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Tesoro Logistics Reports Higher 1Q16 Earnings: What’s Next?

Ruth King

Tesoro Logistics Posts Strong 1Q16: How Did Its Stock React?

TLLP’s 1Q16 earnings

Tesoro Logistics (TLLP), MLP subsidiary of Tesoro (TSO), reported its 1Q16 earnings after the market closed on May 4, 2016. The stock closed 4.6% higher on May 5. TLLP reported a 4% year-over-year growth in EBITDA (earnings before interest, tax, depreciation, and amortization) for the quarter. Its adjusted EBITDA of $174 million for 1Q16 met consensus EBITDA estimates. The EBITDA growth was driven by growth in its crude oil gathering volumes.

Tesoro Logistics’ distributable cash flows grew by 27% to $142 million in 1Q16. Peer Phillips 66 Partners (PSXP) reported a 13% decline in its 1Q16 distributable cash flow.

The above graph compares TLLP’s EBITDA estimates with adjusted EBITDA over ten quarters. Tesoro Logistics forms ~0.6% of the Guggenheim Raymond James SB-1 Equity ETF (RYJ). Holly Energy Partners (HEP) reported a 26% year-over-year rise in its 1Q16 EBITDA.

TLLP’s distributions

On April 20, 2016, TLLP increased its quarterly distributions by 3.8% to $0.81 from $0.78 in 4Q15. This was the 20th consecutive quarterly increase of ~4% or more. The distribution coverage ratio was 1.3x for the quarter.

TLLP targets annual distribution growth of 17% in 2016. “TLLP remains on target to deliver on its EBITDA and distribution growth commitments for 2016 while maintaining significant financial flexibility. We continue to target 17% annual distribution growth in 2016 while maintaining annual distribution coverage of at least 1.1 times and bringing our debt-to-EBITDA ratio to four times or less,” said Greg Goff, chairman and CEO of TLLP’s general partner.

Expected asset dropdowns from TSO

TLLP expects asset dropdowns from Tesoro later in 2016. These assets, including Great Northern Midstream, could add $70 million to TLLP’s $100 million in annual EBITDA.

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