Midstream energy service provider, Enterprise Products Partners L.P. ( EPD ) reported third-quarter 2013 earnings per limited partner unit of 64 cents, missing the Zacks Consensus Estimate of 67 cents and deteriorating from the year-ago quarter profit of 68 cents. Higher quantum of expenses and weak performance by the Petrochemical & Refined Products Services segment can be traced to the underperformance.
Quarterly cash distribution at Enterprise increased 6% year over year to 69 cents per common unit, or $2.76 per unit on an annualized basis. Adjusted distributable cash flow of $851 million - up 6.1% year over year - provided coverage of 1.4x. Enterprise retained $286 million of cash flow, thereby reducing its financing needs.
Revenues increased nearly 15.5% year over year to $12,093.3 million, primarily attributable to a rise in liquid volumes. The top line, however, came below the Zacks Consensus Estimate of $13,166.0 million.
Third Quarter Segmental Performance
Gross operating income in the NGL Pipeline & Services segment grew 3.9% year over year to $639.6 million. Gross operating income in the natural gas processing business dropped 16.8% mainly due to lower natural gas processing margins. Lower gains from hedging activities and a decrease in equity NGL production from the Rocky Mountain natural gas processing plant also contributed to the decline.
Enterprise Product's NGL pipeline and storage business' gross operating margin, however, increased 18% year over year to $231 million. For the NGL fractionation business, gross income improved 69% year over year to its highest ever of $116 million, aided by higher revenues and volumes from its sixth and seventh NGL fractionator that came online in Oct 2012 and Sep 2013, respectively.
Onshore Natural Gas Pipeline and Services' gross operating income increased 16.3% year over year to $213.4 million. The pipeline systems benefited from increasing income from Texas Intrastate gathering systems along with a higher margin in the natural gas marketing activities.
Gross operating income from the Onshore Crude Oil Pipelines & Services segment moved up 24.2% year over year to $146.0 million in the reported quarter, primarily on a company record overall crude oil pipeline volume growth. The segment benefited from improved results at the South Texas crude oil pipeline system and Seaway Crude Oil Pipeline.
However, gross operating income in the Petrochemical & Refined Product Services segment fell to $117.1 million in the quarter from the year-earlier level of $182.1 million amid lower sales margins and higher costs.
Enterprise's Offshore Pipelines & Services' gross operating income dropped to $37.9 million from $40.6 million a year ago due to a fall in volume from the Independence Hub platform and Independence Trail pipeline.
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During the quarter, Enterprise spent $1.2 billion, including $82 million in sustaining capital expenditures. Total principal outstanding debt at the end of the quarter was $17.5 billion.
For 2014, the company expects to complete energy infrastructure projects involving investments of around $4.5 billion. These projects are expected to add to the company's distributable cash flow over the years.
Enterprise Products remains a core holding in a master limited partnership portfolio and focuses on projects that generate stable cash flow and contribute to its integrated value chain. While Enterprise increased its cash flow distribution by 6% in the reported quarter, it also deployed cash in various fee-based development projects that will likely generate operating cash flow to support its future distribution growth.
However, Enterprise remains vulnerable to macro conditions and unstable oil and gas prices, which in turn could hurt margins in NGL, natural gas and other businesses.
Enterprise carries a Zacks Rank #3 (Hold). Meanwhile, there are other pipeline operators that are expected to perform well in the next three months. These include Pioneer Southwest Energy Partners L.P. ( PSE ) which currently sports a Zacks Rank #1 (Strong Buy) or Pioneer Access Midstream Partners, L.P. ( ACMP ) and Energy Transfer Equity, L.P. ( ETE ) which carry a Zacks Rank #2 (Buy).