Sunoco Moves Forward After Dropdown Completion


HOUSTON — Sunoco LP is eyeing the road ahead as it moves past the completed dropdown of all retail assets from Energy Transfer Partners LP (ETP) to Sunoco.

Sunoco President and CEO Robert Owens discussed the company's future during its first-quarter earnings call on Thursday.

"I'd like to say how excited I am about completing this growth strategy that we laid out to investors just over two years ago," Owens said. "It was a significant undertaking for our finance, accounting and legal teams, and I would personally like to take this time to publicly thank them for their efforts."

As CSNews Online previously reported, ETP completed the dropdown of all remaining retail marketing and wholesale assets to Sunoco on March 31. This $2.226-billion transaction included ETP's remaining 68.42-percent interest in Sunoco LLC and 100-percent interest in Sunoco Retail LLC, which owns the legacy Sunoco convenience store business. The deal had an effective date of Jan. 1.

The transaction was funded with a mix of debt and equity, and importantly it completed the transformative dropdown strategy that was first announced in April 2014, when ETP acquired Susser Holdings Corp., according to Owens.

The first quarter of 2016 also saw Sunoco finalize a 20-year concession agreement with the Indiana Turnpike Authority to operate eight travel plazas along the 150-mile toll road. "The agreement is important to us as it completes a series of contiguous sites on turnpikes that run from New York to Illinois," Owens explained.

The first series of plaza reconstruction projects will begin in the third quarter of this year. Sunoco expects the total construction period to last about two years.

Q1 Financial Results

In terms of performance for the quarter, despite some latent market headwinds against certain parts of the company's business, Sunoco LP delivered solid results overall, with year-over-year growth in retail merchandise sales of 8.5 percent and growth in retail fuel sales of 3.2 percent. These increases included the addition of 40 new locations built through its growth capex program and about 41 retail sites the company acquired through third-party acquisitions.

Retail merchandise sales totaled $524.1 million, and the gross profit percentage of the sales was 31.7 percent, an increase of 100 basis points from the first quarter of 2015.

Same-store merchandise sales increased by 2.8 percent, reflecting strong performance across all of Sunoco's convenience store brands.

On a year-over-year basis, total fuel volumes decreased 2.4 percent to 1.8 billion gallons for the three months ended March 31. This was largely due to inclement weather on the East Coast during the quarter, Owens cited. Same-store fuel sales decreased by roughly 1 percent, primarily as a result of the inclement East Coast weather, as well as lower activity in the oil patch areas of Texas. 

However, excluding the oil-producing areas of south and west Texas, same-store fuel sales increased by 1.1 percent, while same-store merchandise sales increased by 5.9 percent, the chief executive pointed out. The oil patch stores represent just upwards of 10 percent of Sunoco's total retail portfolio now that the dropdowns have been completed, according to Owens. 

"I continue to be confident that if you consider the performance of our other stores in very attractive markets such Hawaii, Washington, D.C., Nashville and Philadelphia, and the many stores we own and operate up and down the I-95 corridor, we feel very comfortable with our exposure in the oil patch," he said. "Texas is a large and highly diversified state, and oil production is only one aspect of its economy. 

"Over the next several years, we believe we will continue to look and find organic growth and expansion opportunities in areas of the state that are less impacted by oil price cycles," Owens continued. 

Excluding the oil-producing regions, Texas still represents some of Sunoco's best opportunities within its retail portfolio for continued organic growth, the CEO noted.

"Now that the era of dropdown acquisitions from Energy Transfer Partners is behind us, we will continue to focus on growing the business and cash flow for our unitholders, whether it's organically from our new-to-industry program — over 124 new stores built in the last four years alone — or the best-in-class operational performance that continues to generate same-store sales growth year in and year out, or finally from third-party acquisition opportunities," Owens said. 

"We've spent over $350 million just since December 2014. With that, Sunoco LP will continue our efforts to increase not only our size, our scale and our geographic diversity, but ultimately returns to our unitholders," he added.

Sunoco LP is a master limited partnership that operates approximately 1,340 convenience stores, including the APlus, Stripes, Aloha Island Mart and Tigermarket brands, and retail fuel sites. It distributes motor fuel to c-stores, independent dealers, commercial customers and distributors located in 30 states at approximately 6,800 sites. Houston-based Energy Transfer Equity LP owns Sunoco's general partner and incentive distribution rights. 

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