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Magellan Midstream Partners L.P. (MMP - Analyst Report), a master limited partnership (“MLP”), reported earnings per unit (EPU) of $1.01 (excluding mark-to-market commodity-related pricing adjustments), surpassing both the Zacks Consensus Estimate of 87 cents and the year-ago profit of 67 cents (adjusted).

Quarterly revenues came in at $442.9 million, breezing past the Zacks Consensus Estimate of $381 million and showing a remarkable improvement from $329.7 million generated in the prior-year quarter.

Magellan increased its distributable cash flow to $117.7 million in first quarter 2011 from $85.2 million in the prior-year quarter.

The quarter’s performance was boosted by benefits from the recently acquired assets and growth projects, escalating demand for petroleum products and improved petroleum prices.

Segmental Performance

Petroleum Products Pipeline System: In Petroleum Products Pipeline System, quarterly operating margin (before affiliate general and administrative expense and depreciation and amortization) was $126.4 million, against $102.9 million in first quarter 2010.

The year-over-year growth was attributed to higher transportation and terminals revenues, greater demand for petroleum products and low operating expenses.

Petroleum Products Terminals: In the Petroleum Products Terminals segment, operating margin was $39.9 million, indicating a jump of 29.5% year over year on strong contributions from the recently acquired tankage at the partnership’s storage facilities, greater throughput volume along with higher ethanol fees. These positive were partially offset by increased operating costs.

Ammonia Pipeline System: The Ammonia Pipeline System’s operating margin leaped 232.8% year over year to $3.7 million, aided by higher shipments and lower remediation costs.

Financials

As of March 31, 2011, Magellan had cash and cash equivalents of $28.5 million and long-term debt of $1,967.6 million. The debt-to-capitalization ratio stood at 57.9%. During the quarter, the company incurred maintenance capital spending of $8.7 million and organic growth capital expenditure of $41.5 million.

2011 Guidance

For 2011, management raised its distributable cash flows guidance by $30 million to $440 million and continues to aim an annual distribution growth of 7%. Magellan guided toward second-quarter earnings per unit of 87 cents and the raised full-year outlook to $3.40 from the previous level of $3.13.

The partnership plans to spend approximately $225 million on growth projects in 2011, with expenditures of $30 million thereafter required to complete the projects. Additionally, the partnership continues to look out for more than $500 million of potential growth projects in the earlier stages of development.

Our Recommendation

We continue to maintain our long-term Neutral rating on Magellan Midstream on account of its high-quality and diverse portfolio of midstream assets, strong track record for distribution growth and highly stable/recurring cash flows, which could be partially dampened by low demand for refined products, commodity price fluctuations and cost overruns on expansion projects. 

Magellan Midstream competes with firms like Pioneer Southwest Energy Partners L.P. , Spectra Energy Partners L.P. (SEP - Snapshot Report) and TC PipeLines L.P. , currently retains a Zacks #3 Rank (short-term Hold rating).

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