Energy Transfer Partners’ (ETP) profit margins have collapsed
Energy Transfer Partners (ETP) should be on your investment radar (Part 6 of 17)
Profit margins
In the previous part, we saw how Energy Transfer Partners’ (ETP) acquisitions have transformed the company’s revenues.
Here, we can see this deal reverberate across the company’s income statement, as it will across its financial statements in general—something we’ll come back to as we analyze ETP’s financial statements in the following parts of this series.
To make our analysis easy, let’s study Energy Transfer Partners’ “normalized” profits at various levels by scaling them by corresponding revenues for those years.
A quick glance at the table above tells us that the sharp drop in ETP’s margins as a consequence of its acquisitions is clear across its operating and net profit levels.
Key insights
But a keener study of the numbers gives us two deeper insights.
First, the huge investment contributed to Energy Transfer Partners absolute dollar profits—something that MLPs are designed to do in order to grow distributions to partners.
Energy Transfer Partners’ profits were, reportedly ~$1.2 billion in 2011. In 2013—the first full year after the acquisitions completed—it reported operating profits of ~$2.2 billion. It earned close to that level in the first three quarters of 2014 itself, and it’s estimated to make a bid for $3 billion for the full year of 2014.
For context, ETP’s rivals, Enterprise Product Partners (EPD), Plains All American Pipeline (PAA), and Magellan Midstream Partners (MMP), reported operating incomes of ~$2.7 billion, ~$1.3 billion, and ~$675 million for the first three quarters of 2014, respectively. EPD, PAA, ETP, and MMP are the top four holdings of the 25 member Alerian MLP ETF (AMLP), together accounting for about one-third of the ETF.
Second, even looking at ETP’s margins, after the sharp drop in margins in 2012–2013, the company seems to be gaining some traction again with profitability in the quarters since then. So, in the quarters and years to come, as the MLP “digests” its acquisition, we could see this finding turn into a trend.
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