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Magellan Midstream (MMP) Q1 Earnings: What's in the Cards?
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Magellan Midstream Partners L.P. is set to release first-quarter 2018 results before the opening bell on May 3.
In the preceding three-month period, the Tulsa, OK-based partnership reported weaker-than-expected earnings amid lower contribution from the Marine Storage segment. Notably, the partnership missed earnings estimates in two of the last four quarters, delivering an average negative earnings surprise of 0.83%.
Magellan Midstream Partners, L.P. Price and EPS Surprise
While the Zacks Consensus Estimate for earnings currently stands at $1.01, the partnership had guided toward first-quarter earnings per unit of 95 cents in its last report. Analysts polled by Zacks estimate revenues to come in at $645 million, nominally higher than $642 million recorded in the year-ago quarter but lower than the prior quarter’s revenues of $673.3 million.
Let’s delve deeper into the factors that are likely to influence Magellan Midstream's earnings this quarter.
Factors at Play
Magellan Midstream owns an attractive portfolio of energy infrastructure assets that generate stable and recurring fee- and tariff-based revenues. This includes the longest U.S. refined petroleum products pipeline system, with access to almost 50% of the refining capacity in the continental United States, along with imports and 85 petroleum terminals with more than 90 million barrels of storage.
The partnership’s strong asset base is likely to increase the visibility of its above-average growth potential beyond 2018. In particular, increasing cash flow from online growth projects along with continued strong performance from Magellan Midstream’s fee-based businesses will drive earnings. Throughput levels from important pipeline projects including Longhorn, Double Eagle, Saddlehorn and Bridge Tex pipelines among others are expected to ramp up, which are likely to buoy the results in the quarter under review.
The partnership recently announced a cash distribution of 93.75 cents per unit ($3.75 per unit annualized), representing about 2% sequential and 7% year-over-year increase. This has generated optimism about its quarterly performance this season.
However, higher operating expenses remain a concern. As it is, the partnership’s operating costs increased to $577.9 million in 2017 compared with $528.6 million in 2016. Cost overruns are expected to hamper profitability for the partnership this time as well.
Magellan Midstream has several ongoing projects that require large capital outlay, impacting the financials of the partnership. Magellan Midstream plans to spend approximately $900 million on expansion projects in 2018, with required expenditure of $375 million thereafter to complete these projects. Additionally, the partnership continues to look out for more than $500 million of potential organic growth projects in the earlier stages of development.
Earnings Whispers
Our proven model does not show that Magellan Midstream is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. That is not the case here as you will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -0.79%.
Zacks Rank: The partnership carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here. Though a Zacks Rank #3 increases the predictive power of ESP, a negative ESP makes surprise prediction difficult.
Conversely, we caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks Poised to Beat Earnings
While earnings beat looks uncertain for Magellan Midstream, one can consider firms from the energy space having the right combination of elements to beat estimates this quarter:
Semgroup Corporation has an Earnings ESP of +24.14% and a Zacks Rank #3. The Tulsa-based midstream player is anticipated to release earnings on May 8.
Abraxas Petroleum Corporation (AXAS - Free Report) has an Earnings ESP of +14.29% and a Zacks Rank #3. The upstream oil and gas company is anticipated to release earnings on May 8.
Enbridge Inc. (ENB - Free Report) has an Earnings ESP of +5.88% and a Zacks Rank #3. The energy transportation/distribution company is anticipated to release earnings on May 10.
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Magellan Midstream (MMP) Q1 Earnings: What's in the Cards?
Magellan Midstream Partners L.P. is set to release first-quarter 2018 results before the opening bell on May 3.
In the preceding three-month period, the Tulsa, OK-based partnership reported weaker-than-expected earnings amid lower contribution from the Marine Storage segment. Notably, the partnership missed earnings estimates in two of the last four quarters, delivering an average negative earnings surprise of 0.83%.
Magellan Midstream Partners, L.P. Price and EPS Surprise
Magellan Midstream Partners, L.P. Price and EPS Surprise | Magellan Midstream Partners, L.P. Quote
While the Zacks Consensus Estimate for earnings currently stands at $1.01, the partnership had guided toward first-quarter earnings per unit of 95 cents in its last report. Analysts polled by Zacks estimate revenues to come in at $645 million, nominally higher than $642 million recorded in the year-ago quarter but lower than the prior quarter’s revenues of $673.3 million.
Let’s delve deeper into the factors that are likely to influence Magellan Midstream's earnings this quarter.
Factors at Play
Magellan Midstream owns an attractive portfolio of energy infrastructure assets that generate stable and recurring fee- and tariff-based revenues. This includes the longest U.S. refined petroleum products pipeline system, with access to almost 50% of the refining capacity in the continental United States, along with imports and 85 petroleum terminals with more than 90 million barrels of storage.
The partnership’s strong asset base is likely to increase the visibility of its above-average growth potential beyond 2018. In particular, increasing cash flow from online growth projects along with continued strong performance from Magellan Midstream’s fee-based businesses will drive earnings. Throughput levels from important pipeline projects including Longhorn, Double Eagle, Saddlehorn and Bridge Tex pipelines among others are expected to ramp up, which are likely to buoy the results in the quarter under review.
The partnership recently announced a cash distribution of 93.75 cents per unit ($3.75 per unit annualized), representing about 2% sequential and 7% year-over-year increase. This has generated optimism about its quarterly performance this season.
However, higher operating expenses remain a concern. As it is, the partnership’s operating costs increased to $577.9 million in 2017 compared with $528.6 million in 2016. Cost overruns are expected to hamper profitability for the partnership this time as well.
Magellan Midstream has several ongoing projects that require large capital outlay, impacting the financials of the partnership. Magellan Midstream plans to spend approximately $900 million on expansion projects in 2018, with required expenditure of $375 million thereafter to complete these projects. Additionally, the partnership continues to look out for more than $500 million of potential organic growth projects in the earlier stages of development.
Earnings Whispers
Our proven model does not show that Magellan Midstream is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. That is not the case here as you will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -0.79%.
Zacks Rank: The partnership carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here. Though a Zacks Rank #3 increases the predictive power of ESP, a negative ESP makes surprise prediction difficult.
Conversely, we caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks Poised to Beat Earnings
While earnings beat looks uncertain for Magellan Midstream, one can consider firms from the energy space having the right combination of elements to beat estimates this quarter:
Semgroup Corporation has an Earnings ESP of +24.14% and a Zacks Rank #3. The Tulsa-based midstream player is anticipated to release earnings on May 8.
Abraxas Petroleum Corporation (AXAS - Free Report) has an Earnings ESP of +14.29% and a Zacks Rank #3. The upstream oil and gas company is anticipated to release earnings on May 8.
Enbridge Inc. (ENB - Free Report) has an Earnings ESP of +5.88% and a Zacks Rank #3. The energy transportation/distribution company is anticipated to release earnings on May 10.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>