Pipeline operator
Magellan Midstream Partners, L.P.
(
MMP
) announced strong second quarter 2012 earnings, aided by higher
demand and rates for its services.
The Tulsa, Oklahoma-based oil distributor reported earnings per
unit (EPU) of $1.01 (excluding mark-to-market commodity-related
pricing adjustments), surpassing the Zacks Consensus Estimate of 87
cents and the year-ago adjusted profit of 91 cents.
Total revenues, at $449.5 million, were up 17.3% year over year but
were below the Zacks Consensus Estimate of $458.0 million.
Quarterly Distribution
Recently, Magellan raised its second quarter 2012 cash distribution
by 12.2% sequentially and 20.1% year over year to 94.25 cents per
unit ($3.77 per unit annualized). The cash distribution is up by a
substantial 259% since its initial public offering (IPO) in the
beginning of 2001. Magellan's new distribution is payable on August
14 to unitholders of record as on August 7, 2012.
Segmental Performance
Petroleum Products Pipeline System:
In the Petroleum Products Pipeline System, quarterly operating
profits (before affiliate G&A and D&A expenses) were a
record $176.3 million, up 20.4% year over year. The increase
reflects higher transportation and terminals revenues as well as
improved product sales, partially offset by increase in operating
expenses.
Petroleum Terminals:
In the Petroleum Terminals segment, operating margin was $42.7
million, up 20.7% year over year. The improvement reflects the
recently acquired/constructed tankage at the partnership's storage
facilities, higher marine terminal rates, as well as decrease in
operating expenses, partially offset by lower product margin.
Ammonia Pipeline System:
The partnership's Ammonia Pipeline System reported an operating
profit of $4.5 million, significantly higher than the $2.0 million
earned in the second quarter of 2011. The positive results can be
attributed to higher revenues and lower expenses.
Guidance Raised
Management expects to generate record distributable cash flows of
approximately $520 million for the full year (up from the previous
guidance of $490 million) and is targeting annual distribution
growth of 18% (double from the earlier forecast of 9%). The
partnership plans to raise the payout by a further 10% in 2013.
Magellan guided toward third quarter and full-year 2012 earnings
per unit of 76 cents and $3.90 (up from the previously expected
$3.75 per unit), respectively.
The partnership plans to spend approximately $500 million on growth
projects in 2012, with expenditures of $200 million thereafter
required to complete these projects. Additionally, the partnership
continues to look out for more than $500 million of potential
growth projects in the earlier stages of development.
Rating
Magellan Midstream - which recently announced plans to set up a
400-mile long oil transport pipeline joint venture with Los
Angeles, California-based energy firm
Occidental Petroleum Corporation
(
OXY
) - currently retain a Zacks #1 Rank, which translates into a
short-term Strong Buy rating.
We appreciate Magellan's highly stable/recurring cash flows, as
well as its low cost of capital and strong distribution coverage.
Additionally, the partnership - with more than $500 million of
potential projects under development - has attractive growth
potential, and maintains a sound liquidity position.
MAGELLAN MDSTRM (MMP): Free Stock Analysis
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OCCIDENTAL PET (OXY): Free Stock Analysis
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