Chip Bonner - EVP & General Counsel Samuel Susser - CEO, Susser Holdings Rocky Dewbre - CEO, Susser Petroleum Partners Sid Keswani - SVP, Retail Operations Mary Sullivan - CFO.

Irene Nattel - RBC Capital Markets Bonnie Herzog - Wells Fargo Securities Dan Leone - Macquarie John Lawrence - Stephens Sharon Lu - Wells Fargo Scott Mushkin - Wolfe Research Ben Brownlow - Raymond James Ronald Bookbinder - The Benchmark Company.

Good day, ladies and gentlemen and thank you for standing by. Welcome to the Susser Holdings, Susser Petroleum Partners' First Quarter Earnings Conference Call. For today's presentation all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions).

This conference is being recorded today, Wednesday, May 7, 2014. I would now like to turn the call over to Chip Bonner, Executive Vice President. Please go ahead, sir..

Thank you, operator. Good morning, everyone, and thanks for joining us. This morning we released our first quarter 2014 earnings for both Susser Holdings Corporation and for Susser Petroleum Partners. A reminder that today's call will contain forward-looking statements.

These statements are based on management's beliefs, expectations and assumptions and include the company's objectives, targets, plans, strategies, costs and anticipated capital expenditures. They are subject to risk and uncertainties that could cause actual results to differ materially as described more fully in the company’s filings with the SEC.

During today’s call, we will also discuss certain non-GAAP financial measures that we believe are helpful for a full understanding of our financial performance. Please refer to our news release for reconciliation of each financial measure. With me on the call today are Sam L.

Susser, Susser Holdings' CEO; Rocky Dewbre, CEO of Susser Petroleum Partners, Sid Keswani, our Senior Vice President for Retail Operation; and Mary Sullivan, our CFO, and other members of our leadership team.

As you are probably aware, last week, Susser Holdings agreed to be acquired by Dallas based Energy Transfer Partners in a cash and units transaction valued at about $1.8 billion. We expect to close in the third quarter pending approval by Susser Holdings shareholders and other regulatory clearance.

On today's call, we won't be able to comment on additional details of the transaction, the timing of the integration or the drop downs to SUSP, executive staffing changes and the like.

Beyond that what was disclosed in the news release, subsequent 8-K filings and joint conference call we held on April 28, so please keep that in mind as we enter the Q&A portion in a few minutes. We have rescinded full year 2014 guidance for SUSS and as is customary for publicly traded companies that are being acquired.

Given that Energy Transfer has stated that its plans to begin dropping down Susser Holdings and Sunoco operations in to SUSP shortly after closing, we have also rescinded our original full year 2014 guidance for SUSP because we don’t have a clear line of sight of as to what SUSP will look like in the latter half of the year.

After closing, any future drop downs are subject to market conditions and approval of the SUSP Conflicts Committee. A remainder that the information reported on this call speaks only to the company's view as of today, May 7, 2014. So time sensitive information may no longer be accurate at the time of any replay.

Now I’ll turn the call over to Sid Keswani, Senior Vice President of Operations at Stripes..

Thanks, Chip, and good morning, everyone. Thank you for joining us on this call. Let me begin with a brief look at our Q1 results for retail operations. We delivered solid performance on the merchandize side of the business during the first quarter despite the fact that it was much colder and wetter than normal including the March spring break period.

Same stores sales increased 1.9% over last year or 6.1% on a two-year stack basis. Easter fell in the second quarter versus the first quarter last year. So if you normalize the impact of the calendar change we estimate it would have increased our same-store sales growth by about 50 basis points.

We have already realized the benefit of this in the second quarter. Merchandise margin was a very solid 33.9%, versus 33.1% a year earlier. This is primarily due to the favorable mix changes driven by our solid growth in food service and some improvements in shortage control. Average fuel gallon sold per store increased 2% versus 4.1% a year ago.

This metric includes all stores and is up 4.2% excluding the Sac-N-Pac stores which have average fuel volumes there are currently 60% of Stripes level. Overall personnel expenses were 21% of merchandize sales versus 20.6% a year ago.

The overall increase in Q1 is due to several factors including a shift towards more food service, which requires about two to three times the labor as a percent of sales versus traditional convenience store merchandize, lower than expected topline growth due in large part to the cold wet weather, labor inefficiencies related to ramping up new Stripes Stores we have opened over the last six months, extra labor and travel cost for our store managers and area managers that mentored the new teams at the Sac-N-Pac stores that we purchased at the end of January, and higher healthcare cost.

The Affordable Healthcare Act is adding about $3 million to $4 million annually to our healthcare costs.

These headwinds are offset by continues improvement in the management of labor hours worked versus our staffing model, careful management of our wag rates, and significant increase in the ratio of part time versus full time for new hires this year.

The team has been focused on labor control and sequentially, through the quarter, we saw improvement each month. We opened two new Stripes Stores in the first quarter in addition to adding the 47 Sac-N-Pac stores in January through acquisition. As of today, we have a record 17 new stores under construction.

So we will be bringing on a lot of stores later this quarter and in the third quarter. So far, in the second quarter, we have reopened two acquired stores in Central Texas, one in Bryan, Texas, and the other one in Plano, Texas.

Last month, we completed the initial merchandize reset at all Sac-N-Pac locations bringing their product mix closer to the Stripes offering. We expect the merchandize reset and our close working relationship with key suppliers will drive significant growth in our merchandize sales over the next two years.

We currently operate 631 convenience stores and more than 400 have restaurant locations. Food service is and will continue to be an important focus for our c stores because they typically drive the purchase of other high margin items like drinks and snacks.

In the first quarter, food service, non-alcoholic packaged drinks and snacks represented 46% of the merchandize sales and 60% of the merchandize gross profit contribution. And now, I'm going to turn it over to Rocky Dewbre for more detail look at wholesale business.

Rocky?.

Thanks, Sid. Good morning, everyone. Our wholesale fuel business continues to perform very well last quarter. As a result, we are pleased to announce the fourth consecutive increase in our quarterly distribution at Susser Petroleum Partners, an increase of 3.5% versus the prior quarter to $0.502 per unit or $2.01 on an annualized basis.

$0.502 is a $0.65 and 14.8% increase over the distribution we played last May. Based upon distributable cash flow of $14 million this reflects a coverage ratio of approximately 1.27 times for the first quarter, and coverage of 1.22 for the trailing four quarters.

Susser Petroleum Partners delivered robust first quarter performance with an 18% year-over-year growth in fuel gallons sold and a 42% increase in gross profit.

The partnership continues to generate solid growth in fuel volumes and rental income through our existing and acquired sites, resulting in an increased distributable cash flow and distributions.

An important part of the year-over-year growth was driven by the Gainesville Fuels and 3W Warren Fuels acquisition that we completed over the last nine months.

For the Sac-N-Pac, 3W Warren Fuels acquisitions, we increased our third party volume with the addition of 19 new dealer sites and our volume sold to affiliates increased through the addition of 47 Sac-N-Pac stores that are operated by Stripes.

Volume sold by the partnership to affiliates which includes volume sold by the partnership to Susser Holdings for resale at Stripes and Sac-N-Pac stores and independently operated consignment sites increased 11% year-over-year to 278 million gallons.

This reflects very strong volume at new Stripes Stores, healthy growth trend at existing Stripes Stores, and in our dealer operated consignment locations. Volume sold to third parties including independent dealers and commercial customers increased 34% to 156 million gallons.

Gross profit on these third party sales increased 53% to $8.8 million or to $0.057 per gallons compared to $0.05 per gallon a year ago. The margin improvement per gallon was driven by higher margin commercial fuel gallons primarily from the Gainesville fuel gallon mix as well as higher margins on other commercial gallons.

We had 27 new contract dealers last quarter including the 19 acquired locations and we discontinued two. This brings on independent dealer count to 616 at the end of March, which includes 517 supply sites and 13 consignment sites in addition to the 86 consignment sites supplied by Susser Holdings.

Average fuel margin for all gallons sold by the partnership on a weighted average basis increased to $0.04 per gallon compared to $3.6 per gallon a year ago. Again, this mainly reflects the strong margins on the Gainesville fuel volumes we sell to Permian Basin producers. The partnership gross profit totaled $22 million, up 42% year-over-year.

Rental income continues to increase as SUSP completes additional purchase and leaseback transactions with SUS. In the first quarter, rental income contributed $3.9 million to gross profit accounting for almost 18% of the partnership's total gross profit.

We completed drop down transactions for seven Stripes Stores during the first quarter were $27.5 million and two more in the second quarter for $8.5 million.

Since the IPO we have acquired a total of 42 Stripes Stores for $169.6 million that will produce annual rental income of approximately $13.6 million for the partnership plus the $0.03 per gallon margin on fuel volumes.

The relationship with Stripes plus the outstanding work lead by our Chief Operating Officer Gail Workman has increased our organic growth, improved our customer service, and added scalability to our platform.

The net result is that adjusted EBITDA for the partnership was $15.7 million in Q1, up from $11.2 million a year ago and up more than 11% versus the fourth quarter. Distributable cash flow totaled $14 million representing a 35% increase over the prior year period.

Now, I’ll turn the call over to Mary Sullivan for a few comments on the consolidated financials.

Mary?.

Thanks, Rocky. Good morning, everyone. To summarize the consolidated financial results for Susser Holdings, this morning we reported a first quarter net loss of $1.8 million or $0.09 per diluted share versus a net loss of about $230,000 or $0.01 a share for the first quarter of last year.

As Sid mentioned earlier, the warm weather quarters are our strongest and the cool weather quarters are out weakest year in and year out both for merchandize sales and for fuel margins. The first quarter was no exception and we are comping up against strong numbers for last couple of years.

Adjusted EBITDA totaled $29 million, which was down 8.8% from a year ago. EBITDA performance was significantly impacted by lower retail fuel margins, which were $0.036 lower than a year ago when we experienced record first quarter retail fuel margins of $0.166 per gallon.

However, our first quarter retail fuel margin was still $0.018 higher than the average margin for the previous five years of $0.112 per gallon. As a reminder, we post our historical quarterly fuel margins on our website. We did mitigate this quarter's retail fuel margin decline with higher inside gross profit and maturation of our new store basis.

Fuel margins will also be volatile on a quarter basis while merchandize gross profits are more stable. For the LTM period, non-fuel gross profit represents 65% of our retail division gross profit. Looking at some of the key expense lines, most of the increases were related to the growth in our retail and wholesale business over the last four quarters.

G&A expense was up $3.4 million year-over-year. About half of that increase represents higher non-cash stock compensation expense that is driven by our strong stock price performance. Other increases generally were related to additional cost of supporting our growth from Gainesville, Sac-N-Pac and acceleration of new store growth at Stripes.

For Susser Petroleum Partners specifically, approximately 70% of the additional G&A and operating expense is related to the Gainesville fuel business we acquired in September. Interest expense dropped by $6.9 million to $3.2 million in Q1 due to the reduction of our senior note last spring.

Our effective tax rate for the first quarter was approximately 30%. Turning to the balance sheet, our consolidated revolver borrowings increased by $132 million since year end with the majority of that increased funding growth CapEx including new stores, land bank and the Sac-N-Pac acquisition.

We have almost $13 million in outstanding LTCs and $24 million in cash on the balance sheet. Our total available liquidity is $384 million. Consolidated CapEx during the first quarter was $139 million, which includes approximately $88 million for the Sac-N-Pac acquisition and $33 million related to new store construction and land purchases.

The partnership capital spending was approximately $31 million, which includes $163,000 in maintenance capital and the balance for purchase of Stripes Stores and other growth investment. I'd like to turn the call over to Sam for a few closing comments before we open up the line for questions..

Thanks, Mary. And I want to thank you to for being with us this morning and for being such an important part of our company's growth since we became a publicly traded company 7.5 years ago. Before we take questions, I want to reiterate this is a very bitter sweet moment for the Susser family.

We consider ourselves incredibly blessed to be a part of a team that has grown this business from a couple of stores that my grandmother inherited over 76 years ago to a Fortune 500 operation. Personally and selfishly, my wife Catherine and I really love the way things are today and would have been very, very happy with the status quo.

That said, Energy Transfer presented a compelling proposal for our shareholders at SUSS, our unitholders at SUSP, as well as for our leadership team.

Pairing Stripes and Laredo Taco Company with Sunoco, one of the great fuel brands in the United States with the capability and resources of the Sunoco and ETP family tees up our company for a tremendous future.

We have been dedicated to developing a team that is truly a leader amongst our peers, strives to respect each and every individual team member, runs every store on a one at a time basis and is built on a robust, scalable, low cost, technology platform.

Combined with Sunoco's brand, logistics, credit card and geographic reach, this company has the potential to be a truly major player, a juggernaut in the years ahead. Operator, we’re now ready for any questions..

Thank you, sir. We will now begin the questions-and-answer session. (Operator Instructions). Our first question comes from the line of Irene Nattel with RBC Capital Markets. Please go ahead..

Good morning, everyone. And mindful of Chip's comments I will keep my questions to the quarter of the results..

Than you, Irene..

Thank you for quantifying the impact of the shift in Easter.

When you look at the weather impact, is there any way for you to quantify that?.

Irene, this is Sam. Good morning. I would say that based on what we are seeing in a more normal weather pattern that the weather is worth about 250 basis points, the impact of the weather on the quarter..

Okay. That's a big number, Sam..

It’s a very unusual quarter..

Clearly.

So taking that into consideration how would you describe the competitive dynamic in your key market, and was there any real intensification say sequentially or quarter over quarter?.

I want to reflect on the number if I am off on the 250, maybe it's 200, I shouldn’t imply so much precision, but weather is worth 2%. And I would not say that there has been any meaningful change in the intensity of the competition from prior quarters. It is competitive, it is intense.

We have got great competitors that we respect and there is lots of new growth in Texas but not in a different pace than three or four months ago..

That's great. Thank you..

Thank you..

Our next question comes from the line of Bonnie Herzog with Wells Fargo..

Good morning..

Hi Bonnie, good morning to you..

I just have a question on your packaged drinks. You called it out as having driven your strong merchandize margin. So I was hoping you could talk about some of the trends you are seeing in packaged beverages, and then how that help to drive your strong margin.

And then could you also touch on some of the trends you are seeing in the broad tobacco category especially in e-cig or e-vapor?.

Sure, thank you. Bonnie, on the packaged drink side, the real trend line is growth and single serve immediate consumption for us especially in energy drinks especially water (inaudible) which are higher margin items, and travel with great frequency inside our Laredo Taco Company basket. So we have had some help there. The take home multi-pack business.

So 12 packs remain under a lot of competitive pressure. We are holding our own but it's competitive land cape for those larger packages which are very price sensitive for most consumers. In this particular quarter, I would also add that our coffee business was really strong.

That's not necessarily a good thing that's kind of another weather report, but we hope to see a much stronger trend in frozen beverage hopefully in the coming quarters with just a average kind of weather pattern.

With respect to the electronic cigarette business in the new packages, still some growth but it's of a tiny base, very, very, very small base, but we would see it incremental to the category but it's so small it's really hard to measure. We are seeing growth in moist or smokeless.

And our trends in the traditional cigarette category, it's not a growth business for us but we are growing our market share because there is a decline in that market that's much greater than what we are experiencing. So we're paying a lot of attention to the category it remains an important traffic driver for us.

Cigarette gross profit is 7% of the total inside gross profit. So it is at a place where we think it is pretty manageable force..

Okay. Thanks for that, Sam. I just had a quick follow up on the energy category because certainly that's been the trend I have been seeing for a while, and I am hearing from some of the (inaudible) that they are allocating more space to energy drinks possibly taking space away from CFEs which have been under pressure.

Is that something you have done in your stores as well?.

Short answer is yes. It's not a enormous shift but it as we are going through reset that would be kind of the trend line as we are trying to be sure we stay in stock on what customer want now..

And what really, like you said driving margins. Okay. Thank you so much, Sam..

Thank you, Bonnie, very much..

Thank you. Our next question comes from the line of Dan Leone with Macquarie..

Hi, good morning. Thank you very much and a big congratulations to you, Sam, and the rest of the team..

Thank you..

The one question keeping in mind that the rescinding of the guidance and everything else, we have our questions just about how you thought about transfers and that the MLP asset and the short history that it's existed.

Is there any color you can provide in terms of the thought process of the payment or the payment terms I guess maybe from Gainesville or any other transactions that you guys are considering where Susser would drop down assets into the MLP?.

Susser during this next few months is going to operate on to basis consistent with what we have done in past practice. And we are going to continue to drop down our newly built Stripes Stores and just operate on the steady state basis.

So we don’t have any significant plans to deviate from what has been our operating plan since going public at Susser Partners..

Yes, I guess the question more specifically was if you look at Gainesville transaction right, Susser was issued $2 million in Susser petroleum common units for the --.

No..

The addition of the assets? Is there kind of a ROI target that you are using I guess how is that the right number..

We used I think about $2 million of value of SUSP units --.

Correct..

Which was part of the overall tax structuring of the transaction. It was a structure that was complicated for a small deal but it saved us -- a lot of work for the team, but it saved the company some important taxes. So there is only $2 million worth of SUSP units.

And with respect of return, that was a business that we expected to acquire at a very attractive kind of mid high single digit EBITDA multiple. And our team has done an outstanding job there and we are ahead of our targets little bit with a great outlook for the business..

Okay. Well again, congratulations on everything and I think that does it..

Thank you..

Thank you. Our next question come from the line of John Lawrence with Stephens..

Good morning, everyone..

Hi, John, good morning..

Sam, would you start off just a little bit on the expense side and I guess from a broad stand point, the experience with the Sac-N-Pac stores from acquisition date and inauguration date, are you seeing anything different in those markets than you expected or marketplace competitive pressure or anything, just dive into that a little bit if you will?.

Sam Susser:.

e :.

Yes..

We will have all the vaults done by May 30. So we are feeling very good about the outlook there and, no, there hasn’t been a meaningful change in the competitive environment or the labor market. It's a challenging market but our team has a lot of new tools and it is managing labor much better today than we were just six months ago..

Great, thanks. Let me offer congratulations to all the team and all the help you have given me since the start. Thanks..

Thank you, John, we appreciate it so much..

Your next question comes from the line of Sharon Lu with Wells Fargo..

Hi, good morning. Just following up I guess on John's question about Sac-N-Pac.

Since I guess the deal was closed for about a month now is there I guess an update on how you plan to optimize the portfolio, meaning potentially how many stores could be converted to Stripes and potentially drop down to SUSP?.

Sharon, this is Rocky.

As Sam mentioned, we've spent the last couple of months resetting the merchandize in all of the Sac-N-Pac stores and we are going to run those stores for a while to determine exactly what the volumes you will give to and after that time make a decision as to whether we would continue to operate on long-term under Stripes brand or do something else.

So based on that, really no change to our original plan. We will evaluate them after running them for a while and at that time make a decision as to how many we might drop. There is 47 total sites.

Some of them are smaller footprint stores that may not make sense for the Stripes brand but there is many in the package that are much larger that we think will be great. But as far as giving you a precise number, we don't have a laser dot on that at this point..

Okay. No, that's helpful. And then, I guess just following-up on the improvement in the fuel margins for third party.

Do you expect that to continue to trend higher given I guess higher commercial margins?.

We had a fabulous quarter last quarter. As we mentioned in our comments earlier that the Gainesville volume has grown over what we expected and just higher margin than our average commercial gallon. So that has been very positive and will hopefully continue. Separate from that, our other commercial business, we had a great quarter as well.

So is that sustainable? I would hope so, but I would be less confident in that. This was a great quarter. Up as you can recall from the each quarter, the last two or three have grown and I don't know that we can sustain that growth. But we've been --.

The outlook is great for the Permian Basin which drives a lot of that activity, as you know, Sharon. But we've come to believe that trees don't grow to the sky even in the great state of Texas. So well, we try to be realistic too. But there is a good positive trend. Our customers are growing, they need our services and we feel good about it.

But we wouldn't extrapolate that forever..

Okay. Great. Thank you..

Thank you. And our next question comes from line of Scott Mushkin with Wolfe Research..

Hey. Thanks. And I really just don't have a question. I just really want to say thank you. You guys are some of the finest people I know and do an incredible job running that business. And personally, I'm going to miss being on these conference calls. And hope to see everybody resurface and make a people lot more money. Sam and (inaudible). Thank you..

Scott, you're kind to say it. And thanks for your kind words. And we're going to keep swinging and hopefully keep driving growth here with our new partners..

Thank you. Our next question comes from the line of Ben Brownlow with Raymond James..

Hey, good morning. Thanks for taking the question.

On the new builds, can you give some color around what the company's capacity is for annual new builds? And just comment on how permits and community approvals would limit that acceleration?.

Ben, we are continuing to plan for 28 to 35 or so new stores a year. I think with the land bank that we have and the properties under advance negotiations, I think we despite the permitting challenges we could move towards the high end of that and keep bumping it up over next couple of years from a permitting standpoint.

We are certainly getting better at the people development side, but we're having to add over 1,000 net new jobs to support our current level of growth, and that's very challenging. So we feel that people development side and getting the food service culture and the customer culture right at the pace of growth is also a bit of a challenge.

And I think we -- in terms of organic growth, we need to be thinking about stepping that up incrementally as a pose to our giant step change. And of course, all of this is contingent on the continued recovery strength of the economy and population growth in the markets that we serve.

And it's very strong right now and we're feeling better about the outlook as more and more these industrial plants are breaking ground and getting permitted. There is -- the outlook is very bright over the next three, four, five years. And I think we'll keep creeping up in the store growth..

Okay. Thank you. And I'll add my congratulations on the deal..

Ben, thanks a lot. It's been quite a journey..

Thank you. (Operator Instructions). And our next question comes from the line of Ronald Bookbinder with The Benchmark Company..

Yes. Good morning. And offer my congratulations in there also.

I was wondering, have the cigarette margin stabilized?.

Yes. They have really. We've seen cash decline for about 10 years, just a little bit each year. And for us, they've gotten so low they seem to have stabilized and I don't see a return to yesteryear. I think it's going to be probably pretty flattish going forward. But we're not feeling the same with downward pressure.

And that's part of the merchandise margin strength that we were blessed to report here in Q1..

And you all talked about the fuel volumes at Sac-N-Pac being 60% of Stripes.

But how was their operating margin compared to a Stripes?.

Sam Susser:.

:.

And with the merchandize resets, while it's only been a very short period, is Sac-N-Pacing a really nice comp kick, and could you talk about that?.

The data that we have is so short, I mean we only have really a week's worth of data since the stores were reset. But the trend was up 8 or 10 points pre versus post in that first week. So -- and we have -- so we feel real good about that. But more work to be done, its so very early, wouldn't want to extrapolate anything from a week's to worth a data..

And lastly, on that $0.057 wholesale fuel margin, while it's being driven by the Permian Basin producers, is there a higher cost involved, SG&A involved in delivering it to the Permian Basin?.

Rocky Dewbre:.

:.

Okay. Great. Thank you. And congratulations once again..

Ronald, thank you very much..

And Mr. Susser, we have no additional questions. Please continue with any closing remarks..

Thank you very much. I am very grateful for the opportunity continued to serve our unit holders and our team members as chairman of the board of SUSP as we move forward post closing. I also look forward to supporting Bob Owens. And hopefully helping drive growth as this new chapter on our company's history develops.

It's been pleasure to get to know so many of you. I count a number as you as true friends. For a few of you have been with Susser Holdings since our IPL in October of '06, you've seen an increase in value of nearly five-fold.

We are very proud of our record creating strong value for our shareholders, our unit holders and our bond holders over the years. I usually end these calls with an invitation to come to Texas to our stores and taste our hot fresh delicious tacos. Our doors are always open. And Stripes/Laredo Taco Company is ready to serve you today and in the future.

Operator, thank you very much. This concludes our call..

Ladies and gentlemen, this concludes the Susser Holdings, Susser Petroleum Partners' first quarter earnings conference call. If you would like to listen to a replay of today's conference call, please refer to the press release. AT&T would like to thank you for your participation. You many now disconnect..