Sunoco LP Price & Performance (SUN)

In the fourth quarter, the partnership delivered adjusted EBITDA of $446,000,000 excluding approximately $7,000,000 of one time transaction expenses. We spent $74,000,000 on growth capital and $58,000,000 on maintenance capital. Fourth quarter distributable cash flows adjusted was $261,000,000 trailing twelve month coverage ratio at the end of the quarter was 1.9x, Turning to some key highlights from our full year 2024 our adjusted EBITDA excluding transaction related expenses was $1,560,000,000 representing a 62% increase compared to 2023. I'd like to now take a moment to review how we achieved these record annual results. First, we began 2024 with an adjusted EBITDA guidance range of $975,000,000 to $1,000,000,000 Even after the strategic divestiture of our West Texas assets in April, the strength of strength of our core business allowed us to maintain this guidance for the legacy Sunoco operations. Next, the Neustar acquisition closed in early May and we've revised our 2024 adjusted EBITDA guidance upwards. To be in a range of $1,510,000,000 to $1,570,000,000 including approximately $50,000,000 of synergies. I'm pleased to report that we delivered results at the high end of that adjusted range as a result of an efficient integration process coupled with our ongoing focus on strong operational execution and expense discipline.

Our liquidity position and balance sheet remains strong. At the end of twenty twenty four, we had approximately $1,300,000,000 of liquidity remaining on our revolving credit facility. Leverage at the end of the year was 4.1 times, flat to last quarter. As a reminder, when we announced the Neustra acquisition, we targeted being back at our four times leverage target within twelve to eighteen months following closing. We accomplished this goal within five months post close, which has put us in a position to focus on other elements of our capital allocation policy. To that end, on January 27, we declared an $0.8865 per unit distribution a 1.25% increase over last quarter. Strong financial performance, put the partnership in a position to implement this increase one quarter ahead of the typical timing for distribution increases. As we announced in late January, we are targeting a distribution growth of at least 5% this year. We expect to announce future increases on a quarterly basis. Our strong long term financial outlook track record of delivering accretive growth provide a clear path for continued distribution increases. I would like to conclude by stating that we are confident in our ability to meet our 2025 adjusted EBITDA guidance range.

Of $1,900,000,000 to $1,950,000,000 Our financial position remains strong enabling us to build on our track record of accretive growth while maintaining a healthy balance sheet and targeting a secure and growing distribution for our unitholders. With that, I will now turn it over to Carl to walk through some additional thoughts on our fourth quarter performance. Thanks, Scott. Good morning, everyone. Our results this quarter finished out a record year for Sonoco Sunoco we strengthened our portfolio and significantly grew our cash flows. With the addition of the NuStar assets, we now have a balanced mix between our fuel distribution business our midstream asset portfolio Each of our three segments demonstrated strong performance in 2024 and are set up to materially contribute to delivering on our 2025 guidance. Let me share some more perspective on our fourth quarter and full year results by segment. Starting with our Fuel Distribution segment, adjusted EBITDA was $192,000,000 compared to $253,000,000 last quarter and $2.00 $9,000,000 in the fourth quarter of twenty twenty three. We distributed 2,200,000,000 gallons up 1% versus last quarter and down 2% versus the fourth quarter of last year. Reported margin for the quarter was $0.106 per gallon compared to $0.128 per gallon last quarter and $0.118 per gallon for the fourth quarter of twenty twenty three.

Let me put the fourth quarter results in perspective. As I have shared in the past, the basis of our gross profit optimization strategy is to maximize what the market provides. This results in some quarters being higher volume and lower margin, and others presenting higher margin opportunities. When you look at our fourth quarter performance, and adjust for the sale of our West Texas retail business in the second quarter, our results were consistent with the fourth quarter of last year. Reinforcing that the segment results were very good this quarter. When we step back and look at the full year, the strength of our Fuel Distribution segment is even more apparent. We reported over $900,000,000 of adjusted EBITDA and we set a new fuel volume record even with the sale of West Texas and the movement of Transmixed processing margin to the terminal segment. While fourth quarter was in line with last year, our second and third quarter results were much stronger than last year. The best thing is that as we enter 2025, the same market dynamics and internal capabilities are in place for us to deliver another record year. We continue to believe in the resiliency of global refined product demand.

Many companies in the sector have understood this for why and we think the market is starting to understand that the products that we sell and distribute are going to be around for decades. In our pipeline systems segment, adjusted EBITDA for the fourth quarter was $193,000,000 Excluding $5,000,000 of transaction expenses, compared to $147,000,000 in the third quarter. On the volume side, we reported 1,400,000 barrels per day of throughput, This strong performance represents increased volumes across nearly all our major pipeline systems as a result of more consistent refinery operations as well as increases in seasonal demand growth in the Mid Con region. In addition, our financial performance was supported by some contractual true ups.

Our Permian joint venture with Energy Transfer continues to make progress on integrating the combined systems. With increases seen this quarter, and we expect that performance will continue to strengthen as we move into 2025. For the segment as a whole, we are looking forward to having a full year of contributions in 2025 and are confident our assets will continue to perform well. Moving on to our terminal segment, adjusted EBITDA for the fourth quarter was $61,000,000 excluding $2,000,000 of transaction expenses, compared to $70,000,000 in the third quarter. We reported around 600,000 barrels per day of throughput with some seasonal decreases relative to last quarter. Taking a step back and looking at the entire year, this segment delivered consistent and stable income and reliable operations and we are well positioned for 2025. Before I wrap up, me talk a little bit more about 2025. In December, we shared our guidance for the year. The growth in adjusted EBITDA to a range of $1,900,000,000 to $1,950,000,000 represents our confidence in our business and in the returns we will deliver from the investments that we have made. That confidence is supported by a strong portfolio of assets that will perform well in a variety of market conditions and proven capabilities of our organization to optimize and grow our asset base.

We feel just as good about this guidance today as we did two months ago when we shared it with you. Even with a larger portfolio of business, our focus remains the same, strong operational execution, commercial creativity and profit optimization and ensuring we deliver strong returns on capital that we deploy.

Will now turn it over to Joe to share his final thoughts. Joe? Thanks, Karl. Good morning, everyone. We delivered a very strong 2024. We came into the year financially healthy and we finished the year bigger and stronger than where we started.

Within a very eventful year, there are a few highlights that I want to point out. Neustar acquisition was obviously the headliner. This was a home run acquisition. The integration is done. Our balance sheet goals were achieved in less than six months. Synergies are flowing to the bottom line and thus for our equity holders, we've already delivered double digit accretion within the first year of ownership. This acquisition was obviously our biggest to date. But we have also shown our ability to deliver discipline value creating growth year after year. Here are a couple of insightful metrics that support this. First, our credit profile continues to improve, We've had multiple credit rating upgrades since 2022. Second, our DCF per common unit continues to grow. In fact, Sun is the only AMZI constituent to grow DCF per common unit for the last eight consecutive years. And most importantly, we expect both of these metrics to continue on an upward trajectory. Strategically, the addition of the NuStar assets provide income diversification. We now have three strong stable business segments. Looking forward, to remain very attractive in 2025 and beyond. We're off to a strong start and we expect 2020 Let me finish with one final thought.

We've gained a solid reputation as a thoughtful defensive play within the midstream sector. Given our ability to deliver strong results in volatile commodity environments as well as challenging macro environments such as inflation, even pandemics. I think it's well deserved and we fully expect to but let's also recognize that we are also a growth play. The products that we move and distribute will continue to fuel The U. S. And other economies across the world for decades to come. We have positioned ourselves to be a consolidator. We have a strong track record of identifying, delivering on value creating growth. And finally, our strong performance coupled with an equally strong financial outlook has resulted in distribution growth This is the third year in a row that we have stepped up percentage increase. We started with 2% then 4%, and now we have targeted at least a 5% annual increase for this year. Our ability to accretively grow positions us to increase distributions quarterly basis not only for 2025, but over a multi year period. Operator, that concludes our prepared remarks. You may open the line for questions.

Thank you. We'll now be conducting a question and answer session.

Thank you. And the first question today is from the line of Justin Jenkins with Raymond James.

Great. Thanks. Good morning, everyone. Carl, you hit on a lot of but I wanted to ask on fuel distribution in your opening remarks. But I'd maybe like to unpack some of the fourth quarter here. And your early outlook for 2025 it does seem like that lack of volatility that we had in both gasoline and diesel prices impacted fourth quarter fuel distribution results, but anything else that you maybe call out for 4Q and share early thoughts on 2025 business trends And then if I could just sneak in maybe your thoughts on tariffs and if or that would impact business and maybe generate opportunities for you guys? Yes, Justin. This is Austin.

Just a couple of quick housekeeping notes I want to make in reference to the CPG reference in your question, but and then I can get into the results and performance trends and kind of outlook going forward. As a reminder, as we've shared and as Carl alluded to in his prepared remarks, the divestiture of the West Texas business and the move to segment [indiscernible] was worth about a penny of reported CPG margins. That's just something to keep in mind going forward.

And separately, as we've shared in the past, I think the way that that we think about the business and certainly the way that we manage the business and maybe a helpful lens to kind of interpret the results is really fuel profit versus volume or margin, which we really don't target a specific number or optimize around either one of those variables independently. Now that said, looking at results, the fourth quarter was a strong quarter. If we take a step back and look at four Overall, it tracks very closely with how we describe the business, right? All the elements were there. So, we talk about Karl mentioned in his prepared remarks and we've shared in the past, there's going to be quarter to quarter variability in the business. But over a twelve month period, going to consistently grow. And when you look at 2024, That's exactly what happened, right? So we had quarter to quarter variability. In fact, I think the harshest criticism maybe you could levy against our fourth quarter results is just the fact that they followed two consecutive quarters in Q2 and Q3. Right? And so when you take the year at a whole, adjusted EBITDA for 2024 was up 5% year over year for the segment.

And that's without the benefit of our West Texas business for close to eight months. So the underlying fundamentals are as strong as ever for our fuel distribution business. Regarding our outlook for 2025, and beyond. There's a couple of things I'd share. First, the macro environment continues to be constructive. Breakevens remain elevated and we're seeing some signs of stabilization and recovery in demand for refined products based on last couple EIA prints. Looking at Sunoco specifically, we entered 2024 from a position of strength and momentum. And now with the NuStar acquisition under our belts, the business has never had a stronger foundation in terms of our asset base and scale. And so when you take that combined with our commercial teams and track record of execution, I mean the business is really well positioned for growth not just in 2025 but beyond.

Justin, this is Joe.

Let me take the back half of your question about about tariffs. As everybody knows, it's early. It's still exactly how everything going to play out still undetermined. But there are a couple of things that we do know. First is that all variables equal, we know the higher tariffs mean higher prices. And within a higher inflation scenario, I think, Sun, we have a very demonstrated good track record of delivering strong results in inflationary period. Our scale, our commercial capabilities our ability to manage expenses really pays off in this situation. The second thing that we know is that uncertainty leads to volatility. I think last week early last week was a good example of that. Whenever the news came out about the Mexico and Canada tariffs, we saw commodity prices skyrocket, pop really fast. I mean, as continuous news came out, it dropped right back down. Again, we do very well involved in commodity environments and we expect volatility to remain high on a going forward basis. The bottom line is we see this as an opportunity to distinguish ourselves and we feel very confident about our guidance that we put out for 2025 and we feel very confident ongoing for 2026 and beyond.

Awesome.

Super helpful. Thanks, Joe. Awesome. I guess second question, if I could. Is on growth CapEx of at least $400,000,000 Maybe help us understand the cadence of how you expect growth CapEx to be spent and maybe how long you think that growth CapEx run will persist Yes, Justin, this is Carl. There's a couple of pieces to that. Related to growth CapEx. Really, the first point I'll make is our growth CapEx is not made up of a lot of big projects. It's really what I call optimization capital, either signing up new customers in our fuel distribution business or some optimization of our assets particularly on the NuStar side, maybe to extract the synergies some of the commercial synergies we've talked about. So we have flexibility in those numbers. I mean, some of you saw that Our 24 capital spend was a little lighter than our original guidance. We had some slippage of projects into 2024. We've already accounted for that.

In our 2024 guidance.

But we have additional flexibility to flex that up and down as there are other opportunities. For example, roll up M and A opportunities if we think that there's more of those we can adjust that growth capital And then I think the final point is because of that flexibility, the time between when we spend the capital and when we're collecting the EBITDA or the cash flow from those is on the shorter side compared to maybe some other midstream companies. So I would expect you to see continued growth. I mean, we've talked about our DC per common unit growth. I think it's the combination of that M and A, extracting synergies and us putting growth [indiscernible] to bed that have delivered that.

Thank you. Next question is from the line of Theresa Chang with Barclays. Please proceed with your question. Good morning. I wanted to touch on some of your previous comments on the macro outlook. On recent refining earnings calls, there have been comments by management teams indicating their bullish for refined product demand. Or at least stability on a go forward basis and into the next decade? Can you share your outlook on refined product demand across your own assets?

Hey, Theresa, it's Joe. Theresa, as you know, we've been very consistent about our bullish view on the long term attractiveness of the refined product sector. However, lately, I believe the sector has been somewhat underlooked overlooked and undervalued. And one of the reasons could be the investor focus on AI and the impact on the natural gas market. I get it. It makes a whole lot of sense. But strong fundamentals and a strong futurality matter to Currently across the world, over 90% of transportation energy comes Refined Products Another 5% comes from renewable and you know that we all However, over the last five plus years, energy transition news has dominated the headlines making it sound like consumers will be driving EVs all over the place within a decade. And we all know that any attempt to do any major foundational change takes decades and decades. And also the pendulum of policy direction can change dramatically. Even recent examples really highlight this. Of EV subsidies and also around rolling back CAFE standards With all that said, I strongly believe that refined products will continue to fuel The U. S. And world economies for decades and decades to come.

And for Sun specifically, we're positioned as well as anybody to capitalize on it.

Thank you. And then just on the pipeline segment, would you be able to provide some more details on the volume cadence, the uplift that we saw recently when that primarily trip related? And then just the related EBITDA step ups and how should we think about forecasting this segment on a go forward basis?

Yes, you bet, Theresa. It's Karl again. Yes, our fourth quarter performance Pipeline Systems segment was strong and really I think highlighted what that segment can do when volumes are higher We added some additional help from MVCs in the quarter. On the EBITDA basis. I think there are a couple of contributions to that. Our Permian JV, you already saw some sequential growth from third quarter to fourth quarter. And then on the overall volumes which you referenced, I think the absence of any kind of major downtime of refineries that feed our pipeline system [indiscernible] And then in addition, a few of our pipeline systems are really tied to agricultural markets and so you had some seasonal strength in the fourth quarter. The only other comment on on forecasting that, I think similar to Austin's comments earlier on field distribution, we don't take any of our segments and say, hey, we're going to take a quarterly result, multiply by four and that's what our our annual result will be. I think we look at all of them over a twelve month rolling basis because they're going to be puts and takes, different contracts with MVCs or different seasonal demand or is always going to be some downtime on refineries, especially on these inland systems that feed our pipeline systems.

But we now have eight months under our belt of operating that segment and we like the asset base, we think it's going to be [indiscernible] going forward.

Thank you.

The next questions are from the line of Spiro Bimiss with Citi.

Please proceed with your questions.

Thanks, operator. Good morning, team. Wanted to go back to the distribution quickly and Joe pick up on some of your comments around at least 5% growth. That at least component is a slight change from some of the language in December. And so just curious, what's changed since then and what's the mechanism to accelerate that growth above 5%?

Hey, Spare, it's Joe. I'll repeat what I say constantly. One of our top capital allocation priorities is maintaining a stable and growing distribution And in my prepared remarks, I talked more about TCF for common units. That's really one of the foundations of why we have so much confidence We just delivered like I said, our eighth consecutive years of growing DCF for common unit. And more importantly, we've expect that trend to continue. So really us stating stepping up from two, four to five and putting at least on there is really just a reinforcement of the confidence we have in our business. That our fundamentals are looking good. Our ability to accretively grow while still managing the balance sheet We feel confident. We gave guidance in December for 2025. Fast forward to February right now, even with all the questions around tariffs [indiscernible] we feel just as confident or more confident that we're going to deliver '25 So I think the way you should probably take the total at least 5% is the floor for 2025 and we're and the takeaway should be not just for 2025 at least. I think you should take away that this is a multi [indiscernible] distribution increase that we would start administering on a quarterly basis.

Got it. Got it. Helpful color on that. One maybe just going to a bit of a cleanup item here. I think first quarter is typically when we see the seven Eleven makeup payments been a feature over the last few years. I know you don't explicitly guide to it. Maybe just help us understand what degree that could impact 1Q?

Yes, this is Austin. It's trending a little higher than the last than last year. So it's going to be approaching approximately $30,000,000 Thanks, Barry. Next question is from the line of Jeremy Tonet with JPMorgan. Please proceed with your questions.

This is Noah Katz on for Jeremy. Thanks for the question. First, I wanted to touch on any future accretive M and A going forward.

I know most recently you guys completed the acquisition of the Refined Products Terminal And Portland, Maine, but you've spoken about opportunities in both Europe and The Caribbean.

What does this opportunity set look like? And what is the potential size of these opportunities? Yes, Noah. This is Carl.

As you mentioned, a couple of our recent deals were in Europe earlier this year than in The Caribbean little over a year ago. And I think both of those areas geographies are interesting to us. But here's how we think about them. We use similar criteria that we use or we have used here in The United States, whether a target has stable cash flows, whether it has synergy opportunity, whether it has potential growth and ultimately the valuation that we pay to acquire the assets and both the Peerless deal in Puerto Rico and then the the Zenith deal that we did in Europe last year met those criteria. Now whenever you take a step into a new geography like that, the synergy potential is a little smaller.

Just because you don't have density in those markets. As we look for future growth, that only increased our possibility for synergies. And so those are both areas that we're interested in.

And just to give you a flavor of what we've done the Peerless deal that we did wasn't very big. In the scheme of things of our whole company, but already in about a year and a half, we've been able to double or I guess a little over two years. We've been able to double the EBITDA that we acquired. And so we think there's opportunities both in Europe and in The Caribbean One more comment on Europe. There might even be a parallel with California where at least in The United States, it's one of the most stringent low carbon fuel environments but that also comes with difficulties in building and expanding And as you look in California right now, our assets that we bought with NuStar, those are some of the most highly profitable and highly valuable assets that we have in our network And so we think that same possibility exists as we build our terminal network in Europe.

Thanks for that. And as a follow-up, can you provide any update on or incremental details on the crude and produced water JV with ET? Guys have any updated thoughts on EBITDA contribution or impact to results? Thanks.

Yes. I think I mentioned a couple of comments in my prepared remarks, but I mean the bottom line is we're super happy with it. I mean we've already seen some sequential growth from fourth quarter to third quarter. And the exciting thing is all the integration activities between the two systems aren't even complete. They're in progress. But I'd expect as we go into 2025, the value that's unlocked by combining those two systems will become more apparent And then it just provides a a bigger platform for growth. So we're excited as we look forward to 2025 and beyond.

Thank you.

Thank you.

There are no further questions at this time. I would like to turn the floor back to Scott Grishow for closing remarks.

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 Sunoco. So please feel free to reach out if you have any questions. Thanks for tuning in and always appreciate your support.

Thank you.

Does conclude today's teleconference.

Thank you for your participation. You may now disconnect your lines at this time.