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Why Is Sunoco LP (SUN) Down 1.3% Since Last Earnings Report?

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A month has gone by since the last earnings report for Sunoco LP (SUN - Free Report) . Shares have lost about 1.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Sunoco LP due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Sunoco Q2 Earnings Beat Estimates, Revenues Miss

Sunoco reported second-quarter 2020 earnings of 79 cents per unit, beating the Zacks Consensus Estimate of 64 cents. The bottom line also improved from 43 cents in the year-ago quarter. The strong quarterly earnings were aided by higher contributions from fuel distribution and marketing business, partially offset by lower contributions from non-motor fuel sales.

Quarterly revenues of the partnership totaled $2,080 million, missing the Zacks Consensus Estimate of $2,416 million. Also, the figure declined from $4,475 million recorded in the prior-year quarter.

Segmental Performance

The partnership reports financial statements through two reportable segments — Fuel Distribution and Marketing, and All Other.

Fuel Distribution and Marketing: Total gross profit from the segment increased to $317 million from $215 million in the comparable period of 2019, primarily due to higher contributions from motor fuel sales.

All Other: This unit reported gross profit of $41 million compared with $54 million in the comparable period of 2019. The year-over-year decline can be attributed to lower contributions from non-motor fuel sales.

In terms of volumes, the partnership sold 1.5 billion gallons of fuel in the reported quarter, down 26.2% year over year owing to the coronavirus pandemic. Notably, motor fuel gross profit per gallon was recorded at 13.5 cents in the quarter, higher than the year-ago level of 9.1 cents.

Distribution

For the quarter ended Jun 30, 2020, Sunoco declared a quarterly cash distribution of 82.55 cents per unit or $3.3020 on an annualized basis. Markedly, this distribution was flat on a sequential basis.

Adjusted distributable cash flow was $122 million in the second quarter compared with $101 million a year ago.

Expenses

Total cost of sales and operating expenses in the reported quarter decreased to $1,872 million from $4,378 million in the year-ago period, primarily due to a drop in other operating expenses.

Capital Expenditure

The partnership incurred gross capital expenditure of $18 million in the quarter under review, comprising $14 million in growth capital and $4 million of maintenance capital.

Balance Sheet

As of Jun 30, 2020, Sunoco had cash and cash equivalents of $33 million. At second quarter-end, it had net long-term debt of $2,894 million, representing a debt to capitalization ratio of 0.83.

Outlook

For 2020, the partnership raised the adjusted EBITDA projection to more than $700 million. Sunoco has reaffirmed its guidance for 2020 growth capital expenditures at roughly $75 million and maintenance capital spending at $30 million.

Moreover, the partnership continues to project 2020 operating expenses – comprising general and administrative, other operating and lease expenses – in the band of $460 to $475 million, suggesting contraction from $501 million in 2019.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, Sunoco LP has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Sunoco LP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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