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Why Sunoco (SUN) Stock Down 3.3% After Q1 Earnings Miss

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Since the announcement of weak first-quarter results on May 11, Sunoco LP (SUN - Free Report) has seen a 3.3% decline in unit price. The fuel distribution market outlook seems bearish at the moment, thanks to demand destruction caused by coronavirus-induced lockdowns and travel bans. As such, the partnership withdrew its guidance for fuel volumes, margins and profits. Moreover, it has lowered its guidance for 2020 operating expenses.

Weak Q1 Results

Sunoco reported first-quarter 2020 loss from continuing operations of $1.78 per unit against the Zacks Consensus Estimate of earnings of 89 cents. In the year-ago quarter, the partnership had reported earnings from continuing operations of $1.07 per unit.

Quarterly revenues of the partnership totaled $3,272 million, missing the Zacks Consensus Estimate of $3,748 million. Also, the figure declined from $3,692 million recorded in the prior-year quarter.

The weak first-quarter results were due to lower contribution from the fuel distribution and marketing business. Lower sold volumes of fuel also affected first-quarter results.

Sunoco LP Price, Consensus and EPS Surprise

Sunoco LP Price, Consensus and EPS Surprise

Sunoco LP price-consensus-eps-surprise-chart | Sunoco LP Quote

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 decreased to $35 million from $307 million in the comparable period of 2019, primarily due to lower motor and non-motor fuel sales.

All Other: This unit reported gross profit of $73 million compared with $63 million in the comparable period of 2019. The year-over-year rise can be attributed to higher non-motor fuel sales.

In terms of volumes, the partnership sold 1.9 billion gallons of fuel in the reported quarter, down 2% year over year. Motor fuel gross profit per gallon was recorded at 13.1 cents in the quarter, higher than the year-ago level of 9.9 cents.

Distribution

For the quarter ended Mar 31, 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 $159 million in the first quarter compared with $99 million a year ago.

Expenses

Total cost of sales and operating expenses in the reported quarter decreased to $3,354 million from $3,540 million in the year-ago period, primarily due to low cost of sales and impairment charges.

Capital Expenditure

The partnership incurred gross capital expenditure of $41 million in the quarter under review, including $36 million in growth capital and $5 million of maintenance capital.

Balance Sheet

As of Mar 31, 2020, Sunoco had cash and cash equivalents of $31 million, higher than the fourth quarter’s $21 million. At first quarter-end, it had a net long-term debt of $2,896 million, marginally down from the fourth-quarter level. Its debt to capitalization was 84.2%.

Outlook

Demand destruction caused by coronavirus-induced lockdowns and travel bans is affecting Sunoco’s 2020 fuel volumes and margins. As such, the partnership withdrew its guidance for fuel volumes, margins and profits.

It has reduced its 2020 capital guidance by decreasing full-year growth capital expenditures to almost $75 million. Maintenance capital expenditures will likely be around $30 million. For the rest of the year, the partnership is taking measures to reduce total operating expenses by $55-$70 million. For 2020, it lowered its guidance for operating expenses to the band of $460-$475 million.

Zacks Rank & Stocks to Consider

Currently, Sunoco has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space include EnLink Midstream LLC (ENLC - Free Report) , CNX Resources Corporation (CNX - Free Report) and Comstock Resources, Inc. (CRK - Free Report) , each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

EnLink Midstream’s 2020 earnings per share are expected to rise 97.9% year over year.

CNX Resources beat earnings estimates thrice and met once in the last four quarters, with average positive surprise of 111.5%.

Comstock Resources’ 2020 sales are expected to gain 32.7% year over year.

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