Back to top

Analyst Blog

Zacks Equity Research

Mixed 1Q for Magellan Midstream

MMP PAA

 ZacksTrade Now

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

Pipeline operator Magellan Midstream Partners, L.P. ((MMP - Analyst Report) announced earnings per unit (EPU) of 94 cents (excluding mark-to-market commodity-related pricing adjustments), a penny behind the Zacks Consensus Estimate of 95 cents and also below the year-ago adjusted profit of $1.01, owing to weaker demands for gasoline in the quarter.

However, total revenue of $493.5 million was up 11.4% year over year and was also above the Zacks Consensus Estimate of $490.0 million, aided by good performance from its crude oil pipelines and storage infrastructure.

Quarterly Distribution

Recently, Magellan raised its quarterly cash distribution by 3.0% sequentially and 9.0% year over year to 84 cents per unit ($3.36 per unit annualized). The partnership’s new distribution is payable on May 15 to unitholders of record as of May 8, 2012.

Segmental Performance

Petroleum Products Pipeline System: In the Petroleum Products Pipeline System, quarterly operating margins (before affiliate G&A and D&A expenses) were $125.4 million, down 0.8% year over year as improved revenues were more than offset by elevated expenses. Moreover, its higher volumes of crude oil were more than mitigated by weak gasoline demand.

Petroleum Terminals: In the Petroleum Terminals segment, operating margin was a record $48.0 million, up 20.4% year over year. The improvement were attributable to the recently-constructed crude oil storage facilities, new refined product tanks, inflated rates from its marine terminals and decreasing operating expenses, partly offset by a decline in product margin owing to less overseas sales.

Ammonia Pipeline System: The partnership’s Ammonia Pipeline System reported an operating margin of $3.9 million, higher than the $3.7 million earned in the first quarter of 2011. The result was positively impacted by a decrease in operating expenses, partly offset by declining revenues.

2012 Guidance

Management has raised their distributable cash flow guidance by $10 million to $490 million for the full year and is targeting annual distribution growth of 9%.

The partnership plans to spend approximately $500 million on expansion projects in 2012, with expenditures of $180 million thereafter to complete these projects. Additionally, the partnership is on the look out for more than $500 million worth potential growth projects in the earlier stages of development.

Our Recommendation

Magellan Midstream units currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

Magellan Midstream Partnersowns a high-quality and diverse portfolio of midstream assets that generate stable and recurring revenues by way of long-term fee-based contracts. The partnership – with more than $500 million of potential projects under development – has attractive growth potential, and maintains a sound liquidity position.

The partnership is also susceptible to lower-than-expected demand for refined products, commodity price fluctuations and cost overruns on expansion projects.

Magellan Midstream competes in the ‘Oil/Gas Production Pipeline MLP’ industry with firms like Plains All American Pipeline, L.P. (PAA - Analyst Report), Inergy Midstream LLC , PAA Natural Gas Storage, L.P. , etc.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
DIXIE GRP IN DXYN 15.84 +7.90%
BOFI HLDG IN BOFI 85.30 +4.97%
RAMBUS INC RMBS 12.31 +4.41%
VIPSHOP HOLD VIPS 148.73 +4.35%
NETFLIX INC NFLX 345.74 +4.32%