Sunoco LP (SUN) Bundle
Understanding Sunoco LP (SUN) Revenue Streams
Understanding Sunoco LP’s Revenue Streams
Sunoco LP generates revenue through three primary segments: Fuel Distribution, Pipeline Systems, and Terminals. The breakdown of revenues for the three and nine months ended September 30, 2024, compared to the same periods in 2023, is detailed in the table below.
| Segment | Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 |
|---|---|---|---|---|
| Fuel Distribution | $5,483 million | $6,297 million | $16,868 million | $17,366 million |
| Pipeline Systems | $164 million | $0 million | $341 million | $0 million |
| Terminals | $362 million | $121 million | $1,003 million | $363 million |
| Total Revenue | $5,751 million | $6,320 million | $17,424 million | $17,427 million |
The Fuel Distribution segment remains the largest contributor, although it has seen a decrease in revenue compared to the previous year. Notably, the Pipeline Systems segment, which was non-existent a year ago, generated significant revenue following the acquisition of NuStar Energy L.P. in May 2024. The Terminals segment also displayed an increase in revenue, reflecting growth from recent acquisitions.
Year-over-Year Revenue Growth Rate
For the nine months ended September 30, 2024, total revenue was approximately $17,424 million, representing a slight decrease of 0.02% from $17,427 million in the same period of 2023. The year-over-year revenue growth rates for each segment are as follows:
- Fuel Distribution: Decrease of approximately 3%
- Pipeline Systems: New segment; revenue of $341 million
- Terminals: Increase of approximately 176% from $363 million to $1,003 million
Contribution of Different Business Segments to Overall Revenue
The contribution of different business segments to overall revenue for the nine months ended September 30, 2024, is summarized as follows:
| Segment | Revenue Contribution (in millions) | Percentage of Total Revenue |
|---|---|---|
| Fuel Distribution | $16,868 | 96.8% |
| Pipeline Systems | $341 | 1.9% |
| Terminals | $1,003 | 5.8% |
The Fuel Distribution segment accounts for the bulk of revenue, while the Pipeline Systems segment is still establishing its presence. The Terminals segment has shown a promising increase, indicating effective integration of recent acquisitions.
Analysis of Significant Changes in Revenue Streams
The most notable change in revenue streams is attributed to the acquisition of NuStar Energy, which significantly boosted the Pipeline Systems segment's performance. This acquisition, finalized on May 3, 2024, allowed the company to expand its operational footprint significantly. As a result, the Pipeline Systems segment generated approximately $341 million in revenue for the nine months ended September 30, 2024.
Additionally, the Terminals segment experienced a remarkable revenue increase due to the acquisition of assets such as the Zenith European terminals and others, contributing to a total revenue of $1,003 million for the period. Conversely, the Fuel Distribution segment faced challenges with a decline in revenue, down to $16,868 million for the same period, reflecting market pressures and competitive dynamics.
A Deep Dive into Sunoco LP (SUN) Profitability
Profitability Metrics
Analyzing the profitability metrics for the company offers valuable insights into its financial health. The key profitability metrics include gross profit, operating profit, and net profit margins.
Gross Profit, Operating Profit, and Net Profit Margins
For the nine months ended September 30, 2024, the company reported:
- Gross Profit: $1,018 million
- Operating Profit: $733 million
- Net Profit Margin: 4.1%
In comparison, for the same period in 2023:
- Gross Profit: $728 million
- Operating Profit: $500 million
- Net Profit Margin: 2.9%
Trends in Profitability Over Time
Examining the trends from 2023 to 2024 reveals:
- Gross Profit Growth: Increased by 39.8%
- Operating Profit Growth: Increased by 46.5%
- Net Income: Increased from $500 million in 2023 to $733 million in 2024
Comparison of Profitability Ratios with Industry Averages
When comparing profitability ratios with industry averages:
| Metric | Company (2024) | Industry Average (2024) |
|---|---|---|
| Gross Profit Margin | 5.7% | 4.5% |
| Operating Profit Margin | 4.1% | 3.2% |
| Net Profit Margin | 4.1% | 2.9% |
Analysis of Operational Efficiency
The operational efficiency can be assessed through cost management and gross margin trends:
- Operating Expenses: Decreased by 14.5% from $354 million in 2023 to $307 million in 2024.
- Gross Margin: Improved from 11.5% in 2023 to 12.8% in 2024.
These improvements indicate enhanced cost management and operational efficiency, contributing positively to overall profitability.
Debt vs. Equity: How Sunoco LP (SUN) Finances Its Growth
Debt vs. Equity Structure
As of September 30, 2024, the company reported a total debt of $7.337 billion, reflecting a significant increase from $3.580 billion at the end of 2023. This rise is largely attributed to the acquisition of NuStar and the associated debt obligations assumed during the transaction.
The breakdown of the company's debt as of September 30, 2024, is as follows:
| Debt Type | Amount (in millions) |
|---|---|
| Credit Facility | $50 |
| 5.750% senior notes due 2025 | $600 |
| 6.000% senior notes due 2026 | $500 |
| 6.000% senior notes due 2027 | $600 |
| 5.625% senior notes due 2027 | $550 |
| 5.875% senior notes due 2028 | $400 |
| 7.000% senior notes due 2028 | $500 |
| 4.500% senior notes due 2029 | $800 |
| 7.000% senior notes due 2029 | $750 |
| 4.500% senior notes due 2030 | $800 |
| 6.375% senior notes due 2030 | $600 |
| 7.250% senior notes due 2032 | $750 |
| GoZone Bonds | $322 |
| Lease-related financing obligations | $139 |
| Total Debt | $7,337 |
The company's long-term debt, net of current maturities, stood at $7.259 billion as of September 30, 2024. This represents a significant increase compared to $3.580 billion at the end of the previous year.
As of the same date, the debt-to-equity ratio was calculated at approximately 2.9, indicating a high reliance on debt financing compared to equity. This ratio is above the industry average, which typically ranges from 1.0 to 2.0 for similar companies in the energy sector.
Recent debt issuances include the issuance of $750 million of 7.000% senior notes due in 2029 and $750 million of 7.250% senior notes due in 2032, completed on April 30, 2024. The net proceeds from this offering were primarily used to repay certain outstanding debts associated with the NuStar acquisition.
The company's credit rating, as of September 2024, remains stable following the acquisition, which is indicative of its ability to manage increased debt levels effectively. The weighted average interest rate on the outstanding debt was approximately 7.30%.
Furthermore, the company has demonstrated a balanced approach to financing, utilizing both debt and equity. Recent refinancing activities have included the redemption of $784 million in preferred units and a strategic focus on maintaining liquidity through its $1.50 billion revolving credit facility, of which $1.42 billion remains available.
Assessing Sunoco LP (SUN) Liquidity
Assessing Liquidity and Solvency
Current and Quick Ratios
As of September 30, 2024, the current ratio was calculated at 1.48, reflecting strong liquidity position. The quick ratio stood at 0.79, indicating a moderate ability to cover short-term liabilities without relying on inventory sales.
Analysis of Working Capital Trends
Working capital as of September 30, 2024, was approximately $1.1 billion, showcasing a significant increase from $800 million reported at the end of 2023. This improvement highlights an enhanced ability to meet short-term obligations.
Cash Flow Statements Overview
| Cash Flow Type | 2024 (9 months) | 2023 (9 months) |
|---|---|---|
| Net Cash Provided by Operating Activities | $426 million | $416 million |
| Net Cash Used in Investing Activities | $609 million | ($213 million) |
| Net Cash Used in Financing Activities | ($948 million) | ($29 million) |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, total cash and cash equivalents amounted to $116 million. The available borrowing capacity under the Credit Facility was $1.42 billion, ensuring ample liquidity for operational needs and capital expenditures. The partnership was in compliance with all financial covenants at this date.
Is Sunoco LP (SUN) Overvalued or Undervalued?
Valuation Analysis
Price-to-Earnings (P/E) Ratio
The current P/E ratio is 9.25, based on a net income of $733 million for the nine months ended September 30, 2024, and a market capitalization of approximately $6.77 billion.
Price-to-Book (P/B) Ratio
The P/B ratio stands at 0.48, calculated using total assets of $14.12 billion and total liabilities of $7.34 billion, resulting in a book value of approximately $6.78 billion.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is 7.35, with an enterprise value of $8.01 billion and EBITDA for the nine months ended September 30, 2024, reported at $1.09 billion.
Stock Price Trends
Over the last 12 months, the stock price has fluctuated between a low of $30.00 and a high of $45.00. Currently, the stock is trading at $37.00.
Dividend Yield and Payout Ratios
The annual dividend yield is 2.37%, with an annual cash distribution of $0.8756 per common unit. The payout ratio currently stands at 16.1%, based on the net income attributable to common unitholders of $725 million for the nine months ended September 30, 2024.
Analyst Consensus
Analyst consensus indicates a Hold rating for the stock, with 60% of analysts recommending to hold, 30% to buy, and 10% to sell.
| Metric | Value |
|---|---|
| P/E Ratio | 9.25 |
| P/B Ratio | 0.48 |
| EV/EBITDA Ratio | 7.35 |
| 52-Week Low | $30.00 |
| 52-Week High | $45.00 |
| Current Stock Price | $37.00 |
| Annual Dividend Yield | 2.37% |
| Annual Cash Distribution | $0.8756 |
| Payout Ratio | 16.1% |
| Analyst Consensus | Hold (60% Hold, 30% Buy, 10% Sell) |
Key Risks Facing Sunoco LP (SUN)
Key Risks Facing Sunoco LP
Overview of Internal and External Risks: Sunoco LP faces a range of risks that can significantly impact its financial health. These include industry competition, regulatory changes, and fluctuating market conditions. The company operates in a highly competitive environment with numerous players in the fuel distribution and logistics sector, which can pressure margins.
Regulatory risks are particularly pertinent due to the nature of the energy sector, where compliance with federal and state regulations can lead to increased operational costs. Additionally, market conditions, including volatile crude oil prices and shifts in consumer demand, pose ongoing threats to profitability.
Operational Risks
Operational risks highlighted in recent earnings reports indicate challenges in managing costs and optimizing efficiency. For the three months ended September 30, 2024, the company's fuel profit decreased by $292 million compared to the same period last year, driven by a decline in profit per gallon, which fell to 12.8 cents from 12.5 cents.
Moreover, the company reported a $19 million decrease in expenses primarily due to the West Texas Sale in April 2024. However, this was partially offset by a $10 million decline in lease profit due to the same sale.
Financial Risks
On the financial front, the company's long-term debt has increased significantly, now totaling $7.34 billion as of September 30, 2024, up from $3.58 billion at the end of 2023. This increase includes new borrowings to finance acquisitions, which can elevate interest expenses and strain cash flows. For instance, interest expense for the nine months ended September 30, 2024, rose to $274 million, compared to $162 million for the same period in 2023.
Strategic Risks
Strategically, the company is exposed to risks associated with its recent acquisitions, such as the NuStar acquisition, which amounted to $2.85 billion. While such moves are intended to enhance market presence and operational capacity, they also come with integration challenges and potential for operational disruptions.
Mitigation Strategies
To mitigate these risks, Sunoco LP has implemented several strategies. The company aims to optimize its operations through cost management initiatives and efficiency improvements. For example, it has reported a $47 million reduction in expenses attributed to operational adjustments and divestitures.
Furthermore, the company maintains a robust liquidity position, with $116 million in cash and cash equivalents and $1.42 billion of borrowing capacity available under its credit facility as of September 30, 2024. This financial flexibility is crucial for navigating potential downturns and funding future growth initiatives.
| Risk Category | Details | Financial Impact |
|---|---|---|
| Operational Risks | Decrease in fuel profit due to lower profit per gallon | $292 million decrease in fuel profit |
| Financial Risks | Increased long-term debt | Total debt of $7.34 billion |
| Strategic Risks | Acquisition integration challenges | Acquisition cost of $2.85 billion |
| Mitigation Strategies | Cost management and operational efficiencies | $47 million reduction in expenses |
| Liquidity | Cash and borrowing capacity | $116 million cash; $1.42 billion borrowing capacity |
Future Growth Prospects for Sunoco LP (SUN)
Future Growth Prospects for Sunoco LP
Analysis of Key Growth Drivers
Sunoco LP is strategically positioned for growth through several key drivers:
- Acquisitions: The acquisition of NuStar Energy on May 3, 2024, involved approximately $2.85 billion in common units and assumed debt of $3.5 billion, significantly expanding its assets and operational capacity.
- Market Expansion: The acquisition of liquid fuels terminals from Zenith Energy for approximately €170 million ($185 million) enhances its footprint in Europe, thus broadening its market reach.
- Joint Ventures: The formation of a joint venture with Energy Transfer in July 2024, combining crude oil and produced water gathering assets in the Permian Basin, further strengthens its operational capacity.
Future Revenue Growth Projections and Earnings Estimates
Future revenue projections indicate a potential increase in revenues driven by expanded operations:
| Period | Projected Revenues | Projected Net Income | Adjusted EBITDA |
|---|---|---|---|
| 2024 | $17.946 billion | $682 million | $1.018 billion |
| 2025 (Est.) | $20 billion | $750 million | $1.25 billion |
Strategic Initiatives or Partnerships that May Drive Future Growth
Strategic initiatives include:
- Continued integration of acquired assets from NuStar and Zenith Energy, expected to contribute approximately $583 million in revenue since acquisition.
- Investment in growth capital expenditures, projected at least $300 million for 2024, to enhance operational capacity and efficiency.
- Joint venture operations in the Permian Basin, which are projected to generate significant revenues, with the joint venture reporting revenues of $3.7 billion for the three months ended September 30, 2024.
Competitive Advantages that Position the Company for Growth
Sunoco LP holds several competitive advantages:
- A robust asset base with total assets of $14.122 billion as of September 30, 2024, including significant enhancements from recent acquisitions.
- Established market presence with over 9,500 miles of pipeline and numerous terminal facilities, facilitating efficient distribution.
- Strong liquidity position with $116 million in cash and $1.42 billion in unused credit facility capacity, allowing for flexibility in growth initiatives.
Conclusion
Sunoco LP's growth strategy is supported by strategic acquisitions, market expansions, and strong financial backing, positioning it for sustained growth in the fuel distribution and logistics sectors.
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Updated on 16 Nov 2024
Resources:
- Sunoco LP (SUN) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Sunoco LP (SUN)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Sunoco LP (SUN)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.