Karl Fails

Thanks Scott. Good morning, everyone. Our results this quarter highlight the strength of our business and the benefits that come from the new additions to our portfolio.
Let me now walk through our segment results and provide some additional perspective on each segment.
Starting with our fuel distribution segment. We had a very strong quarter adjusted I do for the segment was $253 million. Up 3% from the second quarter and up 8%. Over the third quarter of last year, we distributed $2.1 billion gallons down 2% versus the second quarter and up 1% versus the third quarter of last year reported margin for the quarter was $0.128 per gallon compared to $0.118 per gallon in the second quarter and $0.125 per gallon for the third quarter of 2023.
Looking back over our recent history, our record shows that we take advantage of market upsides and when there are market headwinds, we're very good at mitigating the downsides.
If you zoom out from quarterly results. The basis of our fuel profit optimization strategies is to evaluate our fuel distribution business on total fuel profit dollars rather than volumes and margins separately.
We have a demonstrated record of increasing our volumes by growing our market share. Higher break, evens across the industry have led to higher average margins. These factors have led to consistent growth in fuel profit dollars year after year. And we expect that to continue going forward in our pipeline system segment adjusted Ebida for the third quarter was $147 million excluding $11 million of transaction expenses compared to $111 million for the second quarter.
On the volume side, we reported nearly 1.2 million barrels per day of throughput.
These numbers are not directly comparable to the second quarter for two reasons. First, the newar acquisition only contributed two months of volume in the second quarter and second, beginning in the third quarter, volumes from our premium assets are not included since they are now part of our JV. With energy transfer.
During the third quarter, our volumes and revenue were impacted by extended maintenance activity at two refineries connected to our pipelines in our Southwest and Midcon regions, excluding those impacts. Overall performance of the segment was solid and we expect a stronger fourth quarter with those turnarounds behind us as well as higher seasonal demand in our Midcon region.
Let me take a minute and share some additional thoughts on the premium JV. With energy transfer.
The joint venture is making good progress in integrating the combined systems and has begun executing on synergies and growth opportunities that will drive additional value we remain very excited about the deal as it will drive additional growth and perform better in any market condition than what our permanent system would have been able to do on a stand alone basis.
Moving on to our terminal segment adjusted EBITDA for the third quarter was $70 million excluding $3 million of transaction expenses. Compared to $43 million. In the second quarter, we reported nearly 700,000 barrels per day of throughput up from the second quarter, primarily due to a full quarter of contribution from legacy Newar assets.
Our combined portfolio performed well with throughput and storage revenues in line with expectations.
I'm pleased to share that we are done with the Newar integration.
All major integration efforts have been completed and we have already delivered the majority of the cost synergies into our run rate business.
We are well on our way in executing the commercial synergy plans have been identified.
We remain confident that we will deliver on our commitments of $125 million of synergies in 2025 and $200 million in 2026.
These are on top of the $60 million in annual financial synergies that we have already realized.
Even with a larger portfolio of business, our focus remains the same strong operational execution, expense, discipline, commercial creativity and profit optimization and ensuring we deliver strong returns on capital that we deploy.
I will now turn it over to Joe to share his final thoughts. Joe.

Joseph Kim

Thanks Carl. Good morning, everyone. We delivered a very strong third quarter. Our business continues to deliver quality results quarter after quarter. Although 2024 is not quite over, we expect to have another record year and deliver on full year. EBITDAS guidance. Let me put some perspective on this achievement.
All three of our business segments are performing well. Our fuel distribution segment continues to grow and deliver outstanding results.
We have grown volume and fuel profit dollars even with the divestment of our West Texas business earlier this year. And a US macro environment that has seen a decrease in year over year demand, our scale, our expense management and our ability to optimize fuel profit have positioned us to deliver strong results year after year.
As for the pipeline systems and terminal segments, our continued growth in critical midstream infrastructure has provided us with material diversification and further income stability.
The strength of both segments is reflected in our 2024 results.
And finally, our acquisitions along with our growth capital are delivering value creating results.
The newar acquisition was obviously the biggest. We set very high expectations both internally and externally. We're very confident that we will at a minimum meet these high expectations.
Last quarter, we detailed the synergy guidance, we're well positioned to deliver on these synergy targets this year next year and beyond our entry into Europe has gone very well. We like the stability of the income streams that each location provides. We're confident that these assets will remain highly valuable for decades to come. Bottom line 2024 will be another very strong year for sun.
As for next year, we expect more of the same. This December we provide a new investor presentation which will include our formal 2025 guidance and business outlook. I'd like to preview a few key themes. The outlook for all three of our business segments remains very strong. We expect industry fundamentals to remain highly supportive and we expect to deliver on the new star acquisition synergies. When you put it all together, we expect to deliver another record year. We will continue to be a growth company.
We have a proven record of delivering on growth opportunities. We have had more than seven consecutive years of growth in DC F per LP unit and we expect this to continue. And finally, we're positioned to once again increase our distribution early next year and for years to come all this while maintaining strong coverage and leverage ratios. Operator that concludes our prepared remarks. You may open the line for questions.

Question and Answer Session

Operator

(Operator Instructions)
Theresa Chen, Barclays.

Theresa Chen

Good morning. Great to see the strong results in general and the strong fuel margin. Especially I understand you had previously amended the long term range following the re segmentation. Just with this result though, and more empirical data from the combined assets and the strength demonstrated, can you provide some additional color on your views on field margins going forward?

Noah Katz

Yeah, Teresa, this is Austin. I, I'll just start by saying, you know, echoing some of Joe's prepared remarks, I mean, the our fuel distribution business has never been healthier and I think the third quarter is, is emblematic of that. As you know, we don't manage for CPG margin or volume specifically on a quarter to quarter basis, but really seek to optimize fuel profit over the long run.
In terms of, you know, what delivered the quarter and our margin view going forward. I mean, you know, as, as Carl shared in his remarks, we were, you know, margins were strengthened against the backdrop of elevated break events which predicts a pretty constructive margin environment.
And there was flat price volatility if you look at our Bob and ULSD, it was off throughout most of the quarter, some of that's continued in the Q4. You know, and there were, there were commercial opportunities that, that presented themselves by the market that, that the team was able to execute against. So it's, it's never one thing that delivers the quarter in terms of our view going forward. I mean, I think a lot of the macro fundamentals in terms of elevated break evens remain in place and I think they're going to, they're going to remain fairly sticky. So our view is very fairly bullish going forward.
That said there's obviously wild cards with, you know, what flat price is doing and, and what the overall demand and volume picture looks like. But, but we're bullish going forward in terms of margin. Now, are we going to print, you know, record margin and record adjusted EBITDA quarter after quarter? That, that might be a bit of a stretch. But I think what is reasonable to expect and I think what our track record would suggest is that we're going to continue to grow fuel profit on a going forward basis, you know, on a trailing 12 month period.

Theresa Chen

Thank you for that nuanced answer. Turning to the broader landscape, I would be remiss not to bring up the election and following the results. What are your views on how the apparent Trump victory impacts your business or changes the landscape of the industry in general.

Joseph Kim

Hey, this is Joe. I think the first thing is I think the market appreciates some clarity. And boy, did we get some clarity last night? So I think overall you kind of saw how the market open, how the how the the street has responded, investors have responded to that. Secondly, for Sun, I, I think it's without question, this is, this is positive for Sun and for the industry as a whole. So I think all things considered it was a, it was a very positive event for Sun in the sector going forward.
I would add one other perspective from a sun sunside is that if you look at it over a longer landscape and longer time period, We've performed well within various administrations and you Sprinkle in COVID and and and other macro factors. And I think there's a good reason why our business is resilient because we perform critical functions and we own critical infrastructure that keeps America healthy and moving forward.
And I think we've also demonstrated our ability to evolve, execute and grow on a go on a going forward basis. So, all things considered, we're in a better position today and we feel very, very strong about our future going forward.

Operator

Thank you.
The next question is from Jeremy Tonet from JP Morgan Chase and Company. Please go ahead.

Noah Katz

Hey, this is Noah Katz on for Jeremy. Thanks for the question. First, I wanted to touch on your capital allocation priorities was so continuing to decrease leverage this quarter to four times. What are your thoughts on wigh repurchases versus dividend raises or continuing to lower leverage? I think you said you're planning on raising the dividend early next year earlier on this call. Thanks.

Scott Grischow

Yeah, this is Scott Noah. Look, I'd say, you know, our primary focus right after the new star acquisition was to get our leverage back to our long term target at four times. And we were able to accomplish that within six months following close recall, that we had given ourselves a 12 to 18 month time frame to do that.
And I really think that's a result of some of the things we talked about today, the strong performance of the base business, our ability to harvest synergies quicker and at a greater extent than we had originally talked about with the newar acquisition. And so protecting the balance sheet remains a core component of the capital allocation strategy that said now that we have achieved our long term target, we can begin to, to refocus on the other two elements of our capital allocation strategy, which is returning capital to our unit holders.
As Joe said, we expect to have announcements there early next year regarding future distribution increases. And see this really is a multi period, multi year outlook for distribution increases going forward. And then in in conjunction with that, the other component of our capital allocation strategy is is continuing to remain a growth company and is Carlin and Joe both said, you know, I think we have a couple areas to, to focus in that regard as well.
Our organic growth capital program as well as continuing to look at acquisitions both in the field distribution and midstream space as it relates to to unit repurchases. You know, that is at its heart of capital allocation decision as well.
And, and from our standpoint, we see the best return to our unit holders coming in the form of returning capital to them through distribution increases and continuing to reinvest in the business and a creative growth projects.

Noah Katz

Thanks for that, that's helpful. And then as a quick follow up, I think you guys spoke about a little bit earlier about the fuel distribution trends you're seeing going forward and, and your thoughts on it, but I'm curious about your initial thoughts into 2025 given the trends you're seeing thus far into the fourth quarter. So any color here would be helpful. Thank you.

Austin Harkness

Yeah, no, this is Austin. You know, I I touched on our, our margin view with Theresa's question but just to, to kind of switch over to the volume side of the equation, I think you know, our, our view over the next 6 to 12 months is that demand for refined products is going to, is going to roughly mirror the last 6 to 12 months, which if you're tracking the I A, what that means is on the gasoline side, roughly flat, on a year, over year basis, there's been some slight strengthening over the last couple of months. With ULSD being a touch softer than that in terms of our view and what that means for.
So, I mean, we're, we're well prepared to, to execute and deliver in that environment. But if our assumptions are often and demand comes in below expectation, I think using history as a guide that would create a pretty constructive margin environment and I think our track record suggests that we're well positioned to execute and take advantage of the opportunities that would present themselves. Should that be the case?
And then on the flip side, if demand exceeds our expectations, we have a, an asset base and portfolio of income streams and a team that's wired to take advantage of those opportunities as well. So, you know, we're, we're, we're, we're pretty bullish about the about the fuel distribution business, both obviously with, with the Q3 print and what the, the near term and long term look like for the business.

Noah Katz

Thank you.

Operator

Gabe Moreen, Mizuho.

Gabriel Moreen

Hey, good morning, everyone. Just to first, I want to start out with a two parter on some of the legacy newar assets with some refinery closure announcements announced in California. Just wondering how you feel that may impact the legacy new star assets in California.
Then also competitors come out and announced a big expansion to the Denver markets, which I also believe connects to one of the legacy newar refined products assets. So just wondering if that additional competition could have any impact?

Karl Fails

Yeah, I gave this call, I'll start with, with California. Clearly there's been a talk among energy companies doing business there on the challenges of of the regulatory environment and some of the additional requirements that are being put in place with our asset base.
We think if anything, there's upside, not downside to that, if, if they are Refiners that find it too challenging environment economically to do business there, you know, the energy demand in, in that state is going to continue to grow and whether it's, you know, traditional hydrocarbons or whether it's, you know, a lower carbon version or renewable diesel.
Our assets are really well positioned to be able to provide that storage and, and critical infrastructure to enable that to happen. So anyway, we're, we're really pleased with our assets in California, kind of regardless of, of, of what the future looks like.
You talked about other competition in, in some of our other areas and, and here's what I'd say is our asset base is really good and we think generally it's set up to, to really match where Refiners are, are producing and deliver it to markets where there's consumer demand, a lot of our refined product infrastructure on the pipeline side, right?
Really are kind of internal center of the country kind of projects or, or, or, or assets and, and you know, we don't see that demand profile really changing o over the near term or even, or even beyond that. And I think I'll go back to one of the things Joe Joe said earlier, you know, even if there are changes, we have a really creative commercial team and we're going to find some way to utilize those assets and, and deliver more value to the customers. So I think both those in both those cases, they're either neutral to positive on our outlook.

Gabriel Moreen

Thanks Carl. And maybe if I can follow up again, another legacy Newar question their Corpus Christi assets which I don't believe are in the GV with energy transfer, I think the big contract with traffic Europe is coming up soon. So I'm just wondering to what extent your expectations may or may not be shifting around renewing that?

Karl Fails

Yeah. So you're correct. Our South Texas crude assets are not in the joint venture with energy transfer. I think we take maybe a little different approach on these kind of questions and maybe Newar did and that we traditionally don't talk publicly about individual contracts with customers. And so I'd expect that going forward more out of our we, we think if anything, it gives us more opportunity commercially to, to keep those discussions private with our, with our counterparties.
With that being said, there are opportunities that some of the synergies that we've identified in Newar is we think there, we could better utilize some of those assets. Clearly, there's always recontracting risk and you might change from one customer to another customer.
But our our Corpus Christi terminal is a really good terminal and, and you know, our business development teams are working on that and, and we expect that to continue to be a good terminal for us going forward.

Joseph Kim

Hey, Gabe, this is Jared. Let me add one thing on top of everything. Carl said, you know, in my prepared remarks, I mentioned that in December, we're going to give guidance about 220 about 2025 and our outlook going forward, you know, you brought up three good points about, you know, the refinery closure in California, the expansion into Colorado and and South Texas.
There's always going to be commercial situations going positive, negative. But I think whenever we provide the full details in December, I think what the market is going to take very clearly from us is that we're very bullish on ALL33 of our segments from field distribution to the pipeline system to our terminal system out there.
So when you put it all together. We're going to have a great year in 2024 and 2025. We're going to get very strong guidance because we're very confident about our business in all three segments.

Gabriel Moreen

Great. Thank you, Joe. Thank you, Carl.

Operator

(Operator Instructions)
Ned Burov, Wells Fargo.

Ned Baramov

Hey, good morning. Thanks for taking the questions. Earlier this summer, the DC Court of Appeals ruled in favor of the Liquid Energy Pipeline Association and the ruling allows a fer indexed liquids pipeline to possibly retroactively recoup earnings on previous years, tariffs which are now considered to have been too low. So can you can you maybe just walk through the potential implications to Sonoco from, from this ruling?

Karl Fails

Sure man. I won't give a lot of detail because this is still an ongoing issue, but I can give you our perspective on it. And so first, we clearly support the DC circuit decision on on the rate index issue. You know, unfortunately, there's been some FK announcements and notices after that, that's created a little bit of uncertainty and confusion in the market. So there's a little bit of wait and see how this shakes out.
But we're obviously involved in, in through industry associations or, or other means and we're optimistic that this can be resolved in a favorable manner as far as the impact to, so I'd say, kind of regardless of the outcome, whether it, it's in our favor and our, on our IDA is a little higher or it goes against us.
You know, I'll, I'll reiterate what Joe just said, our asset base is strong, our 24 is strong, our 25 is going to be stronger. And as we continue to, to deploy capital in a, in a profitable manner, you know, we'll, we'll continue to grow beyond that.

Ned Baramov

Thanks for this Karl. And then I, I appreciate the high level preview of what to expect in December. Can you, can you maybe give us a little bit more specifically? Will there be new metrics as part of your guidance such as maybe segment ebida or, or maybe a longer term EBITDA target for the business.

Joseph Kim

Hey, David, this is Joe. Here's, here's what we have right now. We're, we're a month away. So I would ask the street to be just moderately patient since we're talking days instead of months from, from providing full details on it. And I think on my prepared remarks, I talked about the themes. It's going to be a really strong year as far as exactly what elements we're going to provide in guidance. We have it all. We just have to figure out what's the best way to, to, to give clarity to the market on a going forward basis without flooding the market with too much information it becomes even more confusing.
So we'll have a very thoughtful clear viewpoint about 2025 and it's only is days away versus months away. And I think you'll be, I think you and the market will be happy to see our, our bullishness about our business going forward.
That's fair. I look forward.

Ned Baramov

To December. Thank you.

Operator

Thank you.
This concludes the question and answer session. I would like to turn the floor back over to Scott Grischow for closing comments.

Scott Grischow

Thanks for joining us on the call this morning. As always, feel free to reach out with any questions and we look forward to catching up with everyone soon. Have a great day.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.