MarkWest Energy Misses on Q1 Earnings, Up Y/Y - Analyst Blog

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Natural gas processor and distributor MarkWest Energy Partners LP ( MWE ) reported lower-than-expected first-quarter 2014 earnings. The results suffered due to a significant rise in operating expenses.

MarkWest Energy's earnings - excluding mark-to-market derivative activity, compensation expense and asset sale adjustments - came in at approximately 5 cents per unit, substantially lower than the Zacks Consensus Estimate of 26 cents.

However, the reported figure improved from the year-ago adjusted loss per unit of 21 cents. Strong result from the Marcellus segment, which led to higher natural gas processing volumes, favored the year-over-year improvement.

Revenues of $512.5 million failed to meet the Zacks Consensus Estimate of $522.0 million. The top line, however, was up approximately 37.3% from the first quarter of 2013.

Quarterly Cash Distribution

On Apr 23, 2014, MarkWest Energy raised its first-quarter 2014 cash distribution by 1.2% sequentially and 4.8% year over year to 87 cents per unit ($3.48 per unit annualized). The distribution will be paid on May 15.

Distributable Cash Flow

During the reported quarter, MarkWest Energy generated distributable cash flow (DCF) - an indicator of cash paid out for distribution to unitholders - of $148.5 million, 35.2% higher than the prior-year quarter level of $109.8 million, providing 1.05x distribution coverage.

Business Units Performance

Southwest: With regard to business units, the Southwest segment's operating income increased 13.1% from the year-ago level to $74.1 million. The results reflect higher sales volumes from East Texas and the Gulf Coast, partially offset by a substantial fall in Southeast Oklahoma sales.

Northeast: The segment's operating profit of $33.7 million was up 8.1% from last year's income of $31.2 million on the back of higher fractionation volumes.

Marcellus: This segment (the partnership's Marcellus Shale joint venture) reported a profit of $105.4 million, up 57.1% from $67.1 million in the year-earlier quarter. A significant improvement in natural gas processing volume aided the results.

Utica: Operating income from MarkWest Energy's newest segment, Utica, was $4.6 million, against a loss of $2.0 million in first-quarter 2013. Higher throughput and processing volumes led to the improvement.

Operating Cost

The partnership reported operating expenses of roughly $440.5 million, reflecting a significant increase of 42.3% from $309.6 million reported in the year-ago quarter.

Capital Expenditure & Balance Sheet

During the first quarter, MarkWest Energy spent approximately $584.4 million on growth capital projects, down from $629.7 million a year ago. The partnership also declared that it had roughly $123.1 million of cash and cash equivalents in its wholly owned subsidiaries. Total outstanding debt came in at approximately $3.4 billion, representing a debt-to-capitalization ratio of about 40.3%.   

Guidance

Management reaffirmed its projected DCF of $600.0-$690.0 million for 2014, taking into consideration the forecasted volume and commodity prices. MarkWest Energy narrowed its projected 2014 growth capital spending in the band of $2.0-$2.3 billion and maintenance capital expenditure at $25.0 million.

Zacks Rank & Other Stocks to Consider

MarkWest Energy currently has a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider better-ranked players in the oil and production pipeline sectors like Boardwalk Pipeline Partners, LP ( BWP ), Targa Resources Partners LP ( NGLS ) and Delek Logistics Partners, LP ( DKL ). While Boardwalk Pipeline and Targa Resources sport a Zacks Rank #1 (Strong Buy), Delek Logistics has a Zacks Rank #2 (Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: BWP , DKL , MWE , NGLS

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