DALLAS -- “[The year] 2016 … was really a transformative year,” CEO Bob Owens said during Sunoco LP’s fourth-quarter earnings call. It was a year that saw dropdowns, corporate consolidations, acquisitions and turnpike growth, all of which should make 2017 a big year for the company.
Here are seven highlights of Sunoco’s 2016 performance …
“We began the year with the completion of the final dropdown from Energy Transfer Partners (ETP) late in the first quarter,” Owens said on the call. “Shortly thereafter, we announced the opening of our corporate headquarters in Dallas, which consolidated our corporate infrastructure close to that of our parent, Energy Transfer Equity (ETE). Integration efforts also continued to be a focus in 2016, as we consolidated offices, people and systems across the company.”
These initiatives increased expenses for Sunoco in 2016, but Owens said he is “confident these figures will decrease in 2017 as synergies and benefits from the 2016 consolidation initiatives come online.”
Owens said tuck-in acquisition activity continued in 2016 with the addition of new retail stores and new dealers and distributors.
- In October 2016, Sunoco LP closed on the Denny Oil acquisition, which included six company-operated c-stores along with fuel supply contracts with approximately 127 wholesale dealers and 500 commercial customers in eastern Texas and Louisiana.
- In August 2016, it acquired the fuels business from Emerge Energy Services LP.
- In June 2016, it acquired 14 c-stores and the wholesale fuel business in the Austin, Houston and Waco, Texas, markets from Kolkhorst Petroleum Inc.
- In June 2016, it acquired 18 c-stores in upstate New York from Valentine Stores Inc.
3. Store openings
During the quarter, Sunoco LP opened 14 sites, for a total of 28 new sites in 2016. It opened an additional 10 sites after Jan. 1. Most of the capital for these 10 sites was spent during 2016, the company said.
Most of the company’s new-to-industry (NTI) sites were in the Houston and San Antonio metropolitan areas. It also opened new sites in Louisiana, South Carolina, metropolitan Nashville and one location at the Dulles International Airport in Virginia.
For the full year, Sunoco invested $332 million in growth capital and $106 million for maintenance capital. In 2017, it expects to spend approximately $200 million on growth capital and approximately $90 million on maintenance capital, the company said. Growth capital spending includes one additional NTI, as well as rebuilding locations it now operates on the Indiana Toll Road.
4. Turnpike development
In May 2016, Sunoco LP finalized an agreement with the Indiana Toll Road Concession Co. to develop and operate eight travel plazas along the 150-mile toll road.
“Sunoco has a large presence on a number of turnpikes and toll roads including the New York Throughway, the New Jersey Turnpike, the Atlantic City Expressway, the Garden State Parkway, the Pennsylvania Turnpike, the Ohio Turnpike and locations along I-95 in Delaware and Maryland,” Owens said. “We're excited to continue this expansion westward through the state of Indiana. You now can drive from New York to Chicago and be served by Sunoco plazas the entire route.”
Sunoco LP reported a net loss in the quarter of $585 million vs. net income of $16.5 million a year ago, CFO Tom Miller said on the call. The loss was driven by impairment charges to both intangible assets and goodwill totaling $674 million. Of that total, $642 million was related to a goodwill impairment charge to retail, “the result of changes in our organizational and capital structure following the completion of the dropdown transactions from ETP and reduced planned [NTI] sites.”
The remaining $32 million was related to an intangible asset impairment for Laredo Taco Company and stemmed from fewer planned NTI sites and declining sales volume in the oil-producing region.
General and administrative expenses increased $17.9 million from fourth-quarter 2015 to $67.2 million primarily due to acquisition costs and expenses incurred with opening a corporate office in Dallas.
For fourth-quarter 2016, Sunoco LP’s revenue totaled $4.3 billion, an increase of 4.9%, compared to $4.1 billion in fourth-quarter 2015. The increase was the result of growth in wholesale and retail fuel gallons sold and higher merchandise sales, partly offset by a 1-cent-per-gallon decrease in the average selling price of fuel, the company said.
Same-store merchandise sales were flat during the quarter, reflecting growth in Sunoco's East Coast operations offset by continued weakness in c-store operations in Texas. Same-store gallons decreased by 1.9% as a result of weakness statewide, particularly in the state’s oil-producing regions.
Sunoco has approximately 140 c-stores in the Permian Basin and Eagle Ford areas.
In those regions, same-store merchandise sales decreased by 4.2%, and same-store gallons declined 3.9%. Excluding those regions, same-store merchandise sales increased by 0.7%, and same-store gallons decreased by 1.7%.
During the call, Owens put in a plug for the 59th Daytona 500 NASCAR race. (On Feb. 26, Kurt Busch won his first Daytona 500, passing Kyle Larson on the final lap—the only lap Busch led in the race.)
Sunoco is entering its 14th year as the official fuel of NASCAR and has supplied more than 1,300 races for more than 7 million miles driven.
“This position provides a great halo for our consumer-branded sales efforts,” he said.
Dallas-based Sunoco LP is a master limited partnership (MLP) that operates 1,345 c-stores (including the APlus, Stripes, Aloha Island Mart and Tigermarket brands) and distributes motor fuel to 7,845 c-stores, independent dealers, commercial customers and distributors in 30 states. Its parent, Energy Transfer Equity LP, owns Sunoco's general partner and incentive distribution rights.