Oil refiner and marketer
Sunoco Inc.
(
SUN
) has reported better-than-expected fourth quarter and full year
2011 results, with strong contributions from the logistics and
retail marketing segments partially offset by weak production and
steeper operating costs.
The company has reported earnings per share (excluding special
items) of 5 cents, defying the Zacks Consensus Estimate of a loss
of 27 cents. However, comparing year over year, results declined
54.5% from the prior-year adjusted result of 11 cents.
For full-year 2011, the company posted a loss of 3 cents per
share, against earnings of $1.79 in the prior year. However, the
reported results were better than our projection of a loss of 33
cents.
Quarterly revenue came in at $12.73 billion compared with $9.93
billion in the prior-year quarter and was 49.2% above our
projection.
Sunoco generated revenues of $46.92 billion in fiscal 2011,
compared with $36.40 billion in 2010. The fiscal result also
surpassed the Zacks Consensus Estimate of $34.84 billion.
Segmental Performance
Refining & Supply:
The segment lost $117 million during the quarter, wider than
a $17 million loss incurred in fourth quarter 2010, hurt by weak
production and margins.
Realized margin averaged $1.13 per barrel, down from $4.77 per
barrel in the prior-year quarter, while total throughputs declined
approximately 28.5% year over year to 455.2 thousand barrels per
day (MBbl/d).
Retail Marketing:
The segment earned $40 million versus $1 million in the
year-ago quarter, reflecting improved retail gasoline and
distillate margins, partially negated by reduced gasoline sales
volumes.
Logistics:
The segment generated a profit of $66 million, up 88.6% year
over year attributable to enhanced crude oil production and
margins, increased demand for oil coupled with recent acquisitions,
and organic growth projects.
Coke:
In mid-January, Sunoco completed the separation of this
segment into a 100% publicly traded company, named
SunCoke Energy Inc
(
SXC
). Hence, from first quarter 2012, this segment will be
treated as discontinued operation.
The segment's profit in the fourth quarter 2011 plunged 64.0%
year over year to $9 million due to lower coke sales revenue and
greater general and administrative expenses.
Discontinued Operations
In late October 2011, Sunoco completed the divesture of its
phenol manufacturing facility in Haverhill, Ohio to Haverhill
Chemicals LLC, a unit of Goradia Capital LLC for $100 million in
cash. In July, the company sealed the sale of its Frankford phenol
and acetone plant to
Honeywell International
(
HON
). Both these transactions marked Sunoco's exit from the Chemicals
business, which from now on will be treated as discontinued
operations.
The Chemicals segment generated an income (from continuing
operations) of $3 million during the fourth quarter, as against a
profit of $6 million in the prior-year period. The underperformance
was due to lower margins and output.
Capital Expenditure & Balance Sheet
During 2011, Sunoco incurred a capital expenditure of about $723
million. As of December 31, 2011, Sunoco had cash and cash
equivalents of $2.06 billion and long-term debt (including current
portion) of approximately $3.44 billion. Debt-to-capitalization
ratio was 65.6%.
Peer Comparison
Another independent refiner
Tesoro Corporation
(
TSO
) came out with lower-than-expected fourth-quarter and full year
2011 results in early February. The company reported loss per share
of 89 cents, wider than the Zacks Consensus estimated loss of 66
cents. For full-year 2011, the company earned $3.81 per share,
missing our earnings projection of $4.13.
Our Recommendation
We like Sunoco's plans to get rid of its East Coast-based
downstream units that have been performing poorly during the last
few years, thereby removing a major overhang from the stock. We
also remain positive about the strong growth potential of Sunoco's
non-refining units, which diversify its portfolio and provide more
stable revenue streams.
However, we remain concerned about Sunoco's operational
reliability issues and increased unscheduled downtime that could
impact its refining system. Additionally, rising crude oil prices
and lack of geographic diversification have also heightened our
negative sentiment. Hence, we are maintaining our long-term Neutral
recommendation on the stock.
HONEYWELL INTL (
HON
): Free Stock Analysis Report
SUNOCO INC (
SUN
): Free Stock Analysis Report
SUNCOKE ENERGY (
SXC
): Free Stock Analysis Report
TESORO CORP (
TSO
): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research