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SemGroup (SEMG) Breaks Even in Q4 Earnings, Revenues Beat

Nilanjan Choudhury

SemGroup Corporation SEMG reported breakeven adjusted earnings in fourth-quarter 2018 compared with the Zacks Consensus Estimate of 8 cents and the year-ago quarter adjusted income of 3 cents. The underperformance stemmed from lower Canadian gas processing volumes and certain non-cash charges. 

Operating income was down 32% to $49.9 million, while adjusted EBITDA fell from $111.5 million in the fourth quarter of 2017 to $105.4 million.

Total revenues recorded in the quarter came in at $611.9 million, surpassing the Zacks Consensus Estimate of $588 million due to strong White Cliffs pipeline volumes. Further, the top line also edged up around 1% from the prior-year sales of $606.8 million.

SemGroup has reorganized its operating activities around three segments – U.S. Liquids, U.S. Gas, and Canada – to better reflect the company’s current business portfolio. 

Segmental Information

U.S. Liquids: This segment – which includes the operations of SemGroup U.S. Crude Transportation, Crude Facilities, and Storage Operation, Crude Supply & Logistics and HFOTCO – recorded a profit of $85.5 million, reflecting a decrease of 2% from the year-ago quarter. While White Cliffs pipeline volumes of 144 thousand barrels per day (Mbbl/d) were notably higher than the year-ago figure of 92 Mbbl/d, along with margin gains and contribution of certain new crude storage tanks to the Houston terminal, these factors were more than offset by non-cash inventory charges.

U.S. Gas: Profit generated from this segment (the erstwhile SemGas unit) amounted to $17.6 million, 21.1% greater than a year ago on 46% higher average processing volumes.

Canada: This unit contains the results of SemGroup’s legacy SemCAMS segment plus the company’s newly acquired Meritage assets.

The segment’s profit in the quarter under review narrowed to $17.2 million, from $23.7 million incurred in the corresponding quarter of the last year. The deterioration could be attributed to lower average gas processing volumes that fell 5% year over year to 430 million cubic feet per day.  

Balance Sheet

As of Dec 31, 2018, the company had cash and cash equivalents of $86.7 million and long-term debt of around $2.3 billion. The debt-to-capitalization ratio of the company was 55.3%, down from 63.2% six months ago. SemGroup was able to improve the leverage primarily on the back of asset sales.

2019 Guidance

SemGroup expects full-year 2019 net capital outlay of $307 million that include $45 million associated with maintenance projects. Further, the company projects adjusted EBITDA for the year in the $420-$465 million range.

Zacks Rank & Stock Picks

SemGroup currently retains a Zacks Rank #2 (Buy).

Apart from SemGroup, one can also look at some other players in the energy space like ProPetro Holding Corp. PUMP, Archrock, Inc. AROC and NuStar Energy L.P. NS. These companies also sport a Zacks Rank #2.

(You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.)

The 2019 Zacks Consensus Estimate for ProPetro is $2.21, representing 10.6% earnings per unit growth over 2018. Next year’s average forecast is $2.52 pointing to another 13.9% growth.

The 2019 Zacks Consensus Estimate for Archrock is 67 cents, representing 38.9% earnings per unit growth over 2018. Next year’s average forecast is 73 cents pointing to another 10% growth.

The 2019 Zacks Consensus Estimate for NuStar is $1.10, representing 63.9% earnings per unit growth over 2018. Next year’s average forecast is $1.16 pointing to another 6% growth.

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