Oil refiner and marketer Sunoco Inc. (SUN) reported a dull first quarter, weighed down by inflationary market conditions coupled with operational disturbance at two refineries.
The company reported loss per share (excluding special items) of $1.01 in first quarter 2011, much wider than the Zacks Consensus Estimate of loss of 5 cents. In the year-ago quarter, Sunoco posted an income of 14 cents per share (adjusted).
Quarterly revenue came in at $10.6 billion compared with $8.2 billion in the prior-year quarter and was 30.0% above our projection.
Segmental Performance
Refining & Supply: The Refining & Supply segment lost $138 million during the quarter, as against a loss of $70 million in first quarter 2010, hurt by lower realized margins and less production volumes (due to unplanned maintenance activities at two refineries).
Realized margin averaged $3.14 per barrel, down from $4.08 per barrel in the last year quarter, while total throughputs declined approximately 13.1% year over year to 514.6 thousand barrels per day (MBbl/d).
Retail Marketing: The Retail Marketing segment earned $12 million versus $34 million in the year-ago quarter, reflecting lower average retail gasoline margins.
Chemicals: The Chemicals segment witnessed a loss (from continuing operations) of $9 million during the quarter, against a profit of $5 million in the prior-year period. The unplanned refinery downtime at the Philadelphia refinery resulted in increased feedstock costs and reduced production that impacted the segment’s performance.
Logistics: The Logistics segment generated a profit of $31 million, up 14.8% year over year attributable to higher lease acquisition results along with organic growth projects.
Coke: Coke segment’s profit plunged 82.4% year over year to $9 million during the quarter on account of lower coke sales revenue and greater maintenance expenses.
Capital Expenditure & Balance Sheet
During the quarter, Sunoco incurred a capital expenditure of about $150 million. As of March 31, 2011, Sunoco had cash and cash equivalents of $1.48 billion and long-term debt (including current portion) of approximately $2.36 billion. Debt-to-capitalization ratio stood at 39.0%.
Our Recommendation
We remain concerned about Sunoco’s operational reliability issues and increased unscheduled downtime that will likely impact its refining system. Additionally, pitfalls from the ArcelorMittal litigation settlement, as well as the lack of geographic diversification and stiff competition from peers such as Valero Energy Corp. (VLO), Tesoro Corp. (TSO), have also added to our negative sentiment. Hence, we are maintaining our long-term Underperform recommendation on the stock.
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