Pipeline operator Magellan Midstream Partners, L.P. (MMP) announced strong second quarter 2012 earnings, aided by higher demand and rates for its services.
The Tulsa, Oklahoma-based oil distributor reported earnings per unit (EPU) of $1.01 (excluding mark-to-market commodity-related pricing adjustments), surpassing the Zacks Consensus Estimate of 87 cents and the year-ago adjusted profit of 91 cents.
Total revenues, at $449.5 million, were up 17.3% year over year but were below the Zacks Consensus Estimate of $458.0 million.
Recently, Magellan raised its second quarter 2012 cash distribution by 12.2% sequentially and 20.1% year over year to 94.25 cents per unit ($3.77 per unit annualized). The cash distribution is up by a substantial 259% since its initial public offering (:IPO) in the beginning of 2001. Magellan’s new distribution is payable on August 14 to unitholders of record as on August 7, 2012.
Petroleum Products Pipeline System: In the Petroleum Products Pipeline System, quarterly operating profits (before affiliate G&A and D&A expenses) were a record $176.3 million, up 20.4% year over year. The increase reflects higher transportation and terminals revenues as well as improved product sales, partially offset by increase in operating expenses.
Petroleum Terminals: In the Petroleum Terminals segment, operating margin was $42.7 million, up 20.7% year over year. The improvement reflects the recently acquired/constructed tankage at the partnership’s storage facilities, higher marine terminal rates, as well as decrease in operating expenses, partially offset by lower product margin.
Ammonia Pipeline System: The partnership’s Ammonia Pipeline System reported an operating profit of $4.5 million, significantly higher than the $2.0 million earned in the second quarter of 2011. The positive results can be attributed to higher revenues and lower expenses.
Management expects to generate record distributable cash flows of approximately $520 million for the full year (up from the previous guidance of $490 million) and is targeting annual distribution growth of 18% (double from the earlier forecast of 9%). The partnership plans to raise the payout by a further 10% in 2013. Magellan guided toward third quarter and full-year 2012 earnings per unit of 76 cents and $3.90 (up from the previously expected $3.75 per unit), respectively.
The partnership plans to spend approximately $500 million on growth projects in 2012, with expenditures of $200 million thereafter required to complete these projects. Additionally, the partnership continues to look out for more than $500 million of potential growth projects in the earlier stages of development.
Magellan Midstream – which recently announced plans to set up a 400-mile long oil transport pipeline joint venture with Los Angeles, California-based energy firm Occidental Petroleum Corporation (OXY) – currently retain a Zacks #1 Rank, which translates into a short-term Strong Buy rating.
We appreciate Magellan’s highly stable/recurring cash flows, as well as its low cost of capital and strong distribution coverage. Additionally, the partnership – with more than $500 million of potential projects under development – has attractive growth potential, and maintains a sound liquidity position.
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