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Magellan Midstream Partners, L.P. (MMP)
Q4 2009 Earnings Call Transcript
February 3, 2010 1:30 pm ET
Don Wellendorf – Chairman, President and CEO
John Chandler – SVP, CFO and Treasurer
Mike Mears – COO
Brian Zarahn – Barclays Capital
Sharon Lui – Wells Fargo Securities
Barrett Blaschke – RBC Capital Markets
Ross Payne – Wells Fargo Securities
James Jampel – HITE
Michael Cerasoli – Goldman Sachs
Noah Lerner – Hartz Capital
Darren Horowitz – Raymond James
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Thanks. Good afternoon. Thanks you for joining us today to discuss our fourth quarter earnings and our thoughts about what's ahead for Magellan in 2010. Here with me for the company are John Chandler, Mike Mears, our COO and Paula Farrell, who is responsible for Investor Relations.
Before we discuss the quarter, I want to remind you that during this call, Magellan Management will make forward-looking statements defined by the SEC. Such statements are based on our current adjustments regarding some of the factors that could impact the future performance of Magellan. You should form your own opinions about Magellan's future performance based on the risk factors and other information discussed in our filings with the SEC.
With that out of the way, let's go through the quarter. Today's announced fourth quarter earnings for limited partner unit were $0.77 which is $0.26 higher than the same quarter last year and a penny under the guidance we provided in November. You may recall that our guidance always assumes no change in our NYMEX market to market position, all of which are taken for hedging purposes.
Excluding for the reported number the actual changes in those positions which were net about $0.11 negative for the quarter, provided $0.88 fourth quarter performance compared to guidance of $0.78. I think any way you want to look at the quarter. The quarter was a good one overall, setting records, quarterly records in operating profit and distributable cash flow.
Our distributable cash flow for the fourth quarter like that I just said a quarterly record, $104.9 million bringing cash flow for the year to $328.4 million versus our guidance from early November of $310 million. We significantly beat our EPU and DCF guidance primarily due to more favorable product gain loss for the quarter on Magellan pipeline and predicted higher product blending volumes than we expected. And the case of DCF, lower maintenance capital spending as the pace of several relatively small projects resulted in more work carrying over into 2010.
Our distributions for the year, however, did match our guidance. Our recently announced fourth quarter distribution of $0.71 per unit has remained unchanged throughout 2009, as we indicated it would at the beginning of 2009. That indication reflected our caution about the uncertain economic environment as well as our anticipation of completing simplification of the capital structure and potentially making an acquisition that would be initially dilutive. Those anticipated items, as we know now, became reality with the July purchase of Longhorn Pipeline and the simplification of our capital structure in September.
Our distribution coverage for the full year was 1.1 times. I'll be back in a few minutes to discuss our earnings cash flow and distribution outlook for 2010 and beyond including lot of the assumptions we made to get to those numbers. And like I say, we are quite enthusiastic about the future.
First, I'm going to turn the call over to John, so he can give you details concerning MMP's fourth quarter compared to the same period in 2008. John?
Thanks, Don. Before I begin discussing specific business unit performance, I want to mention that I will be commenting on the non-GAAP measure operating margin which is simply operating profit before G&A expenses and depreciation and amortizations. A reconciliation of operating margin to operating profit was included in our earnings release this morning. Management believes that operating margin -- that investors benefit from this information because it does get to the heart of evaluating the economic success of the partnerships and core operations.
As noted in our press release this morning, this quarter we recognized operating profit and net income that were higher than the same period last year. In fact, our operating profit was an all-time quarterly record of 103.7 million for the quarter versus 96.1 million for the 2008 period. While net income was 82 million for the current period versus 81.1 million for the 2008 period.
Quarter-over-quarter, we saw an increase in each of our business lines and have record quarterly operating margins generated by each of our business lines. We'll dive into some of the driving factors contributing to this in a moment. As usual, I'll go through operating margin performance for each of our business line and then discuss variances in appreciation, G&A and interest to come to an overall variance in net income.
Looking first at operating margin, which was up 15.7 million or 11% versus the same period last year. Our petroleum products pipeline systems operating margin was up 3.1 million versus the same period last year going from 110.1 million to 113.2 million this quarter, which is a new quarterly record for the segment. Within this number is an improvement in our core transportation and terminal related activities of $11.2 million, somewhat offset by product margins from commodity-related activities that was down 8.1 million.