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Pipeline operator Magellan Midstream Partners LP (MMP - Analyst Report) reported third quarter 2013 earnings per unit (EPU) of 54 cents (excluding mark-to-market commodity-related pricing adjustments), surpassing the prior-year quarter adjusted profit of 35 cents amid strong segmental performances.

However, the results failed to beat the Zacks Consensus Estimate of 59 cents. A rise in expenses could be held responsible for the miss. Product purchase expenses flared up 40.2% year over year to $120.3 million and G&A expenses increased 18.9% to $32.8 million.   

The Tulsa, Oklahoma-based oil distributor’s total revenue of $443.8 million improved 36.2% year over year and also surpassed the Zacks Consensus Estimate of $433.0 million. Strong performance by the Crude Oil segment, contributions from the New Mexico pipeline system and a promising pricing scenario aided the growth.

Quarterly Distribution & Distributable cash flow

Magellan Midstream reported distributable cash flow of approximately $141.1 million, up 40.1% from the year-ago period.

Recently, Magellan Midstream raised its third-quarter 2013 cash distribution by 5% sequentially and 15% year over year to 55.75 cents per unit ($2.23 per unit annualized). Magellan Midstream’s new distribution is payable on Nov 14 to unitholders of record as of Nov 7, 2013.

Segmental Performance

Refined Products: In this segment, quarterly operating profits (before affiliate G&A and D&A expenses) were recorded at $146.8 million, up 53.1% from the year-ago period. The 6.2% increase in transportation and terminal revenues, owing to the New Mexico pipeline system that was brought online during the quarter, favored the results.

Crude Oil: In this segment, operating margin was approximately $50.6 million, significantly higher (up 126.2%) than the prior-year quarter thanks to increased crude oil transportation revenues as shipment began on the Longhorn pipeline. An increase in the joint venture management fee to about $3.37 million from $0.20 million in third quarter 2012 also aided the results.

Marine Storage: This segment’s operating margin increased 25.2% year over year to $24.5 million, owing to storage fees from the tanks recently constructed, higher throughput fees at the Galena Park terminal and a decrease in operating expenses.

Guidance

Management at Magellan Midstream increased its expected distributable cash flows for full-year 2013 by $10.0 million to $640.0 million. The partnership reiterated the annual distribution growth target of 16% and 15% for 2013 and 2014, respectively. Magellan guided fourth quarter and full-year 2013 earnings per unit of 81 cents and $2.54, respectively.

Magellan Midstream increased its expenditure plans to approximately $925 million for growth projects in 2013, with additional expenditure of $400 million in 2014 to complete the projects. Moreover, the partnership will continue to put in more than $500 million in potential growth projects.

Zacks Rating

Magellan Midstream currently has a Zacks Rank #2 (Buy), implying that it is expected to outperform the broader U.S. equity market over the next 1 to 3 months.

In addition to Magellan Midstream, there are other pipeline operators that are expected to perform well in the next three months. These include Pioneer Southwest Energy Partners L.P. which currently sports a Zacks Rank #1 (Buy) or Pioneer Access Midstream Partners, L.P. (ACMP - Snapshot Report) and Energy Transfer Equity, L.P. (ETE - Snapshot Report) which carry a Zacks Rank #2 (Buy).

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