Sunoco LP Common Units (SUN) Q4 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call reflects a positive sentiment due to strong financial performance, strategic acquisitions, and optimistic guidance. The Parkland acquisition is expected to generate significant synergies, and the company is on track to achieve its EBITDA guidance. The Q&A section highlights stable demand, attractive growth opportunities, and confidence in exceeding synergy targets. Despite slight decreases in some segments, the overall outlook is favorable, with plans for continued distribution growth and bolt-on acquisitions. The positive sentiment is supported by the company's strategic focus and financial flexibility.

Key Financial Performance

Adjusted EBITDA (Q4 2025) $706 million, excluding approximately $60 million of one-time transaction expenses. This reflects the ongoing strength of operations and the contribution from the Parkland acquisition.

Growth Capital Spending (Q4 2025) $130 million. This spending is part of the capital deployment strategy to support growth.

Maintenance Capital Spending (Q4 2025) $103 million. This spending is aimed at maintaining operational stability.

Distributable Cash Flow as Adjusted (Q4 2025) $442 million. This marks a strong cash flow performance for the quarter.

Trailing 12-Month Coverage Ratio (2025) 1.9x. This indicates a strong financial position and ability to cover distributions.

Adjusted EBITDA (Full Year 2025) $2.12 billion, a 36% increase over the prior year. This growth was driven by solid underlying growth in the base business, a full year of contribution from the NuStar acquisition, and approximately 2 months from Parkland.

Revolving Credit Facility Availability (End of 2025) $2.5 billion. This highlights a strong liquidity position.

Leverage Ratio (End of Q4 2025) Approximately 4x, in line with the long-term target.

Fuel Distribution Segment Adjusted EBITDA (Q4 2025) $391 million, excluding $59 million of transaction expenses. This is up from $192 million in Q4 2024, reflecting strength in legacy operations and contributions from Parkland.

Fuel Distribution Volume (Q4 2025) 3.3 billion gallons, up 54% year-over-year. This growth is attributed to effective capital deployment and roll-up M&A transactions.

Reported Margin per Gallon (Q4 2025) $0.177 per gallon, compared to $0.106 per gallon in Q4 2024. The increase is due to higher-margin geographies and channels from the Parkland acquisition.

Pipeline Systems Segment Adjusted EBITDA (Q4 2025) $187 million, compared to $193 million in Q4 2024. The slight decrease is attributed to seasonal and operational factors.

Terminal Segment Adjusted EBITDA (Q4 2025) $87 million, up from $61 million in Q4 2024. The increase is driven by the inclusion of terminal income from the Parkland acquisition.

Terminal Segment Throughput (Q4 2025) 715,000 barrels per day, up from Q4 2024. The increase is due to the Parkland acquisition.

Refining Segment Adjusted EBITDA (Q4 2025) $41 million, excluding $1 million of transaction expenses. This reflects approximately 2 months of operations post-Parkland acquisition.

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Operating Highlights

New Refining Segment: Introduced a new refining segment with an adjusted EBITDA of $41 million for the fourth quarter, reflecting two months of operations post-Parkland acquisition. The refinery supports the fuel distribution business in Western Canada.

Geographic Expansion: Expanded operations to 32 countries and territories, becoming the largest independent fuel distributor in the Americas. The Parkland and TanQuid acquisitions contributed to this growth.

Canadian and Caribbean Markets: Optimized volumes in Canada and the Caribbean, with Canada showing higher stability and margins compared to the U.S. business.

Record Adjusted EBITDA: Achieved a record adjusted EBITDA of $2.12 billion for 2025, a 36% increase over the prior year, driven by acquisitions and operational growth.

Fuel Distribution Growth: Distributed 3.3 billion gallons in Q4, up 44% from the previous quarter and 54% from Q4 2024. Margins increased due to higher-margin geographies and channels from the Parkland acquisition.

Pipeline and Terminal Segments: Pipeline systems reported adjusted EBITDA of $187 million in Q4, while the terminal segment achieved $87 million, boosted by the Parkland acquisition.

Parkland Acquisition: The acquisition is expected to deliver $250 million in annual synergies, with $125 million anticipated in 2026. Integration efforts are progressing well.

Capital Allocation Strategy: Planned $400-$450 million in maintenance capital and $600 million in growth capital projects for 2026, focusing on quick-return investments and acquisitions.

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Risk or Challenges

Integration of Parkland acquisition: The integration of the Parkland acquisition is ongoing, and while progressing well, it involves complexities and potential risks related to achieving the expected synergies and operational alignment.

Refinery maintenance turnaround: A planned 50-day maintenance turnaround at the refinery in early 2026 could temporarily disrupt operations and impact financial performance during this period.

Capital allocation for maintenance: The expected maintenance capital expenditure of $400-$450 million, including the refinery turnaround, represents a significant cost that could strain financial resources if not managed effectively.

Economic and market volatility: The company operates in a volatile commodity environment, which could impact fuel profit margins and overall financial performance.

Geographic and operational expansion: The expansion into 32 countries and territories, including Canada and the Caribbean, introduces risks related to managing diverse regulatory environments, operational complexities, and potential geopolitical challenges.

Synergy realization from acquisitions: The company expects to realize $125 million of the $250 million annual synergy target in 2026. Failure to achieve these synergies could impact financial projections and investor confidence.

Supply chain and channel optimization: Efforts to optimize supply chains and operational channels in new geographies, such as Canada and the Caribbean, carry risks of inefficiencies or delays in achieving desired outcomes.

High leverage levels: The company’s leverage ratio of approximately 4x, while in line with targets, could pose risks if market conditions deteriorate or if additional debt is required for future acquisitions.

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Guidance & Outlook

2026 Adjusted EBITDA Guidance: Expected to range between $3.1 billion to $3.3 billion, reflecting confidence in the accretive value of the Parkland acquisition.

Synergy Realization: Anticipated to achieve $125 million of the total $250 million annual synergy target in 2026, with integration progressing well.

Maintenance Capital Expenditures: Projected to be in the range of $400 million to $450 million, including a planned 50-day maintenance turnaround at the refinery in Q1 2026.

Growth Capital Projects: At least $600 million allocated for quick spend, quick return capital projects and acquisitions, with a floor included in expectations for the first time.

Distribution Growth: Minimum of 5% annual growth in 2026, with continued growth expected over a multiyear period.

Bolt-on Acquisition Opportunities: At least $500 million of bolt-on acquisition opportunities expected annually for the foreseeable future.

Refining Segment Outlook: Focus on stabilizing and improving operations, with the refinery being a critical part of the supply chain for the fuel distribution business in Western Canada.

Fuel Distribution Segment Growth: Confidence in continued growth in fuel profit and EBITDA, supported by strong underlying businesses, geographic diversity, and supply optionality.

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Shareholder Return Plan

Quarterly Distribution Increase: Declared a distribution of $0.9317 per common unit for Sunoco LP common units and Sunoco Corp. shares, representing a 1.25% increase over the prior quarter. This marks the fifth consecutive quarterly distribution increase.

Annual Distribution Growth Rate: Projected a multiyear path for an annual distribution growth rate of at least 5%.

Distribution Growth History: Sunoco has increased its distribution for the last 3 years and expects continued growth over a multiyear period.

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Key Q&A

Q:How is demand trending across your footprint pro forma Parkland, and can you explain the drivers of the $0.177 per gallon metric?

A:Demand in the U.S. has been flat to slightly off year-over-year, but Sunoco outperformed due to growth capital deployment. Margins remain bullish due to elevated breakevens. In Canada, demand has been flat to slightly up, with strong margins in high-barrier markets. The Caribbean shows strong demand, driven by markets like Guyana with 20%+ GDP growth. Margins are stable in regulated markets and advantageous in free-market regions. The $0.177 per gallon metric reflects a higher margin profile post-acquisition, but quarter-to-quarter variability is expected. Sunoco focuses on fuel profit and sustained EBITDA growth rather than targeting a specific CPG number.

Q:Can you walk us through the pro forma terminaling portfolio post-integration of Parkland and Tankland, and where do you see the most attractive growth opportunities?

A:The terminaling portfolio spans the U.S., Canada, Caribbean, and Europe. Infrastructure supports fuel distribution in some regions (e.g., Caribbean) and serves as critical supply chain assets in others (e.g., Europe). Growth opportunities include quick capital projects and M&A to expand the footprint. The approach is to fully utilize assets and pursue vertical integration where applicable.

Q:What is the outlook for bolt-on M&A, and how does it relate to the $500 million annual target?

A:Sunoco plans at least $500 million in bolt-on acquisitions annually, viewing this as a sustainable floor. The U.S. remains the foundation, but opportunities in Canada, the Caribbean, and Europe are also being pursued. Valuations remain attractive due to Sunoco's ability to bring material synergies. The $500 million target is considered a baseline, with potential for higher activity depending on opportunities.

Q:How do bolt-on acquisitions impact the SUNC dividend and SUN distribution equivalents?

A:Minimal corporate income taxes are expected for at least 5 years, supported by growth investments. This tax profile helps maintain the distribution equivalence between SUNC and Sunoco LP. Material growth could further enhance the tax position and distribution sustainability.

Q:Will the $500 million in bolt-on acquisitions be U.S.-based or across the entire footprint?

A:The $500 million will be across the entire footprint, including the U.S., Canada, Caribbean, and Europe. The best projects will be prioritized regardless of geography.

Q:What is the impact of the greenhouse gases endangerment finding revision on Sunoco?

A:In the short term, there is no impact on Sunoco. Longer term, it is bullish for refined products. Increased complexity from state-by-state regulations could benefit Sunoco due to its scale and ability to navigate such environments.

Q:What would it take to see distribution growth above 5%?

A:Sunoco is focused on multiyear growth in distribution, balancing short-term and long-term goals. The exact allocation of growth capital will be optimized, and more clarity will be provided as the year progresses.

Q:Where do you see the greatest M&A opportunities, and is there a ceiling on M&A activity?

A:Opportunities exist in midstream, fuel distribution, and across all geographies. There is no ceiling on M&A activity, with $500 million as a baseline for bolt-on acquisitions. Sunoco is well-positioned financially to pursue larger opportunities if they arise.

Q:How do you feel about the synergy target for the Parkland acquisition, and is there potential to exceed it?

A:Sunoco is confident in achieving the $125 million synergy target for 2026 and expects to exceed it. The focus is on delivering synergies quickly while maintaining a strong base business. The Parkland acquisition is viewed as a significant success.

Q:Review of Unclear Management Responses

A:Management avoided providing a specific CPG number for the $250 million synergy target, emphasizing variability and a focus on fuel profit and EBITDA growth instead. Additionally, they did not specify what would drive distribution growth above 5%, stating that the allocation of growth capital would be optimized over time.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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