Pipeline operator Magellan Midstream Partners, L.P. (MMP) announced dull third-quarter 2012 earnings, with poor contributions from the business units.
The Tulsa, Oklahoma-based oil distributor reported earnings per unit (EPU) of 35 cents (excluding mark-to-market commodity-related pricing adjustments), unchanged from the profit of the prior-year quarter. The result, however, fell shy of the Zacks Consensus Estimate of 44 cents.
Total revenues, at $325.9 million, were down 25.2% year over year and were also below the Zacks Consensus Estimate of $468.0 million.
In mid-October, Magellan Midstream completed the split of its limited partner units in the ratio 2:1. The quarterly results reflect the effects of the stock split.
Recently, Magellan raised its third-quarter 2012 cash distribution by 3% sequentially and 21% year over year to 48.5 cents per unit ($1.94 per unit annualized). Magellan’s new distribution is payable on November 14 to unitholders of record as on November 6, 2012.
Petroleum Products Pipeline System: In the Petroleum Products Pipeline System, quarterly operating profits (before affiliate G&A and D&A expenses) were $97.7 million, down 34.5% year over year. An increase in operating expenses and low average tariff rate impacted the performance of the segment, offsetting the effects of higher transportation and terminals revenues as well as improved product sales.
Petroleum Terminals: In the Petroleum Terminals segment, operating margin was $36.1 million, exhibiting a drop of 10.4% year over year. Steeper expenses associated with personnel costs and environment spending pulled down the quarterly performance of the segment.
Ammonia Pipeline System: The partnership’s Ammonia Pipeline System reported an operating profit of $79.3 million, substantially less than the $137.7 million earned in the third quarter of 2011.
Management expects to generate distributable cash flows of approximately $525 million for the full year 2012 (up from the previous guidance of $520 million) and is targeting annual distribution growth of 18%. The partnership plans to raise the payout by a further 10% in 2013. Magellan guided toward fourth quarter and full-year 2012 earnings per unit of 68 cents and $1.93, respectively.
The partnership plans to spend approximately $450 million on growth projects in 2012, with expenditures of additional $280 million in 2013 to complete the projects. Additionally, the partnership is looking to put in more than $500 million in potential growth projects.
Magellan Midstream – which is collaborating with Los Angeles, California-based energy firm Occidental Petroleum Corporation (OXY) to set up a 400-mile long oil transport BridgeTex pipeline joint venture – currently retain a Zacks #2 Rank, which translates into a short-term Buy rating.
We maintain a long-term Outperform recommendation on the stock, owing to its low risk, stable business model and proven track record of distribution growth. The partnership’s high-quality and diversified midstream assets are also projected to generate stable and recurring revenues by way of long-term fee-based contracts.
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