Magellan Midstream Partners L.P. (MMP)

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Magellan Midstream Partners, L.P. (MMP)

Q1 2010 Earnings Call

May 4, 2010 01:30 pm ET

Executives

Don Wellendorf - Chairman, President and CEO

John Chandler - SVP, CFO and Treasurer

Analysts

Stephen Maresca - Morgan Stanley

Michael Cerasoli - Goldman Sachs

Brian Zarahn - Barclays Capital

Darren Horowitz - Raymond James

John Tysseland - Citi Capital

Sharon Lui - Wells Fargo

Barrett Blaschke - RBC Capital Markets

Selman Akyol - Stifel Nicolaus

Presentation

Operator

Good day and welcome everyone to the first quarter 2010 earnings results conference call for Magellan Midstream Partners. This conference is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the President and Chief Executive Officer, Mr. Don Wellendorf. Please go ahead, sir.

Don Wellendorf

Thank you, well appreciate you joined us today to discuss first quarter earnings for Magellan Midstream Partners. Here with me from the company are John Chandler, our CFO, 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 as defined by the SEC. Such statements are based on our current judgments regarding some of the factors that could impact the future performance of Magellan, should form your own opinion about Magellan’s future performance based on our risk factors and other information discussed in our filings with the SEC.

Okay, with that out of the way lets move on to the quarter.

MMP report first quarter EPU of $0.60. If you eliminate from that number, the impact of NYMEX mark-to-market adjustments associated with both butane blending and sales activity associated with Longhorn which we’re also calling now at times, it used to middle half their line. The [run rate] those two items. The mark-to-market adjustments reallocated those two items that resulted in an EPU of $0.67 and that slightly exceeds the $0.65 guidance we provide back in early February which as we say at the time, assumed NYMEX adjustments.

So overall, our first quarter performance was quite good and we expected it to be quite good. As most of you are aware, a (inaudible) probably we plan to pay our quarterly distribution related to the first quarter. The amount to be paid is $0.72 per MMP unit which is a little over a 1% increase, compared to the distribution related to the fourth quarter of 2009. We remain confident given the current conditions that we will be able to meet our goal of increasing our 2010 annual distribution by 4%.

I'll talk more about what we see for the rest of year in a few minutes and we’ll also discuss the other press release we issued this morning concerning to crude oil opportunities that we are working on. But first, I'll ask John to provide details on MMP’s first quarter compared to the same period in 2009. John?

John Chandler

Thanks Don. Before I begin discussing specific business unit performance, I do want to mention that I'll 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 earning release this morning.

Management believes that investors benefit from this in the information because it gets to the heart of evaluating the economic success of the partnerships core operations. As noted in our press release this morning we had a very solid quarter, where we recognized operating profit and net income that were higher than the same period last year.

Our operating profit was $86.3 million for the quarter versus $56.1 million for the 2009 period. While net income was $64.5 million for the current period versus $41.2 million for the 2009 period.

Quarter-over-quarter, we saw an increase in each of our business lines, we’ll guide you to some of the driving factors contributing to this in a moment. As usual I’ll go through the operating margin performance of each of our business lines then discuss variances and depreciation, G&A and interest to come to an overall explanation of the variance net income.

So let's first look at operating margin which was up $35.5 million or 35% versus the same period last year. The biggest contributor of that was the petroleum products pipeline system, this operating margin was at $27.7 million versus the same period last year.

Going from $75.2 million to $102.9 million this period. Within this number is an improvement in our core transportation and traveling related revenues, our product margins and slightly lower expenses. To this point, our transportation internal revenues were $8 million more than the period last year.

Approximately 40% of this increase came from increased tariff revenues. This increase was driven by higher average rates, that more than offset lower shipment volumes. The realized tariff rate of $1.22 per barrel was up 6.7% versus the first quarter of 2009. This is not surprising, given the 7.6% tariff increase we made on July 1st 2009 to a majority of our rates. The actual average rate this quarter was reduced by increased volumes to east Houston which has lower tariff lower than the system average.

Volumes for the quarter were down approximately 2 million barrels or 2.8% versus the first quarter of 2009. With reduced gasoline shipments making up a majority of the short fall. We believe this shortfall is due in large part of the high inventories our shipper had in our system during the quarter, which in some cases limited their ability to originate new barrels per shipment on the system.

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