Greetings. Welcome to Sunoco LP fourth quarter full year 2019 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Scott Grischow, Vice President of Investor Relations. Thank you. You may begin.
Thank you, good morning, everyone. On the call with me this morning are Joe Kim, Sunoco LP's President and Chief Executive Officer, Tom Miller, Chief Financial Officer, Karl Fails, Chief Operations Officer, and other members of the management team. A reminder that today's call will contain forward-looking statements subject to risks, uncertainties and other factors that could cause actual results to differ materially. 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. Before I turn the call over to Tom, I will review 2019's fourth quarter and full- year financial and operating results.
For the fourth quarter, the partnership recorded net income of $83 million. Adjusted EBITDA was $168 million compared to fourth quarter 2018 of $180 million. Fuel volumes of 2.1 billion gallons were up 3% from a year ago, and fuel margin was $0.099 per gallon. Fourth quarter Distributable Cash Flow, as adjusted, was $120 million, yielding a coverage ratio of 1.39x . On January 27th, we declared an $0.8255 per unit distribution, the same as last quarter. For the full year 2019, the partnership recorded net income of $313 million and adjusted EBITDA of $665 million, compared to $638 million in 2018. Full year 2019 Distributable Cash Flow, as adjusted, was $453 million compared to $455 million a year ago.
Looking at our operational performance, fuel volume for the full year 2019 totaled a record high of 8.2 billion gallons, up 4% from a year ago, driven by the contribution from our 2018 acquisitions, organic growth, and gross profit optimization efforts. Fuel margin was $0.101 per gallon, which was in the middle of our $0.095-$0.105 guidance range. Finally, total operating costs were down 13% or $75 million year-over-year. This reduction and continued focus on cost controls ensures that growth in our gross profits falls to the bottom line. I will now turn the call over to Tom.
Thanks, Scott, and good morning, everyone. We delivered strong results again in 2019. Let me point out some of the highlights. Our 2019 adjusted EBITDA was up 4% from a year ago, and our Distributable Cash Flow was essentially flat to a year ago. If we exclude one-time items in both 2019 and 2018, adjusted EBITDA would have increased by 10%, and DCF as adjusted would have increased by 7% year-over-year. We sold record volumes with margins in the middle of our annual guidance range, anchored by our profit optimization efforts. Our focus on controlling expenses resulted in a 13% reduction in operating expense. Our JC Nolan Pipeline and terminal venture with Energy Transfer went into service in August, and we are pleased with the early results.
Our year-end leverage of 4.6x sits in the middle of our targeted range of 4.5x- 4.75x . We have steadily improved our trailing 12-month coverage ratio over the last few years, with 2019 coverage of greater than 1.3x . Finally, we were successful in signing up new customers with long-term contracts that quickly deliver added EBITDA. We carry that momentum into 2020. In December, we provided guidance for adjusted EBITDA between $670 million and $700 million.
This guidance is made up of the following: fuel volumes of 8.4 billion gallons or better, annual margins between $0.095 and $0.105 per gallon, lease income of approximately $145 million, total operating expenses of approximately $515 million, maintenance capital of $45 million, and growth capital totaling $130 million. Let's take a moment to discuss our perspective on capital allocation. First, our capital program continues to be a critical component of our growth strategy. We will invest in attractive, high-quality growth projects. These growth projects take the shape of traditional fuel distribution investments similar to those we've made over the last couple of years in midstream projects similar to the JC Nolan joint venture.
Fuel distribution projects typically begin to generate cash in less than six months, while midstream projects take around 12 months to generate cash. Bottom line, our growth capital spend quickly generates returns for our unit holders, evident in our strong 2019 results and our 2020 guidance that's better than the results we delivered this past year. Managing our business to a coverage ratio of at least 1.2x has allowed us to comfortably self-fund a large portion of our capital with excess cash flow. This self-funding also allows us to remain within our target long-term leverage ratio target. Our primary focus regarding capital allocation is to build a business with stronger and more stable cash flows that, over the long run, will create meaningful value for our unit holders.
At the same time, we stay focused on capital discipline, targeting projects and opportunities with high returns that will allow us to live within our targeted financial metrics. With that, Joe will provide his closing thoughts. Joe?
Thanks, Tom. Good morning, everyone. We delivered very strong results in 2019. Over the last two years, we delivered record volumes combined with strong margins while reducing our expenses. As a result, our EBITDA increased year-over-year. Our coverage ratio is now around 1.3x , which is a significant improvement from two years ago. At the same time, we remained at or below our targeted leverage range. We continue to deliver quality results quarter after quarter, regardless of the commodity environment. Our underlying business is strong. Looking forward, we expect 2020 to be better than 2019. The first quarter is off to a good start. Fuel gross profit is as expected, while expense and capital management remain tight. Moving on to growth, we have successfully transitioned from an acquisition strategy within fuel distribution to one focused on organic growth.
We will continue to increase our fuel distribution footprint by steadily growing the number of customers flying the Sunoco brand. For our midstream segment, we'll utilize both acquisitions and organic growth. If the right acquisition at the right price presents itself, we'll act on it. Concurrently, we are building an internal pipeline of organic growth opportunities. One example is a terminal project we're evaluating in South Texas. As we get further in the process, we'll provide more details. These midstream investments are attractive to us for a couple of key reasons. First, they're natural synergies with our fuel distribution business. Second, these assets provide ratable cash flow to further add stability and diversification to our portfolio. Let me close by stating that we expect 2020 to be another strong year. Operator, that concludes our prepared remarks. You may open the line for questions.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Sharon Lui with Wells Fargo Securities. Please proceed.
Hi, good morning. A quick question on your OpEx for this quarter. It was down quite a bit. Just wondering if this may be a good run rate going forward. If so, could your guidance for total expenses be a bit conservative?
Well, quarter-to-quarter, month-to-month, there's a lot of variance in our OpEx. We gave you the number of 515, and I think that's the number you should work with. If you really want to dig into what other OpEx is, I would look at what our rent and our G&A is and sort of hold those flat, and you'll back out to the other OpEx line.
Okay, great. I guess, during the quarter, there were a few announcements in the C-store space, particularly the spin-off of Speedway, the GPM Empire merger, and Circle K's sale of its MLP interests. Just wondering if any of these developments impact how you view, I guess, Sun's competitive landscape.
Good morning, Sharon. It's Joe. As a starting point, I don't comment on other deals that's happening because I don't know all of the insight. From a competitive position, I think we're just as strong or stronger than we were two years ago from a competitive position. We've added, over the last two years, over 300 locations that are flying the Sunoco brand. If you look back, we were relatively flat or declining from a 5 to 10-year perspective. We're growing the brand. We have a stronger balance sheet to continue to invest in the brand. I think we're better positioned today than we have been in the past.
Okay, just the last question. Your latest thoughts on Sun's cost of capital. One of your peers eliminated its IDRs. Just wondering if this is something that you would consider as well.
Yeah, let me start off by saying there's no efforts being spent by neither Sunoco or Energy Transfer on IDR elimination. I think what you got to keep in mind is two years ago, when we completed the 7-Eleven transaction, we laid out a plan and a strategy to create value for all our shareholders, and we're delivering on that. Quarter after quarter, we've delivered quality results. I think what's more important is that we feel very confident that we're going to continue to execute on this plan and continue to deliver value for all our stakeholders.
Great. Thank you very much.
As a reminder, it is star one on your telephone keypad if you would like to ask a question. Our next question is from Gabe Moreen with Mizuho Securities. Please proceed.
Hi, guys. This is Rob on for Gabe. Looks like you were able to deliver pretty solid CPG in the fourth quarter, despite a relative lack of volatility in wholesale fuel prices. Given how the commodity backdrop has played out thus far in the first quarter, I guess, how would you compare what you're seeing across your portfolio to what you saw at the end of 2018, in terms of falling commodity prices? Would seasonality blunt any expected margin uplift, given that the first quarter is traditionally your weakest quarter for margin?
Yeah. Hi, Rob. This is Karl. A few thoughts for you. You pointed out that we've seen different commodity environments; you compare Q4 of 2018 to Q4 of 2019. Obviously, the tailwind we had from steeply falling commodity prices in 2018 were beneficial to us. You see our results in 2019; we also had very strong results in a different commodity environment. One of the things we've said is, while quarter-to-quarter, there will be some fluctuation, that our base fuel distribution margins and gross profit are very stable. There are two things that really underpin that. First is our 7-Eleven take-or-pay construct, right? About 25% of our volume is sold under that. Even if we have some volume fluctuation, that EBITDA is very steady. The second is our gross profit optimization efforts that we've put into place.
We're able to respond to different commodity environments and really maybe take more volume in one quarter, a little less volume in another quarter, and continue to produce strong, fairly stable results.
Okay. That's helpful. Just a quick second question. Could you guys frame up how you're thinking about distribution growth as your fundamentals begin to strengthen, and particularly your thoughts around what it can mean to investor perception given a dormant IDR overhang?
Yeah. Rob, this is Joe. Let me answer your question about distribution growth. I think the market sentiment is pretty clear that even if we did increase distribution and we built our coverage now over 1.3, that if we increase our distribution, I don't think it's going to lower our cost of capital. I think a better use of our excess cash flow is to use it for growth or for the balance sheet. That's our direction going forward.
Okay. Thanks a lot. I appreciate it, guys.
We have reached the end of our question-and-answer session. I would like to turn the conference back over to Scott for closing remarks.
Thanks, everyone, for joining us this morning. As always, if you have any follow-up questions, feel free to reach out. I hope everyone has a good day. This concludes today's call.
Thank you. This does conclude today's conference. You may disconnect your lines at this time. T hank you for your participation.