It has been about a month since the last earnings report for Magellan Midstream Partners (MMP). Shares have lost about 0.1% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Magellan Midstream due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Magellan Midstream Puts Up Stellar Q2 Show
Magellan Midstream Partners reported second-quarter 2019 adjusted earnings per unit of $1.20, surpassing the Zacks Consensus Estimate of $1.07 and the firm’s forecast of $1.13. Higher volumes from its crude oil pipelines led to the outperformance. Stronger contribution from Refined Products and Crude Oil units also aided the results. The bottom line was also higher than the year-ago profit of $1.05 a unit.
Quarterly revenues of $701.7 million topped the Zacks Consensus Estimate of $653 million. The top line was also higher than the year-ago level of $644.1 million.
Refined Products: Revenues from the segment came in at $490 million, up from $442.4 million recorded in the year-ago period. Notably, total volumes shipped in the quarter under review totaled 132.4 million barrels versus 133.9 million barrels a year ago. Operating margin from the segment increased to $224.1 million in second-quarter 2019 from $191.4 million in the corresponding period of 2018. While depreciation costs increased y/y, general & administration expenses decreased. Operating profit of the segment increased 24% y/y to $158.3 million.
Crude Oil: Quarterly revenues came in at $164.5 million, up 6% y/y on the back of higher volumes. Total volumes shipped in the quarter totaled 80.5 million barrels, up from 49.9 million barrels in the year-ago period. As such, operating margin increased to $160.3 million from $151.9 million recorded in the year-ago period. Operating profit came in at $130.4 million, up 3.6% y/y on the back of higher volumes and margins, partly offset by increased depreciation as well as G&A costs.
Marine Storage: Revenues from the segment came in at $48.6 million compared with the year-ago period’s $47.5 million. Operating margin increased 7% y/y to $30 million. However, higher depreciation and general & administration costs increased y/y. Resultantly, its operating profit declined to $11.9 million from $12.7 million in the year-ago period.
DCF & Balance Sheet
Distributable cash flow in second-quarter 2019 came in at $314.8 million, up from $266.6 million in the year-ago period.
Notably, on Jul 25, the partnership announced second-quarter cash distribution of $1.0125 per unit ($4.05 on an annualized basis), representing 6% and 1% annual and sequential growth, respectively. This represents the 69th distribution hike since the partnership became public. The new distribution will be paid on Aug 14 to unitholders of record as of Aug 7.
As of Jun 30, the partnership had cash and cash equivalents of $3.1 million, and a long-term debt of $4,407.8 million (with a debt-to-capital ratio of 62.6%).
For full-year 2019, management now expects to generate distributable cash flow of approximately $1.22 billion, up from the prior forecast of $1.18 billion. Also, it is targeting annual distribution growth of 5%. Magellan projects second-quarter earnings per unit to be $1.03. Projection for full-year earnings per unit has been revised upward to $4.20 from the previous guidance of $4.05. The partnership plans to spend approximately $1.1 billion on expansion projects in 2019.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
At this time, Magellan Midstream has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Magellan Midstream has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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