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.
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.
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%.
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.
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.
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.
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