Must-know: An overview of Genesis Energy (Part 3 of 5)
1Q14 earnings review
Genesis Energy L.P. (GEL) recently announced its earnings results. The company reported $0.34 earnings-per-share (or EPS) for the quarter—missing the consensus estimate of $0.35 by $0.01. It reported a revenue of $1 billion for the quarter, compared to the consensus estimate of $1.35 billion. Adjusted earnings before interest, taxes, depreciation, and amortization (or EBITDA) increased by $5.8 million year-over-year (or YoY) to $66.6 million. Net income from continuing operations for the quarter was $29.8 million or $0.34 per unit compared to $22.7 million or $0.28 per unit for the same period last year.
In the Pipeline transportation segment, operating results increased $2.9 million or 11 % on a sequential basis. The Supply and logistics segment saw an increase of $500,000 or an increase of 2% quarter-over-quarter (or QoQ). The Refinery services segment increased by $2.9 million or 16% between the quarters.
The increase in pipeline transportation was accredited to higher transport volumes on GEL’s offshore pipelines as a result of additional wells being connected to the pipeline in the existing fields. Increased U.S. crude oil production has also helped things along especially on the Cameron Highway Oil Pipeline Company (or CHOPS)—which is connected to significant delivery points.
Additionally, GEL’s Louisiana pipeline system, which is an 18-mile pipeline that connects Port Hudson to the Baton Rouge Scenic station began operations in the quarter. It contributed to the increase in pipeline margins.
The company indicated that a 12% increase in the sodium hydrosulfide (or NaHS) sales volumes due to an increased customer demand was the major reason for the increase in the refineries segment. However, this increase was partially offset due to a decrease in the average index prices for caustic soda (or NaOH), which is a component of GEL’s sales price. Also, for the refinery services business, the end customers are industrial users for paper and packaging and copper. So, this segment is exposed to copper prices, copper demand, and global gross domestic product (or GDP) for paper and packaging. As a result, adverse movements on these indices might affect the segment.
The supply and logistics segment didn’t increase by much. The company stated that, “In the first quarter of 2014, we continued to experience negative impacts as we worked through the dislocations in the prices and margins for the underlying commodities in our refined products business.”
Additionally, the supply and logistics margin is also affected by the challenges in the fuel oil business. Historical market channels to Asia and a shift in tanker shipping patterns have contributed to significantly less activities at severely challenged or negative margins. This resulted in a substantial drop in the commodity margins for the refined products business.
Interest costs for 1Q14 were up by $1.4 million from 1Q13, primarily as a result of increased borrowings for acquisitions and other growth projects—a portion of which were financed by the issuance in 1Q13 of $350 million of senior unsecured notes bearing interest at 5.75% per annum.
Other components of net income included depreciation and amortization expense which increased by $4.2 million quarter-over-quarter (or QoQ), primarily as a result of the Hornbeck acquisition and other recently completed internal growth projects.
GEL has been consistently increasing its distribution and boasts of a high distribution coverage of 1.10x. The latest payout marks the 35 th consecutive quarterly distribution hike by the pipeline operator, of which 30 increases have been 10% or more year-over -year (or YoY).
GEL publicly announced that the 2014 capital spending would be about $310 million. In fiscal year 2013, the company invested $230 million in Hornbeck Offshore Transportation. This acquisition complements and further integrates existing operations of GEL, including the Genesis Marine inland barge business. The company has also made investments in the Southeast Keathley Canyon Pipeline Company LLC (or SEKCO) pipeline and the ExxonMobil Baton Rouge Project.
For reference, we also show Genesis Energy’s key statistics ( as of July 2, 2014) against some other master limited partnerships (or MLPs) that also engage in midstream services including Enterprise Products Partners (EPD), and Plains All American Pipeline (PAA), and ExxonMobil (XOM)—which are components of the Alerian MLP ETF (AMLP).
To learn more about GEL’s growth outlook and guidance read Part 4 of this series.
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