Prepared remarks
Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sunoco and SunocoCorp Q2 2026 Earnings Conference Call. It is now my pleasure to turn the call over to Scott Grischow, Senior Vice President of Finance. Please go ahead.
Thank you, and good morning, everyone. On the call with me this morning are Joe Kim, President and Chief Executive Officer; Karl Fails, Chief Operating Officer; Austin Harkness, Chief Commercial Officer; Brian Hand, Chief Sales Officer; and Dylan Bramhall, Chief Financial Officer. Today's call will contain forward-looking statements that include expectations and assumptions regarding Sunoco LP's future operations and financial performance. Actual results could differ materially, and we undertake no obligation to update these statements based on subsequent events. Please refer to our earnings release as well as our filings with the SEC for a list of these factors. During today's call, we will also discuss certain non-GAAP financial measures, including adjusted EBITDA and distributable cash flow as adjusted. Please refer to the Sunoco LP website for a reconciliation of each financial measure.
The partnership continued the strong momentum in 2026 with second quarter adjusted EBITDA of $996 million, excluding approximately $14 million of one-time transaction expenses. Based on our first half results and our confidence in the outlook for the second half of the year, we raised our adjusted EBITDA guidance range to be between $3.5 billion and $3.7 billion, an increase of $400 million from our original guidance range. Joe will provide more detail in his remarks, but this increase reflects the strength of our portfolio and realizing the value of recent acquisitions. Second quarter distributable cash flow as adjusted was $608 million. On July 27, we declared a distribution of just over $1 per common unit for both Sunoco LP common units and SunocoCorp shares. This represents a quarterly increase of 1.25% from the prior quarter and over 10% versus the second quarter of 2025. Our business continues to generate strong cash flows, resulting in a trailing 12-month coverage ratio of 2.1x.
Our balance sheet and liquidity position remains strong. We had $2.3 billion in availability under our revolving credit facility at the end of the quarter and leverage was approximately 3.7x, below our long-term target. Finally, we spent $125 million on growth capital and $77 million on maintenance capital. I want to wrap up my comments by stating that our financial position is stronger than ever. Our balance sheet is below our long-term target, and our distribution is comfortably on pace to meet our multiyear growth rate of at least 5%. Our proven history of executing on highly accretive acquisitions, both larger transactions and bolt-on opportunities, combined with our quick spend, quick return organic growth projects will continue to create a positive feedback loop, resulting in increased cash flows to be redeployed across our capital allocation strategy. We are confident this will provide top-tier returns for our investors in the coming years. With that, I'll turn it over to Karl to walk through some additional thoughts on our second quarter performance.
Thanks, Scott. Good morning, everyone. In his remarks on our first quarter call, Joe highlighted that we are both a defensive play as we distinguish ourselves in challenging environments and a proven growth play. Both are on full display in our second quarter results. Let me walk through our segment performance for the quarter and how each segment contributed to the outstanding overall result. In addition, each segment remains well positioned to contribute meaningfully toward achieving our increased 2026 EBITDA guidance. Starting with our Fuel Distribution segment. Adjusted EBITDA was $516 million, including $12 million of transaction expenses. This compares to $538 million last quarter and $214 million in the second quarter of 2025, both including transaction expenses. Remember that our first quarter results included the 7-Eleven makeup payment and a $92 million one-time benefit of inventory reduction.
The very strong performance this quarter demonstrates the strength in our much larger and diverse fuel distribution portfolio and the successful execution of our ongoing gross profit optimization and growth strategies. We distributed 4.1 billion gallons, up 9% versus last quarter and up 89% versus the second quarter of last year. We continue to deliver volume increases and outperform industry benchmarks as a result of the effective use of capital, both organic and roll-up acquisitions. In addition, during periods of market uncertainty like the second quarter, our commercial teams find opportunities to supply additional customers as we grow our reputation as a reliable fuel supplier in the markets in which we operate. Reported margin for the quarter was $0.171 per gallon compared to $0.17 per gallon last quarter and $0.105 per gallon for the second quarter of 2025. We saw a return of significant market volatility during the quarter with periods of sharp increases in price followed by declining prices near the end of the quarter.
As we have mentioned many times, this volatility, coupled with the continued presence of higher breakeven margins, provides a strong foundation for our fuel distribution business. Once you add on our proven track record of growth, you can see why we remain very excited about this part of our business. In our Pipeline Systems segment, adjusted EBITDA for the second quarter was $190 million compared to $179 million last quarter and $177 million in the second quarter of 2025. On the volume side, we reported 1.3 million barrels per day of throughput, up 4% from last quarter and up 9% from the same quarter last year. This segment continues to optimize the use of our assets to provide steady and stable income. Moving on to our Terminals segment. Adjusted EBITDA for the second quarter was $115 million, including $2 million of transaction expenses. This compares to $107 million last quarter and $73 million in the second quarter last year, excluding transaction expenses.
We reported 1.1 million barrels per day of throughput, up 5% from last quarter and 52% from the same quarter last year. Growth in both earnings and volumes in this segment were supported by a full quarter of the TanQuid acquisition. This segment continues to deliver stable results that predictably and accretively grow as we add to the portfolio. Turning to our Refinery segment. Adjusted EBITDA for the second quarter was $175 million compared to $43 million last quarter. Refinery throughput was 57,000 barrels per day compared to 22,000 barrels per day last quarter, which was reduced as a result of our planned turnaround. With refining margin for the quarter over $40 per barrel and operating expenses under $10 per barrel, the contribution from this segment was very strong. While the continued outperformance of the Refinery segment has contributed to our increase in full year guidance, it is only one component of an outstanding first half and what will be another outstanding full year.
Before I wrap up, I wanted to highlight our continued growth. Contributions and synergies from our Parkland acquisition are ahead of schedule. Our bolt-on acquisition strategy continues to demonstrate our track record of buying businesses and getting more out of them than the previous ownership. We continue to focus on quick-hitting, high-return organic capital projects. All of these contribute to DCF per LP unit growth. We expect to maintain this strong momentum into the second half of the year and into 2027. I will now turn it over to Joe to share his final thoughts. Joe?
Thanks, Karl. Good morning, everyone. We're more than halfway through 2026. And as expected, our business continues to perform well. Scott and Karl discussed the key details related to the second quarter results. Let me provide some additional comments about our business as a whole. Our combined results for the first and second quarters have been outstanding. As I mentioned on the last earnings call, we have proven that we can distinguish ourselves across various macroeconomic environments. For the full year 2026, we expect to materially exceed our initial adjusted EBITDA guidance and deliver our eighth consecutive year of EBITDA growth. All 4 business segments are performing at a high level. First, as Karl noted, the industry fundamentals for our Fuel Distribution remains strong. Our ability to optimize acquired assets is paying off. We're confident this will continue for many years to come.
Specifically for 2026, we expect our Fuel Distribution segment to perform just as well in the back half of this year as it did our outstanding first half. Second, within our Pipeline and Terminal segments, the team has done a great job of maintaining the reliability and stability of these assets. Finally, our Refining segment obviously delivered a very strong quarter. We have managed the portfolio so that when refining crack spreads are strong, it enhances our overall upside. But when they're not as strong, we can still have a very good year, given the diversity of our portfolio. As far as the balance sheet, leverage is below our target of 4x. This puts us in a very good position to both increase distributions over a multi-year period and deliver on accretive growth. Let me wrap up with some final thoughts. We've had tremendous growth. We've done this while keeping our unitholders in mind.
We have delivered 8 consecutive years of DCF per common unit growth, and 2026 will be our ninth. We've also delivered for our debt holders with multiple credit rating upgrades and a stronger balance sheet. The past is noteworthy, but the future is more important. Let me be clear, we expect continued growth. As a result of the NuStar, Parkland and TanQuid acquisitions, we have a vast canvas to deploy capital across numerous geographies and segments. Our multi-year guidance of at least $500 million a year of bolt-on acquisitions is a modest bar. We expect to surpass this in 2026 and in future years. This is on top of our organic growth opportunities. Bottom line, our growing cash flows puts us in a strong position to continue to grow distributions, deliver accretive growth and maintain a strong balance sheet. Operator, that concludes our prepared remarks. You may open the line for questions.
Questions and answers
Your first question comes from the line of Justin Jenkins with Raymond James.
I guess I want to start where you just ended. Obviously, we've had a positive operating backdrop, and you've shown really strong execution against that. But in that context, and Karl and Joe, you both mentioned this a bit in your remarks, but how is progress against your bolt-on M&A targets? Are you seeing any incremental opportunities there or also for more incremental organic growth in this macro, especially in light of the balance sheet capacity you mentioned?
Justin, it's Joe. I'll repeat a little bit of what I just said. I think the takeaway is that I purposely chose the word modest: $500 million a year is a modest bar. Let me give you some insight into why. If you look at our last three larger acquisitions, NuStar, Parkland and TanQuid, these have been big financial wins for us. We have delivered on synergies and will continue to deliver on synergies. Beyond the base business, these acquisitions open up a much broader universe for us to invest in. We have geographic opportunities in the U.S., Canada, the Caribbean and Europe, and within these geographies we can do deals in both the fuel distribution and midstream sectors. When you couple this expanded landscape with our proven ability to deliver synergies, $500 million looks like a very modest bar. We're at different stages with different targets, and we fully expect to exceed $500 million in 2026. Looking to 2027 and beyond, this sets us up to continue to be a highly attractive growth story.
And then, Justin, on the organic side, just to build on kind of what Joe said, the same is true on organic projects so that larger canvas and footprint gives us increased opportunities to invest. So as I mentioned in my remarks, and I've said many times, we focus right now on these quick-hitting good return capital projects. They're not as big as maybe some of our other midstream peers, but in that $600 million plus, we have some $20 million, $30 million projects. Just to give you some examples. In our Fuel Distribution segment, we're signing up a lot of new customers. And then in some of our geographies, we're finding opportunities to build new tanks in our terminals, whether that's in South America, whether that's in the Caribbean, whether that's in Europe. Many of those tank builds also facilitate our fuel distribution business. In our Pipeline Systems, we've made new connections to bring new customers on our pipe. So you add that portfolio up, plus, as Joe said, we continue to grow into new geographies. So these kind of roll-up acquisitions, coupled with the organic really can power a lot of additional growth.
Awesome. That's great color. Second question is just on the updated guide. What should we think about for the drivers that you've assumed in the new range for the back half of this year relative to obviously the strong first half you've already put up here?
Justin, it's Joe again. Here are some key insights I think you should take away from our revised guidance. First and foremost, all four of our business segments are performing very well — it's not just one driving the beat. And more importantly, we think this will continue for all four segments. As for the range, that's really driven by our Refining segment. Projecting our ability to forecast the Fuel Distribution segment and the midstream segment, we're really good at that. When it comes to projecting the Refining segment, that's definitely not an exact science. What we did is use the forward curve for refining cracks as a starting point. But we all know that using the forward curve and how it plays out with actual results typically doesn't happen; it's just a starting point for us. That's why we provided a range. As for upside, the simple answer is yes — there's upside. I think we've shown year after year that when the market gives us the opportunity, we're really good at capturing the upside. When the market doesn't and we have headwinds, I think we've also shown year after year that we can minimize that. So the takeaway is there are multiple ways this can play out, but in every scenario we looked at, we think 2026 will be an outstanding year.
Your next question comes from the line of Theresa Chen with Barclays.
Back on the refining topic, now that Burnaby has been part of your portfolio for a bit of time, how are you thinking about the long-term earnings power of this segment and your general outlook for West Coast refining margins? And given Burnaby's advantaged position, both from an infrastructure perspective and its ability to serve the broader Pacific markets as well as local Canadian markets, how do you view the strategic value of this asset and its integration into your broader infrastructure and distribution footprint?
Yes, Theresa, this is Karl. Burnaby has done a really good job. I don't think any of us anticipated that we'd have the refinery cracks that we've had this shortly after ownership. But again, I'll remind everyone, we did the Parkland acquisition and looked at those economics on a mid-cycle basis. And clearly, we've had the benefit of the cash generation. And the team there has done a good job on focusing on the 2 areas that we think are most important, which is increasing the reliability and decreasing our operating expenses on a per barrel basis. So that's where our focus has been. On your broader questions on the strategic nature, you probably heard me say that we love our British Columbia business. And when Parkland made that acquisition back in 2018, I think the refinery was the headline, but our perspective is it's really the integrated business, and we have a wonderful fuel distribution business there.
The team there is doing a great job, and we have a very good market position there with a very good brand partner. So, Burnaby is a component of that. It's not the only piece. Right now, by far it's the best way to supply those markets. The great thing, and you know our strategy is, as markets evolve and they tend to be efficient, if in some future state, there are other potential opportunities, then we'll look at that and we'll supply our market differently. But right now, as you said, some of the other refiners that have reported have made some arguments that maybe mid-cycle refining cracks are increasing, and I think their arguments are reasonable. So, as we go forward, we'll focus on what we can control and hopefully, the market will provide some tailwinds.
And on the fuel distribution side of things, I want to ask about your outlook for both margins and volumes near term. Given the volatility in commodity prices that has persisted on the front end of the curve, which has traditionally benefited your fuel distribution assets, can you provide color on what you're seeing in terms of the trend of fuel distribution CPG margins so far in the third quarter? And on the volume side, many headlines abound on elevated prices potentially impacting the consumer. What are you seeing as far as demand across your footprint as it translates to the end users?
Yes. Theresa, this is Austin. Happy to walk you through what we're seeing on demand and margins given our expanded portfolio; I'll take those in reverse order. On demand, overall so far this year the consumer has been surprisingly resilient. In the U.S., despite the flat price volatility we’ve seen, EIA data suggest refined product demand is roughly flat year‑over‑year. When assessing the impact of flat price on consumer demand, it usually depends on how high flat price goes and how long volatility persists, and common consumer responses are either spend rationalization, meaning the same number of trips but fewer gallons per trip, or octane rationalization where consumers trade down. We haven't seen much of that in the U.S. In Canada, demand is a touch softer, with gasoline down low‑ to mid‑single digits year‑over‑year and ULSD roughly flat. In the Caribbean, we operate onshore in 24 different markets, each with its own demand profile, but as a region overall it's up low‑ to mid‑single digits.
Our volumes have exceeded those regional trends due to deployment of growth and organic capital and the scale and diversity we bring as we capture synergies over the first roughly seven months of the year. On margins, as we’ve said, the acquisition has reasonably evolved our margin profile higher. Exactly where the CPG margin will land going forward is hard to predict because there will be quarter‑to‑quarter volatility. Frankly, we focus less on forecasting the CPG margin or volume and more on delivering fuel profit and EBITDA growth overall. The second quarter reflects the team's strong execution in leveraging our scale and supply chain optionality against the backdrop Karl described, which has at times been challenging and at times favorable. Right now flat price appears to be rising again, which is a headwind for margins, but if demand eases that could be quite bullish for margins. As Joe said, we're well positioned with our diversity, scale, and geographic exposure to perform well and close out the year strongly regardless of the macro environment.
Your next question comes from the line of Gabe Moreen with Mizuho.
Maybe I could follow up with one more on Burnaby. I'm curious how you view the cash flow generated by that asset: is it supporting the distribution at all, or is it something where, if you get high crack spreads, you reinvest that in the business? I'm really wondering if there is any distribution capacity from that asset.
Gabe, it's Joe. I think, I'm not sure if I said this call or the previous call, is that when you look at Burnaby, our refining exposure on our overall portfolio, this is something where whenever we have upside by cracks, it's just going to help us in the quarter for the year. But when the cracks aren't as good, we're still going to have a really, really good year. So we're obviously getting upside this year, and it's creating more distributable cash flow for us. It just puts us in a better position where we're well on our way, and we feel incredibly confident we're going to increase distributions over a multiyear period. But if the refinery performs at an elevated level for an extended period of time, I think that puts us in a position where we can either increase distributions more, manage our balance sheet even better or allocate that to more accretive growth projects. I think the answer is going to be all 3 of the above.
And I think there's been some news flow about certain large refined products assets potentially being on the market. While I'm not specifically asking about any specific pipeline, I'm just wondering if the game plan to acquire, I guess, North American pipelines considers to be sort of within your purview of M&A and the extent to which you think you can bring value to those assets even if maybe your own wholesale distribution footprint doesn't overlap 100% with those assets at the moment?
Yes. Gabe, obviously, I won't comment on any specific asset. But I think the general theme that you're talking about and which I agree with is if there's anything on the refined product sector, be it a pipeline or terminal or fuel distribution assets, I think from a strategic standpoint, we're in just as good or a better position as anybody to bring synergies to the table. And whenever you bring material synergies to the table, we're always going to be highly competitive.
And if I could just ask one last annoying question around book and cash tax rate. Should we assume the current cash and book tax rates are about where you'll be going forward? Or will that kind of depend on earnings mix going forward?
Gabe, yes, I think we certainly had a step-up in the cash tax expense this year. A lot of that has to do with the performance of the business, right? It's been a strong start to the year. And specifically in the legacy Parkland operations, the refining operations, that creates a greater cash tax expense. That was all included in our economics for the Parkland acquisition and all the statements we make around accretion and EBITDA growth. I think for the full year 2026, you should expect for the back half of the year something under what you saw for the first half of the year in terms of the cash tax expense.
Your next question comes from the line of Spiro Dounis with Citigroup.
This is Chad on for Spiro. Just one quick one for me. Now that we're further into this volatile commodity environment and the Middle East conflict, I'm curious, have you seen any supply chain impacts that could be longer lasting across your footprint, either on the volume or margin side across your different segments?
Chad, the short answer is no, we haven't seen anything that suggests there's going to be some long-term lasting impact from the disruption in product flows. We are seeing continued disruption, albeit at slightly less volatile levels than we saw maybe earlier in the second quarter. That said, we're still leveraging our scale and our newfound geography and commercial capabilities as a result of the acquisition, to leverage and take advantage and create value in this environment. So some things I shared, I believe, on the last call are things that we continue to do, whether it's railing diesel out of the Midwest to our Mid-Atlantic markets that wouldn't have been an option for us prior to our acquisition of rail assets with the Parkland transaction. And we continue to supply our Hawaii markets out of the Burnaby refinery. Those are 2 small examples. There's dozens of others that happen every day where we're responding to dislocations in the market. But nothing that suggests there's any long-term impairment to the business or our opportunity set. In fact, quite the opposite, and we continue to take what the market gives us.
Your next question comes from the line of Jeremy Tonet with JPMorgan.
This is Eli on for Jeremy. Just wanted to think geographically about some of the opportunities in your M&A pipeline. If we compare the opportunity set across Europe versus North America and the Caribbean, where do you see the most attractive returns? And how should we think about the international strategy more broadly across your segments? Might you go further downstream in Europe? Or any color there would be great.
Eli, this is Joe. Here's how we see it. Not long ago we were predominantly a Northeast/Mid-Atlantic U.S. fuel distribution business, which limited our ability to grow because scale matters. Now that we operate across multiple geographies in North America and have a presence in South America and Europe, we have much more optionality. We'll pursue whatever emerges in the market where we can deliver the most synergies and where the valuation is right. We see opportunities in fuel distribution, the midstream sector, Europe and North America. How that unfolds and where valuations end up will help determine where we grow, but ultimately you should expect growth across all of those areas.
Got it. And then maybe just thinking about the broader capital allocation philosophy at this point. You obviously have been clear that there's a really strong pipeline for the roll-ups, and you're going to continue to do growth both organically and inorganically. But how should we think about what the inorganic opportunity set looks like and the return thresholds that you need to kind of make those larger chunkier acquisitions versus maybe just continuing to hike the distribution at this clip. Obviously, we've seen a pretty big hike this year, and you've given some guidance for the medium term, but just thinking about weighing those 2 competing capital allocation priorities.
Okay. So yes, as far as when it comes to inorganic growth on the M&A roll-up, we've said in the past that synergized, we're talking mid-single-digit type of synergized multiples. Those opportunities, and you understand our financial model, those are highly accretive to us. That's the way along with big and small acquisitions, that's how we've increased distributable cash flow per unit for 8 consecutive years, and this year will be ninth, and I anticipate next year will be 10. So, as we continue to do these mid-single-digit type of roll-ups, these are highly, highly attractive. And it gives Austin and team the ability with more scale to create more optionality that plays really well into volatile environment. So we're going to continue to do that. So that's going to get our attention. We think that's going to be for a long period of time. So with that said, you can expect us to allocate a material portion of our free cash flow towards inorganic growth. At the same time, we still have plenty left over for distribution growth. And so these 2 work together, and I think the word that Scott has used and Karl's used is almost like a flywheel, the more and more we do these accretive acquisitions, they create more free cash flow that we can redeploy back into either additional growth and/or distribution increases.
And your next question comes from the line of Ned Baramov with Wells Fargo.
Just a quick question from me on the Burnaby facility again. It seems the refinery ran above nameplate capacity in the second quarter. Can you maybe talk about how sustainable this rate is over multiple quarters?
Yes, Ned, this is Karl. As I said, the refineries team has done a great job. We came out of a major turnaround, and given the market dynamics it made sense to run full. Exactly what that balance means depends on the mix — we co-process low-carbon feedstocks at that facility as well. The nameplate of 55 was set a while ago based on running crude, and the specific crude and low-carbon feedstock you run will dictate performance. We were a little bit over that on a combined basis, and we hope to continue that. But inevitably, having been in the refining business a long time, there are always minor maintenance issues that come up or planned turnarounds. The only other comment I'll make is that we aim to run our assets on a sustained long-term basis and not sacrifice long-term reliability for a short-term quarterly gain. You should read that philosophy into how we operate.
And with no further questions in queue, I will hand the call back over to Scott Grischow for closing remarks.
Thank you for joining us on the call today and your continued interest in Sunoco. As always, reach out if you have any questions, and we appreciate the support. Thanks, and have a great day.
Thank you again for joining us today. This does conclude today's call. You may now disconnect.