Magellan Midstream Lags on Earnings

Zacks

Pipeline operator Magellan Midstream Partners LP (MMP) reported third quarter 2013 earnings per unit (EPU) of 54 cents (excluding mark-to-market commodity-related pricing adjustments), surpassing the prior-year quarter adjusted profit of 35 cents amid strong segmental performances.

However, the results failed to beat the Zacks Consensus Estimate of 59 cents. A rise in expenses could be held responsible for the miss. Product purchase expenses flared up 40.2% year over year to $120.3 million and G&A expenses increased 18.9% to $32.8 million.   

The Tulsa, Oklahoma-based oil distributor’s total revenue of $443.8 million improved 36.2% year over year and also surpassed the Zacks Consensus Estimate of $433.0 million. Strong performance by the Crude Oil segment, contributions from the New Mexico pipeline system and a promising pricing scenario aided the growth.

Quarterly Distribution & Distributable cash flow

Magellan Midstream reported distributable cash flow of approximately $141.1 million, up 40.1% from the year-ago period.

Recently, Magellan Midstream raised its third-quarter 2013 cash distribution by 5% sequentially and 15% year over year to 55.75 cents per unit ($2.23 per unit annualized). Magellan Midstream’s new distribution is payable on Nov 14 to unitholders of record as of Nov 7, 2013.

Segmental Performance

Refined Products: In this segment, quarterly operating profits (before affiliate G&A and D&A expenses) were recorded at $146.8 million, up 53.1% from the year-ago period. The 6.2% increase in transportation and terminal revenues, owing to the New Mexico pipeline system that was brought online during the quarter, favored the results.

Crude Oil: In this segment, operating margin was approximately $50.6 million, significantly higher (up 126.2%) than the prior-year quarter thanks to increased crude oil transportation revenues as shipment began on the Longhorn pipeline. An increase in the joint venture management fee to about $3.37 million from $0.20 million in third quarter 2012 also aided the results.

Marine Storage: This segment’s operating margin increased 25.2% year over year to $24.5 million, owing to storage fees from the tanks recently constructed, higher throughput fees at the Galena Park terminal and a decrease in operating expenses.

Guidance

Management at Magellan Midstream increased its expected distributable cash flows for full-year 2013 by $10.0 million to $640.0 million. The partnership reiterated the annual distribution growth target of 16% and 15% for 2013 and 2014, respectively. Magellan guided fourth quarter and full-year 2013 earnings per unit of 81 cents and $2.54, respectively.

Magellan Midstream increased its expenditure plans to approximately $925 million for growth projects in 2013, with additional expenditure of $400 million in 2014 to complete the projects. Moreover, the partnership will continue to put in more than $500 million in potential growth projects.

Zacks Rating

Magellan Midstream currently has a Zacks Rank #2 (Buy), implying that it is expected to outperform the broader U.S. equity market over the next 1 to 3 months.

In addition to Magellan Midstream, there are other pipeline operators that are expected to perform well in the next three months. These include Pioneer Southwest Energy Partners L.P. (PSE) which currently sports a Zacks Rank #1 (Buy) or Pioneer Access Midstream Partners, L.P. (ACMP) and Energy Transfer Equity, L.P. (ETE) which carry a Zacks Rank #2 (Buy).

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