enter the Q and A portion in a few minutes. 2025 is off to a good start following our first quarter performance. We remain on track to achieve our full year financial guidance. Our balance sheet and liquidity are strong, and we are well positioned to continue our growth objectives. I’d like to start with a brief review of our consolidated results.

The Partnership delivered a solid first quarter with adjusted EBITDA of $458,000,000 and distributable cash flow as adjusted of $310,000,000 In the first quarter, we spent $75,000,000 on growth capital and $26,000,000 on maintenance capital. This includes the Partnership’s proportionate share of capital expenditures related to our two joint ventures with energy transfer of $18,000,000 for growth capital and $2,000,000 for maintenance capital. Now turning to the balance sheet. On March 20, we completed an offering of $1,000,000,000 of 6.25% senior notes due 02/1933. Net proceeds from the offering were used to repay $600,000,000 of senior notes that matured this October and all outstanding borrowings on our revolving credit facility.

This transaction extended our debt maturity profile, improved our financial flexibility, and derisked our balance sheet for the remainder of the year. Combined with our strong liquidity, this financing put us in an advantaged position to execute on future growth and deliver on our other capital allocation priorities. As of March 31, our $1,500,000,000 revolving credit facility had no borrowings outstanding. Leverage at the end of the quarter was 4.1 times, in line with our long term target. In March, we signed a definitive agreement to acquire Tankwit, Germany’s largest independent storage operator, for approximately €500,000,000 including approximately €300,000,000 of assumed debt.

This acquisition consists of a portfolio of 16 terminals, including 15 terminals across Germany and one terminal in Poland. Transaction is expected to close in the second half of twenty twenty five, subject to customary closing conditions, and will be accretive to unitholders in the first year of ownership. Carl will provide some additional thoughts on this acquisition in his comments. Finally, on April 23, we declared a distribution for the first quarter of $0.08 $9.07 $6 per common unit or $3.59 on an annualized basis. This represents an increase of just over 1.25% compared with the previous quarter and resulted in a trailing twelve month coverage ratio of 1.9 times.

This marks the second consecutive quarterly increase in Sunoco’s distribution and is consistent with our capital allocation strategy and 2025 business outlook, which includes an annual distribution growth rate of at least five percent. Since 2022, Sun has increased distributions by approximately 9%, underscoring the partnership’s ongoing commitment to returning capital to its unitholders. To close, Sunoco entered 2025 in a position of strength. Strong results and cash flow generation over the past several years have allowed us to execute on our capital allocation strategy. With leverage at our long term target and healthy distribution coverage, we have been able to reinvest capital back into our business through organic growth and acquisitions.

The result is a record of increasing distributable cash flow per common unit that has, in turn, positioned us for ongoing distribution increases to our unitholders and additional growth. Sunoco’s financial stability, distribution yield and growth prospects make our equity a compelling value proposition in any environment. With that, I will now turn the call over to Karl to walk through some additional thoughts on our first quarter performance and recent growth initiatives.

Karl Fails, Chief Operating Officer, Sunoco LP: Thanks, Scott. Good morning, everyone. We have had a solid start to 2025 with good performance across all three segments. Let me walk through segment results and then add some perspective on our exciting growth announcements this week. Starting with Fuel Distribution.

Adjusted EBITDA was $220,000,000 compared to $192,000,000 in the fourth quarter and $218,000,000 for the first quarter of twenty twenty four. Volumes came in at 2,100,000,000 gallons, down 3% from last quarter and flat to the first quarter of last year. Finally, reported margin was $0.01 $15 per gallon compared to $0.01 $06 per gallon in the fourth quarter and $0.01 $09 per gallon in the first quarter of twenty twenty four. Our results in the first quarter included the benefit of $32,000,000 from the seven Eleven makeup payment. As we’ve said before, our strategy is to capture what the market provides.

The efficient use of capital continues to support our volumes, which can be seen by our volumes being flat compared to the first quarter of last year, even with the sale of our West Texas marketing assets. And this volume growth continues to beat industry benchmarks. On the margin side, elevated breakevens and commodity market volatility continue to provide support to our fuel profit as our teams deliver on profit optimization strategies in various market environments. Moving to the Pipeline Systems segment, we reported $172,000,000 of adjusted EBITDA compared to $188,000,000 for the fourth quarter. Throughput on the system was approximately 1,300,000 barrels per day compared to 1,400,000 barrels per day in the fourth quarter.

Overall, the system performed well even in light of some headwinds as a result of a few reliability challenges at refineries that feed our system. When we step back and look at full year performance, we remain very happy with how the system is performing, as well as some of the optimization opportunities we have going forward. Turning to terminals. We delivered adjusted EBITDA of $66,000,000 compared to $59,000,000 in the fourth quarter and $24,000,000 in the first quarter of last year. Throughput was 620,000 barrels per day, up from around 600,000 barrels per day in the fourth quarter and a little over 400,000 barrels per day in the first quarter of last year.

Performance was consistent across our network, and we’re excited about the addition of our second European acquisition to this segment that Scott mentioned earlier. Yesterday, we discussed in detail our announced acquisition of Parkland. That deal will expand our geographic reach in North America and The Caribbean and builds on the same strategy we have employed over the past seven years in our fuel distribution business of growing scale, focusing on fuel profit optimization and integration with midstream assets. Our purchase of Tanquid also builds on the same strategy we discussed last year when we first entered Europe. Tanquid is the largest independent operator of terminals in Germany.

The strong network of 16 terminals across Germany and Poland has delivered consistent cash flow stability and growth over the last decade. These terminals serve an important role in the fuel distribution supply chains in Germany and Poland. The cash flow is supported by a long term and high credit quality customer base. We are also looking forward to adding the Tankwood team members to our organization and finding ways to optimize with our existing European assets in Amsterdam and Ireland. There are many aspects to like about growing our business into new geographies.

Our core business is distributing refined products that fuel the transportation of people and goods around the world. Globally, over 90% of transportation energy consumption comes from refined products, with another 5% coming from renewables, which we also distribute. As we look forward, our view is that the importance of refined products to fuel our economy will remain, whether here in The United States or across the world, a fact that is often overlooked and undervalued. As we turn to Europe more specifically, while they are ahead of The United States in reducing the carbon content of their energy mix, many of these lower carbon solutions are also liquid fuels that need to be stored and distributed to customers. Existing infrastructure will always have an advantage over building new supply chains, and as the energy portfolio continues to develop, we are confident that these assets will only become more valuable.

One can only look to California as an example where even with a focus on lower carbon fuels, terminal assets in California have been trading at a premium to other regions of The United States. Looking at the growth of our portfolio over the last few years, each of our acquisitions have hit our target criteria. Stable cash flows, synergies with our existing business, good valuation, and opportunities to grow. These most recent deals hit all four of these. As we continue to grow our asset base and face new and evolving challenges, our focus remains the same.

Strong operational execution, expense discipline, commercial creativity and profit optimization and ensuring we deliver strong returns on capital that we deploy. I’ll now turn it over to Joe to share his final thoughts. Joe?

Joe Kim, President and Chief Executive Officer, Sunoco LP: Good morning, everyone. As Scott and Karl both mentioned, we talked about Thus, for my comments today, I’ll focus on our current business. Year after year, we continue to raise the standard for Sunoco. Embracing higher expectations, we delivered a solid first quarter.

Given our results today and our projections going forward, we remain confident in our full year 2025 guidance. Each year presents a new set of challenges, but it also presents opportunities. Persistent inflation and possible recession would obviously be problematic for The United States and the world. And of course, we would like to see inflation subside, and we all want economic growth. However, we have proven year after year and crisis after crisis that we can distinguish ourselves in challenging environments.

During COVID, when volumes fell, we still grew EBITDA. During peak inflation, we held expenses flat while others saw significant increases. As we look towards the future, which always includes various challenges, we’re well positioned to continue to grow and create value. Our confidence is supported by the following. First, our business model performs well in volatile environments.

Why? We’re anchored by our pipeline and terminal assets, critical infrastructure that provide long term stable income. As for our fuel distribution business, it’s anchored by our seven Eleven take or pay contract and our real estate income. Furthermore, volatility creates margin capture opportunities. We are positioned to gain market share and optimize fuel profit in these environments given our scale, our supply expertise and our strong balance sheet.

Second, we continue to effectively manage expenses. Even within the current environment where inflation persists, we’re proactively managing our expenses to be below the operating expense guidance that we provided in December. And finally, our investments, both organic and acquisitions continue to meet or exceed our expectations. This will drive our EBITDA growth, our DCF per common unit growth, and our distribution growth, while maintaining a strong balance sheet. Bottom line, we’re uniquely positioned to be both an offensive and defensive play.

We fully expect to deliver another record year and continued distribution growth for our unitholders. Operator, that concludes our prepared remarks. You may open the line for questions.

Conference Operator: Thank you. We will now be conducting a question and answer session. Session. We ask that analysts limit themselves to one question and a follow-up so that others can have time to ask a question as well. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, while we poll for questions. Our first question comes from Spiro Dounis with Citi. Please proceed with your question.

Chad, Analyst (representing Spiro Dounis), Citi: Hi. This is Chad on for Spiro. Starting off, how do you think about future capital allocation among your regions post Parkland close? Are some regions delivering more attractive returns than others?

Karl Fails, Chief Operating Officer, Sunoco LP: Hey Chad, this is Carl. I think if you think about our overall growth capital program and how we look at it, and that might include even some of the roll up M and A that we’ve done, we don’t have a particular target per region. We do look at it in totality across all the segments and across all the geographies. And it really is kind of best projects win. And the kind of projects that we have in growth capital plan, generally we try to focus on items that have a shorter time frame between when we spend the cash and when they deliver.

And then clearly we look for opportunities that might benefit multiple segments. We might have a fuel distribution project that increases utilization in some of our midstream assets, or we might spend money in the midstream assets that enables additional fuel distribution opportunities. So we don’t start the year with particular targets, and we also have flexibility as the year shapes up or as we have opportunities in M and A or other growth opportunities to either flex that down or up depending on the circumstances.

Chad, Analyst (representing Spiro Dounis), Citi: Okay, that makes sense. And just second question, in ’twenty four you added more conventional mid midstream assets to the portfolio and Parkland is a heavy shift back to fuel distributions. What do you see as the right mix between the two assets for your business longer term? And how should we think about adding more conventional midstream assets from here following the large investment in fuel distribution?

Joe Kim, President and Chief Executive Officer, Sunoco LP: Hey Chad, this is Joe. We’re going to continue to execute our capital allocation strategy and ensuring that our portfolio becomes stronger and stronger over the long run. At different points in time, the portfolio may not be perfectly balanced at fiftyfifty, but directionally we want a diversified portfolio. And Parkland gave us an opportunity. You don’t get too many opportunities where you have this powerful industrial logic and excellent financial benefits.

So we took advantage of that, and we’re going to take opportunities to get more accretion, keep our balance sheet strong, and this happens to be on the fuel distribution side, but over the long run we want to have a very balanced portfolio.

Chad, Analyst (representing Spiro Dounis), Citi: Okay, that makes sense. Thanks for the time.

Karl Fails, Chief Operating Officer, Sunoco LP: Thank you.

Conference Operator: There are no further questions at this time. I would now like to turn the floor back over to Scott Grishaw for closing comments.

Scott Grishel, Senior Vice President, Finance and Treasurer, Sunoco LP: Well, thanks, everyone, for joining us on the call this morning. As always, if you have any follow ups, feel free to reach out. Thanks, and have a great day.

Conference Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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