Oil refiner and marketer
Sunoco Inc.
(
SUN
) has reported mixed first quarter 2012 results, with strong
contributions from the logistics segments partially offset by weak
production and higher crude oil prices.
The company has reported loss per share (excluding special
items) of 49 cents, much wider than the Zacks Consensus Estimate
loss of 6 cents. However, comparing year over year, the results
improved from the prior-year adjusted loss of $1.00.
Quarterly revenue came in at $12.20 billion compared with $9.98
billion in the prior-year quarter and was 51.6% above our
projection.
Segmental Performance
Refining & Supply:
The segment lost $87 million during the quarter, narrower
than the $138 million loss incurred in first quarter 2011,
benefiting from less costs and reduced depreciation expense.
Realized margin averaged $1.83 per barrel, down from $3.14 per
barrel in the prior-year quarter, while total throughputs declined
approximately 32.5% year over year to 347.5 thousand barrels per
day (MBbl/d).
Retail Marketing:
The segment experienced a loss of $6 million versus a profit of $12
million in the year-ago quarter. The result was hurt by steeper
costs and reduced retail gasoline margins.
Logistics:
The segment generated a profit of $57 million, up 83.9% year
over year attributable to enhanced crude oil production and
margins, increased demand for oil along with recent acquisitions,
and better pipeline fees.
Discontinued Operations
In mid-January, Sunoco completed the separation of its Coke
segment into a 100% publicly traded company, named
SunCoke Energy Inc
(
SXC
). Hence, from first quarter 2012, this segment was treated
as discontinued operation.
Capital Expenditure & Balance Sheet
During the quarter, Sunoco incurred a capital expenditure of
about $94 million. As of March 31, 2012, Sunoco had cash and cash
equivalents of $1.99 billion and long-term debt (including current
portion) of approximately $2.57 billion. Debt-to-capitalization
ratio was 63.2%.
Acquisition
Early this week, natural-gas pipeline operator
Energy Transfer Partners L.P.
(
ETP
) entered into an agreement to acquire Sunoco for $5.3 billion. As
per the terms of the agreement, Sunoco shareholders will get $50.13
in cash or stock for each share they hold. The deal has been
approved by the board of directors of both the companies and is
expected to close by the latter half of 2012.
Peer Comparison
Another independent refiner
Tesoro Corporation
(
TSO
) came out with better-than-expected first-quarter 2012 results on
the same day. The company reported earnings per share of 39 cents,
breezing past the Zacks Consensus estimated of 27 cents.
Our Recommendation
We believe that volatile oil prices, inflationary economic
conditions and the supply-demand imbalance for petroleum products
will continue to pull down Sunoco's share in the near-to-medium
term. Moreover, with the separation of the metallurgical coke
manufacturing business, Sunoco exhibits a weak business profile and
remains susceptible to competitive risks.
However, this negative sentiment is somewhat negated by Sunoco's
logistics business - conducted through
Sunoco Logistics Partners, L.P.
(
SXL
) - that offers a fairly stable source of earnings and cash flows
from its growing asset base. This segment is well positioned to
benefit from the import-oriented East Coast, providing fee-based
revenues under term contracts.
Sunoco currently retains a Zacks #3 Rank, which translates into
a short-term Hold rating.
ENERGY TRAN PTR (ETP): Free Stock Analysis
Report
SUNOCO INC (SUN): Free Stock Analysis Report
SUNCOKE ENERGY (SXC): Free Stock Analysis
Report
SUNOCO LOGISTIC (SXL): Free Stock Analysis
Report
TESORO CORP (TSO): Free Stock Analysis Report
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