Energy Transfer Reports Weak 3Q


Natural gas pipeline operator Energy Transfer Partners L.P. (ETP) announced weak third quarter 2012 results, owing to deteriorating natural gas market conditions and reduced gross margin at Intrastate Transportation and Storage segment.

The partnership reported a loss of 33 cents per limited partner unit in contrast to the Zacks Consensus Estimate of earnings of 30 cents. Reported loss was wider than a loss of 19 cents in the year-ago quarter.

Quarterly revenues of $1,420.5 million were below our projection of $1,731.0 million. Comparing year over year, sales decreased 16.5% from $1,701.5 million, due to low natural gas sales.

Quarterly Cash Distribution

Last month, Energy Transfer announced third quarter distribution of 89.375 cents per unit ($3.575 per unit annualized), unchanged from the year-earlier as well as previous quarter distributions. The distribution will be paid on November 14, to unitholders of record as of November 6, 2012.

EBITDA & Operating Income

Adjusted earnings before interest, taxes, depreciation, and amortization (:EBITDA) for the quarter was $481.7 million compared with $404.2 million in the year-ago quarter, reflecting robust performance from the Interstate Transportation business unit.

Operating income of $291.9 million was up 6.6% from the third quarter of 2011.

Distributable Cash Flow

Energy Transfer Partners reported distributable cash flow of $339.5 million in the quarter, up from $266.1 million in the prior-year quarter.

Capital Expenditure

During the quarter, maintenance capital expenditure totaled $27.0 million, down 14.1% year over year.

Balance Sheet

As of September 30, 2012, Energy Transfer had long-term debt (less current maturities) of $8,690.7 million. Debt-to-capitalization ratio was 52.7%.

Our Recommendation

We believe Energy Transfer Partners is well positioned to compete in the natural gas midstream and transportation & storage businesses with its geographically-dispersed asset mix. The partnership has a significant market presence in each of its operating areas, which are located in major natural gas-producing regions of the U.S.

Earlier in October, Energy Transfer Partners merged with Sunoco Inc. for $5.3 billion. The partnership will have the ownership of Sunoco’s branded retail business, general partner interest, plus a 32.4% stake and incentives distribution rights in Sunoco Logistics Partners L.P. (SXL), a master limited partnership in which Sunoco had 34% stake.

With this acquisition, Energy Transfer Partners aims to penetrate further in the crude oil transportation business as natural gas supplies remain under pressure from decade-low prices.

Energy Transfer Partners currently retains a Zacks #2 Rank (short-term Buy rating).


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