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It has been about a month since the last earnings report for Sunoco LP (SUN). Shares have added about 11.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Sunoco LP due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Sunoco’s Q1 Earnings and Revenues Miss Estimates
Sunoco reported first-quarter 2020 loss from continuing operations of $1.78 per unit against the Zacks Consensus Estimate of earnings of 89 cents. In the year-ago quarter, the partnership had reported earnings from continuing operations of $1.07 per unit.
Quarterly revenues of the partnership totaled $3,272 million, missing the Zacks Consensus Estimate of $3,748 million. Also, the figure declined from $3,692 million recorded in the prior-year quarter.
The weak first-quarter results were due to lower contribution from the fuel distribution and marketing business. Lower sold volumes of fuel also affected first-quarter results.
The partnership 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 $35 million from $307 million in the comparable period of 2019, primarily due to lower motor and non-motor fuel sales.
All Other: This unit reported gross profit of $73 million compared with $63 million in the comparable period of 2019. The year-over-year rise can be attributed to higher non-motor fuel sales.
In terms of volumes, the partnership sold 1.9 billion gallons of fuel in the reported quarter, down 2% year over year. Motor fuel gross profit per gallon was recorded at 13.1 cents in the quarter, higher than the year-ago level of 9.9 cents.
For the quarter ended Mar 31, 2020, Sunoco declared a quarterly cash distribution of 82.55 cents per unit, or $3.3020 on an annualized basis. Markedly, this distribution was flat on a sequential basis.
Adjusted distributable cash flow was $159 million in the first quarter compared with $99 million a year ago.
Total cost of sales and operating expenses in the reported quarter decreased to $3,354 million from $3,540 million in the year-ago period, primarily due to low cost of sales and impairment charges.
The partnership incurred gross capital expenditure of $41 million in the quarter under review, including $36 million in growth capital and $5 million of maintenance capital.
As of Mar 31, 2020, Sunoco had cash and cash equivalents of $31 million, higher than the fourth quarter’s $21 million. At first quarter-end, it had a net long-term debt of $2,896 million, marginally down from the fourth-quarter level. Its debt to capitalization was 84.2%.
Demand destruction caused by coronavirus-induced lockdowns and travel bans is affecting Sunoco’s 2020 fuel volumes and margins. As such, the partnership withdrew its guidance for fuel volumes, margins and profits.
It has reduced its 2020 capital guidance by decreasing full-year growth capital expenditures to almost $75 million. Maintenance capital expenditures will likely be around $30 million. For the rest of the year, the partnership is taking measures to reduce total operating expenses by $55-$70 million. For 2020, it lowered its guidance for operating expenses to the band of $460-$475 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 20.26% due to these changes.
At this time, Sunoco LP has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Sunoco LP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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