Sunoco LP(SUN) - 2020 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company recorded a net loss of $128 million, which included a $227 million non-cash inventory adjustment due to a decline in RBOB prices [6] - Adjusted EBITDA was $209 million, an increase from $153 million in Q1 2019 [7] - Fuel volumes totaled 1.9 billion gallons, down 2% year-over-year [7] - Fuel margin increased to $0.131 per gallon from $0.099 per gallon in the same period last year [8] - Distributable cash flows adjusted were $159 million, yielding a coverage ratio of 1.84 times [10] Business Line Data and Key Metrics Changes - Total operating expenses increased to $143 million, which included a $16 million credit loss expense [9] - The increase in operating expenses was primarily due to the financial impact of COVID-19 and lower oil prices on the Energy Services business [9] Market Data and Key Metrics Changes - In April, fuel volume was down approximately 40% year-over-year, with a recovery trend noted in May showing a decrease of roughly 30% year-over-year [21][22] - The company observed that states lifting stay-at-home orders had a positive impact on volumes, while even states with ongoing restrictions showed a positive trend since mid-April [39] Company Strategy and Development Direction - The company has reduced its projected 2020 growth capital to $75 million, down over 40% from initial guidance of $130 million [16] - Maintenance capital was reduced to approximately $30 million, down a third from initial guidance of $45 million [16] - The company aims to manage operating costs and capital expenditures tightly as the economy recovers [18] - The strategy remains focused on organic growth rather than M&A, although opportunities in traditional midstream assets are not excluded [46] Management's Comments on Operating Environment and Future Outlook - Management withdrew previous guidance on 2020 fuel volume margin and adjusted EBITDA due to uncertainty from the COVID-19 pandemic [14] - The company believes it will weather the storm and emerge stronger, with a solid foundation and ample liquidity [23][45] - Management expects margins to remain robust due to current volatility in crude prices, which has historically supported higher margins [26][76] Other Important Information - The company declared a distribution of $0.8255 per unit, the same as the previous quarter [11] - The company has taken proactive measures to reduce capital and operating costs, aiming for cash savings between $125 million and $140 million [17] Q&A Session Summary Question: Outlook and expectations regarding margins - Management indicated that margins have remained above normal ranges and will depend on gasoline and diesel price movements and volume recovery [33][34] Question: Impact of stay-at-home orders on volumes - Management noted that states with lifted restrictions saw volume increases, while positive trends were also observed in states with ongoing restrictions [39] Question: M&A strategy and growth opportunities - Management stated that while the focus is on prudent decisions, they are open to M&A opportunities as the market stabilizes [46] Question: Credit loss provisions and ongoing issues - Management confirmed that the $16 million credit loss reserve was related to COVID-19 impacts and expectations around credit losses [58] Question: Diesel demand and West Texas exposure - Diesel demand declined later than gasoline, with West Texas showing resilience despite lower oil prices [62][64] Question: Legal settlements and future impacts - Management advised that the recent legal settlement should be viewed as a one-time item, with no large settlements anticipated on the horizon [68]