It has been about a month since the last earnings report for Magellan Midstream Partners (MMP). Shares have lost about 5.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Magellan Midstream due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Magellan Midstream Q2 Earnings and Revenues Miss Estimates
Magellan Midstream Partners, L.P. reported second-quarter 2020 adjusted earnings per unit of 65 cents, missing the Zacks Consensus Estimate of 73 cents as well as the year-ago profit of $1.20. Lower refined products transportation volumes and a decline in crude oil shipments due to coronavirus-induced shutdowns and disruptions hampered results.
Moreover, quarterly revenues of $460.4 million not only fell from the year-ago sales of $701.7 million but also lagged the Zacks Consensus Estimate of $596 million.
Refined Products: Revenues of $315.7 million were down from the year-ago period’s $534 million. Notably, total volumes shipped in the quarter under review were 105.3 million barrels compared with 132.4 million barrels a year ago. Operating margin from the segment declined to $171.4 million in the second quarter from $251 million in the corresponding period of 2019. The segment’s depreciation costs and general & administration expenses decreased year over year. Operating profit plunged 40.9% year over year to $99.8 million.
Crude Oil: Quarterly revenues grossed $146.2 million, down 13.5% year over year on the back of lower volumes. Total volumes shipped in the quarter were 47.7 million barrels, down from 80.5 million barrels a year ago. Operating margin contracted to $128.3 million from $163.2 million in the prior year. Operating profit of $100.9 million declined 23.5% year over year due to depressed volumes and margins.
DCF & Balance Sheet
Magellan Midstream’s distributable cash flow (DCF) for the second quarter summed $209.5 million, dropping 33.4% from the year-ago level.
Notably, on Jul 23, the partnership announced second-quarter cash distribution of $1.0275 per unit ($4.11 on an annualized basis), representing 1% annual growth. The amount is payable Aug 14 to its unitholders of record as of Aug 7.
As of Jun 30, 2020, the firm had cash and cash equivalents worth $2.86 million, and a long-term debt of $4.79 billion.
As a result of the coronavirus-caused oil price crash, management expects to generate distributable cash flows in the $1,000-$1,050 million range for the full year and plans to retain the current level of cash distribution for the rest of the year. Magellan Midstream projected third-quarter 2020 earnings per unit between 75 cents and 85 cents while the same for the full year is estimated in the $3.50-$3.70 band.
The firm plans to spend $400 million in the ongoing year and $40 million in 2021 on completing certain expansion projects. Further, Magellan Midstream has stated that they intend to maintain a 1.1-1.14 times distribution coverage for 2020.
Refined products pipeline volumes are anticipated to be persistently affected by the ongoing pandemic woes with average base business volumes — excluding the impact of expansion projects — declining 6% for gasoline, 12% for distillate and 40% for aviation fuel during the second half of 2020, indicating a downside from the levels recorded in the same period of 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
Currently, Magellan Midstream has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Magellan Midstream has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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