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Energy pipelines and terminals operator, Sunoco Logistics Partners LP (SXL - Analyst Report) reported third quarter 2013 diluted earnings per unit (EPU) of 45 cents, down 58.7% from the prior-year quarter level of $1.09 per unit. It also failed to beat the Zacks Consensus Estimate of 86 cents. The weak results were primarily due to poor performance by the Crude Oil Acquisition and Marketing segment, partially offset by the Crude Oil Pipelines segment.

However, revenues of $4,528.0 million were up 41.2% from third quarter 2012 and comfortably surpassed the Zacks Consensus Estimate of $3,587.0 million. Increase in volume thanks to expansion projects, higher pipeline tariffs and crude oil demand growth contributed to the strong top line.

Sunoco’s distributable cash flow (DCF) decreased 17.1% year over year to $121.0 million.

Quarterly Distribution

Last month, Sunoco raised its quarterly distribution by 5% sequentially and 22% year over year to 63 cents per unit or $2.52 per unit annualized, representing the thirty-fourth consecutive quarterly distribution hike.

Segmental Performance

Refined Products Pipeline System: Adjusted earnings before interest, taxes, depreciation and amortization expenses (EBITDA) in this segment were $18.0 million, down 28.0% from $25.0 million in third quarter 2012. A $6 million non-recurring gain registered in the comparable quarter last year was the primary reason for the difference in results. Higher expenses also contributed to the results, however, it was significantly offset by increased tariffs.   

Terminal Facilities: The segment had an adjusted EBITDA (excluding one-time items) of $47.0 million, down 9.6% year over year. This outcome was mainly due to weak results from the acquisition and marketing initiatives of Sunoco's refined products. However, better performances at the Eagle Point and Nederland terminals and support from the Marcus Hook facility partially offset the decline.

Crude Oil Pipelines: Adjusted EBITDA in the segment moved up 34.3% to $98.0 million from the year-earlier level of $73.0 million, driven by enhanced throughput volumes as a result of project expansions, higher demand for West Texas crude oil and increased pipeline tariff. However, it was partially dampened by increased operating expenses.

Crude Oil Acquisition and Marketing: Adjusted EBITDA in this segment was $18 million, 66.7% below the third-quarter 2012 level. The deterioration was due to narrower crude oil margins, partially offset by higher volumes, supported by contribution from the increase in crude oil trucking fleet.

Operating Expenses

Operating expenses in the reported quarter were $36.0 million, representing a drop of 7.7% from the third quarter of 2012.

Capital Expenditure & Balance Sheet

Sunoco’s maintenance capital expenditure and expansion capital expenditure for the reported quarter totaled $37.0 million and $598.0 million, respectively. The partnership incurred additional cost of $60.0 million as acquisition expenses. In accordance with its successful open seasons, Sunoco has increased its expansion capital expenditure to about $900 million.  

As of Sep 30, 2013, Sunoco had $2.0 million cash and cash equivalents compared with $3.0 million in the year-ago quarter. Sunoco had $2,311.0 million in total debt (consisting of $35.0 million of borrowing under the partnership's credit facility), representing a total debt-to-capitalization ratio of approximately 26.8%.

Stocks to Consider

Sunoco currently carries a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider other oil and gas pipeline master limited partners (MLP) which have good growth potential. These include Pioneer Southwest Energy Partner which currently sports a Zacks Rank #1 (Strong Buy) or Energy Transfer Equity, L.P. (ETE - Snapshot Report) and Magellan Midstream Partners LP (MMP - Analyst Report) which hold a Zacks Rank #2 (Buy).
 

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