Sunoco's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Sunoco (SUN)

Q1 2012 Earnings Call

May 02, 2012 5:00 pm ET


Brian P. MacDonald - Chief Executive Officer, President and Director

Michael J. Hennigan - Chief Executive Officer of Sunoco Partners Llc, President of Sunoco Partners Llc and Director of Sunoco Partners Llc - General Partner

Michael J. Colavita - Interim Chief Financial Officer and Vice President


Evan Calio - Morgan Stanley, Research Division

Brian J. Zarahn - Barclays Capital, Research Division

Faisel Khan - Citigroup Inc, Research Division



Welcome to Sunoco Inc.'s and Sunoco Logistics Partners Q1 2012 Earnings Conference Call. [Operator Instructions] Today's call is being recorded. [Operator Instructions] I will now like to turn the call over to Mr. Brian MacDonald, President and CEO. Sir, you may begin.

Brian P. MacDonald

Thank you, and good afternoon. Welcome to the quarterly conference call for Sunoco and Sunoco Logistics Partners, where we will discuss the company's first quarter results that were recorded today. With me are Mike Hennigan, CEO and President of Sunoco Logistics Partners; Mike Colavita, our Chief Financial Officer, Pete Gvazdauskas, Sunoco Logistics Partners VP of Finance; and Clare McGrory, Manager of Investor Relations.

As part of today's call, I would direct you to our websites, and, where we have posted a number of presentation slides, which may provide a useful reference as we progress through our remarks.

I would also refer you to the Safe Harbor statement referenced in Slide 2 of the slide package and as included in this afternoon's earnings release.

Now I'll begin by making a few brief remarks about the transaction announced earlier this week and what it means for Sunoco. And then, we'll move into the earnings and business update for both Sunoco Logistics Partners and Sunoco Inc.

As you are aware, on Monday we announced that Energy Transfer Partners will acquire Sunoco Inc. and create one of the largest and most diversified energy partnerships in the United States.

The combination with ETP is a strategically and financially compelling combination that provides substantial value creation opportunities for Sunoco shareholders, as well as ETP unitholders, and will improve the ability of Sunoco's logistics and retail businesses to deliver on their full potential.

We believe our shareholders will receive an attractive premium. Because the consideration to be received by Sunoco shareholders consist of both cash and ETP units, our shareholders can also benefit from the potential upside of ETP's attractive yield and improving growth profile.

As most of you recognize, Sunoco has transformed itself over recent years, and we have returned significant value to shareholders over that time. This deal is an appropriate next step for Sunoco.

From a business perspective, scale is vital. And by combining with ETP, we will dramatically expand our geographic reach and significantly diversify the opportunities for our business

Finally, we continue to be committed to the Philadelphia region, and believe that as part of a stronger company, Sunoco will be even better positioned to return economic benefit to the Philadelphia region.

Now moving onto the results from the first quarter. As you can see from Slide 4, Sunoco reported a net loss before special items of $53 million or $0.49 per share for the first quarter. As I look at our performance this quarter, I see 3 things. One, our Logistics business continues to deliver strong results and execute on growth opportunities.

Sunoco Logistics is progressing well on projects to grow their fee-based earnings and the $300 million in organic growth projects that had been guided on for 2012 are proceeding as planned. Mike Hennigan will provide an overview of the results of Sunoco Logistics Partners in a few minutes.

Two, our retail performance was challenged this quarter by rapidly rising wholesale gasoline prices. During the quarter, we experienced an unprecedented runup in spot gasoline costs of $0.67 per gallon. This is the highest increase we have seen during the first quarter period.

As we have said before, this business does see quarter-to-quarter volatility, but as our trend shows, the business tends to deliver consistent and stable earnings and cash flow year after year. And in April, we benefited from a slightly improved margin environment, as wholesale gasoline prices retreated.

Third, Refining and Supply had a poor financial performance this quarter. The business continued to experience challenging market conditions, but also was burdened by anticipated transition costs after the idling of Marcus Hook. Mike Colavita will explain some of the drivers of this performance later in the call.

However, I do want to note that the refinery operations were very strong in the first quarter, which owed to the great focus of our employees and management at the refinery in what is a very challenging period for them. Additionally, we are pleased to see improved market conditions in the second quarter and are working hard to realize the potential market opportunities through continued strong operations and sharp focus on optimization of the product supply.

I'll take the time now to talk about the status of our refinery exit process, which we have been focused on for some time.

As we announced last week, we have entered into exclusive discussions with The Carlyle Group regarding the potential joint venture involving the Philadelphia refinery. Such a transaction would entail Sunoco contributing its refinery assets in exchange for a minority nonoperating stake. Sunoco would have no ongoing capital obligations with respect to the refinery.

If a suitable transaction cannot be completed, we will idle the refinery in August of 2012. We believe that having a strong partner like The Carlyle Group is necessary to preserve the future of the facility.

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