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Sunoco Logistics Beats Expectations

SXL MWE

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Crude oil pipelines and terminals operator Sunoco Logistics Partners L.P. (SXL - Analyst Report) announced impressive first-quarter 2012 results, driven by good performances of crude oil pipelines and terminals facilities.

The partnership’s diluted earnings per unit (EPU) came in at 77 cents, breezing past the Zacks Consensus Estimate of 62 cents and the year-ago profit of 36 cents.

Revenues of $3,401.0 million in the quarter shot up 50.6% year over year from $2,258.0 million and also beat our projection of $2,478.0 by 37.2%.

Quarterly Distribution

The partnership announced a quarterly distribution of 42.75 cents or $1.71 per unit annualized. The distribution will be paid on May 15, 2012 to unit holders of record as of May 9, 2012.

Distributable cash flow escalated approximately 93.7% year over year to a record $122.0 million.

Segmental Performance

Effective fourth quarter of 2011, the partnership is reporting in four segments: Refined Products Pipelines, Terminal Facilities, Crude Oil Pipelines and the newly formed, Crude Oil Acquisition and Marketing.

Refined Products Pipeline System: Operating income from the segment was $6.0 million in the quarter, up 20% year over year. The positive variance was due to Inland pipeline acquisition last year and a gain of $5 million related to its sale of Texas-based Big Sandy terminal. The results were partly offset by lower volumes from its refined product pipelines and higher remedial expenditure to preserve environment.

Terminal Facilities: The partnership’s Terminal Facilities business segment recorded quarterly operating income of $37.0 million in the quarter, up 27.6% from $29.0 million in the prior-year period. The positive results were attributed to gain on sale of a terminal and pipeline, recent acquisition activities, partly offset by shrinking volumes at its refinery terminals.

Crude Oil Pipelines: In the first quarter, operating income of the Crude Oil Pipelines segment surged 33.3% year over year to $52.0 million, driven by elevated pipeline fees and reduced operating expenses, partly offset by increased operating supplies.

Crude Oil Acquisition and MarketingThe segment registered operating income of $34 million compared with the prior-year level of $2 million, supported by increased crude oil volumes and margins plus benefits of the acquired businesses.

Capital Expenditure & Balance Sheet

For the first quarter, the partnership’s maintenance capital expenditure and expansion capital expenditure totaled $7.0 million and $43.0 million, respectively.

As of March 31, 2012, Sunoco had $1,583.0 million in total debt, representing a debt-to-capitalization ratio of approximately 56.3%.

Outlook

Going forward, Sunoco Logistics expects to reap significant benefits from the growing fee-based businesses. Management remains optimistic about its crude expansion projects along West Texas. The partnership expects its collaboration with MarkWest Energy (MWE - Analyst Report) -- the Mariner West project -- to come operational in mid-2013, thereby giving the partnership easy access to waterborne markets.

Our Recommendation

Philadelphia-based Sunoco Logistics owns a high-quality and diverse portfolio of midstream assets that generate stable and recurring revenues by way of long-term fee-based contracts. Over the past few years, the partnership has consolidated its position in the midstream business, which was achieved through a combination of organic efforts and accretive acquisitions. It is primarily engaged in crude oil and refined products transportation and storage, with a strong track record for distribution growth. 

Sunoco Logistics Partners L.P. currently maintains a Zacks #2 Rank, which is equivalent to a short-term Buy rating. We are maintaining our Outperform recommendation on the stock over the longer term.

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