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Sunoco (SUN) Declines 2% Since Q3 Earnings Miss Estimates

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Sunoco LP SUN units declined 2% since the third-quarter 2021 earnings announcement on Nov 3. It reported lower-than-expected earnings, owing to a decline in gross profits from the Fuel Distribution and Marketing segment, and higher operating expenses. The negatives were partially offset by higher non-motor fuel sales.

Sunoco reported third-quarter earnings of $1 per unit, which missed the Zacks Consensus Estimate of $1.06. The bottom line, however, increased from adjusted earnings of 96 cents in the year-ago quarter.

Total quarterly revenues of the partnership totaled $4,779 million, beating the Zacks Consensus Estimate of $3,929 million. The figure also increased from $2,805 million a year ago.

Sunoco LP Price, Consensus and EPS Surprise

Sunoco LP Price, Consensus and EPS Surprise
Sunoco LP Price, Consensus and EPS Surprise

Sunoco LP price-consensus-eps-surprise-chart | Sunoco LP Quote

Segmental Performance

Sunoco reports financial statements through two reportable segments — Fuel Distribution and Marketing, and All Other.

Fuel Distribution and Marketing: Total gross profit from the segment decreased to $261 million from $265 million in the comparable period of 2020 primarily due to lower motor fuel sales.

All Other: This unit reported a gross profit of $46 million versus $43 million in the comparable period of 2020. The year-over-year increase can be attributed to higher non-motor fuel sales.

In terms of volumes, the partnership sold almost 2 billion gallons of fuel in the reported quarter, up 6.4% year over year, owing to the energy demand recovery from the coronavirus pandemic. Motor fuel gross profit per gallon was recorded at 11.3 cents for the quarter versus the year-ago level of 12.1 cents.

Distribution

For the quarter ended Sep 30, 2021, Sunoco declared a quarterly cash distribution of 82.55 cents per unit or $3.3020 on an annualized basis. Markedly, the distribution was flat on a sequential basis. Trailing 12 months’ cash coverage was 1.43X.

Adjusted distributable cash flow was $146 million for the third quarter, reflecting an increase from the year-ago quarter’s $139 million.

Expenses & Capital Expenditure

The total cost of sales and operating expenses for the reported quarter surged to $4,626 million from $2,658 million a year ago.

The partnership incurred a gross capital expenditure of $44 million for the reported quarter, comprising $34 million in growth capital and $10 million in maintenance capital.

Balance Sheet

As of Sep 30, 2021, Sunoco had cash and cash equivalents of $88 million, sequentially up from $87 million. At the third-quarter end, it had net long-term debt of $2,672 million, marginally down from $2,673 million at the second-quarter end. It had a long-term debt to capitalization of 77%.

Guidance

For 2021, Sunoco reiterated its adjusted EBITDA guidance to $725-$765 million. In 2020, the metric was recorded at $739 million. It expects operating expenses of $425-$435 million, marking a decline from $440-$450 million mentioned earlier.

The Zacks Rank #2 (Buy) partnership expects fuel volumes for the year within 7.25-7.75 billion gallons, indicating a rise from the 2020 level of 7.09 billion gallons. Fuel margins will likely be 11-12 cents per gallon. The same in 2020 was 11.9 cents per gallon. SUN expects maintenance and growth capex of $45 and $150 million, respectively, for 2021.

View

The distribution, refining and marketing of petroleum represent one of the largest industries globally. After purchasing motor fuel from refiners, Sunoco sells the fuel to customers, which determines the partnership’s profit.

Although we are still witnessing the pandemic-induced lower demand for refined products, increasing refining productions in the domestic market will likely drive the demand for Sunoco’s wholesale fuel distribution businesses as gasoline and diesel consumption is expected to increase in the coming days.

Companies with downstream and midstream operations are likely to make huge profits from the demand recovery. Glimpses of such improvements have been witnessed in the third quarter. In particular, companies like Phillips 66 PSX, Phillips 66 Partners LP PSXP and Valero Energy Corporation VLO turned in better-than-expected bottom-line numbers in the third quarter.

Houston, TX-based Phillips 66 reported third-quarter 2021 adjusted earnings per share of $3.18, beating the Zacks Consensus Estimate of $1.95. The strong results were driven by recovered refined product and fuel demand as more people are stepping out for work and leisure, owing to the rapid rollout of coronavirus vaccines and the easing of restrictions. Increased volumes and refining margins boosted its segments.

Phillips 66, which processes, transports, stores and markets fuel and related products, generated $2,203 million of net cash from operations, up from $491 million a year ago. Its capital expenditure and investments totaled $552 million. PSX also paid out dividends of $394 million in the reported quarter. It increased its quarterly dividend to 92 cents, which reflects Phillips 66’s strong operations.

Phillips 66’s master limited partnership, Phillips 66 Partners, reported third-quarter adjusted 2021 earnings per unit of $1, beating the Zacks Consensus Estimate by a penny. Higher terminal throughput and refined product volumes boosted the results. Recovered refined product and fuel demand played a major role in the strong third-quarter results of PSXP.

Phillips 66 Partners recorded cash and cash equivalents of $71 million, up from the second quarter’s $2 million. It has $749 million available under the revolving credit facility. Also, PSXP’s capital expenditure and investment for the third quarter totaled $103 million.

Valero Energy reported third-quarter 2021 adjusted earnings of $1.22 per share, turning around from a loss of $1.16 in the year-ago period. Its bottom line was supported by increased refinery throughput volumes and a higher refining margin. A massive recovery in gasoline demand helped the company.

Valero Energy, the leading independent refiner and marketer of petroleum products, returned $400 million to stockholders as dividend payments. In the third quarter, VLO completed the Diamond Green Diesel expansion project at the St. Charles refinery, boosting the output capacity by 400 million gallons per annum.


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