In an attempt to streamline its refining and marketing businesses, Sunoco (SUN) has entered into an agreement with Haverhill Chemicals LLC, a unit of Goradia Capital LLC to sell its phenol manufacturing facility in Haverhill, Ohio. The sale price of the plant has being settled at approximately $106.5 million, including the value of the product inventory.
The deal, pending customary conditions and approvals, is slated to be closed by year-end 2011.
In the second quarter of 2011, Sunoco assumed a pre-tax non-cash charge of $169 million associated with the write-down of Haverhill assets. The company reported mixed second quarter results, with strong contributions from the logistics segment partially offset by weak production and margins.
Sunoco’s earnings per share (excluding special items) of 40 cents lagged the Zacks Consensus Estimate of 49 cents and deteriorated 69.5% from the prior-year adjusted result of $1.31. However, quarterly revenue came in at $12.02 billion compared with $9.59 billion in the prior-year quarter and was 37.4% above our projection.
Headquartered in Philadelphia, Sunoco is a leading independent refiner and marketer of petroleum products as well as a manufacturer of chemicals. The company also has interests in logistics and coke making facilities.
We believe that the disposition of the Haverhill workshop underlines Sunoco’s efforts to exit the chemicals business and concentrate on expanding its retail network.
However, we see Sunoco’s near-term growth prospects clouded by the supply-demand imbalance of refining products. Moreover, the company’s successful restructuring initiatives have been overshadowed by operational reliability issues and increased unscheduled downtime.
Additionally, the lack of geographic diversification and rising crude oil prices are expected to create pressure on stock performance in the coming months. Considering these factors, we expect Sunoco shares to perform below its peers such as Valero Energy Corp. (VLO) and Tesoro Corp. (TSO) over the coming months and maintain our long-term Underperform rating on the stock.
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