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Pipeline operator Energy Transfer Partners L.P. (ETP - Analyst Report) announced dull second quarter 2012 results, owing to deteriorating natural gas market conditions, reduced gross margin at Intrastate Transportation and Storage segment and higher operating expense at most of the business segments.

The owner of the biggest intrastate pipeline system in Texas broke even on a limited partner basis, against 19 cents earned in the prior-year quarter. The results were way below our earnings estimate of 36 cents.

Quarterly revenues of $1,240.3 million missed our projection of $1,469.0 million. Comparing year over year, sales decreased 23.8% from $1,628.1 million, also due to low natural gas sales.

Quarterly Cash Distribution

Last month, Energy Transfer announced second quarter distribution of 89.375 cents per unit ($3.575 per unit annualized), which remains unchanged from the year-earlier as well as previous quarter distributions. The distribution will be paid on August 14, to unitholders of record on August 6, 2012.

EBITDA & Operating Income

Adjusted EBITDA for the quarter was $466.4 million, compared with $388.1 million in the year-ago quarter, reflecting robust performances from Interstate Transportation and NGL (natural gas liquids) Transportation and Services business units.

However, operating income of $289.4 million surged 7.0% from the second quarter of 2011.

Distributable Cash Flow

Energy Transfer Partners reported distributable cash flows of $275.3 million in the quarter, up from $223.3 million in the prior-year quarter.

Capital Expenditure

During the quarter, maintenance capital expenditure totaled $30.4 million, up 3.1% year over year.

Balance Sheet

As of June 30, 2012, Energy Transfer had long-term debt (less current maturities) of $9,043.4 million. Debt-to-capitalization ratio was 55.2%.


In late May, Energy Transfer Partners entered into an agreement to acquire Philadelphia-based refining and petroleum product marketing company Sunoco Inc. for $5.3 billion.

As per the terms of the agreement, Sunoco shareholders will get $50.13 in cash or stock for each share they hold. The deal has been approved by the board of directors of both the companies and is expected to close by the latter half of 2012.

Our Recommendation

Energy Transfer Partners currently retains a Zacks #3 Rank (short-term Hold rating).  We maintain our long-term Neutral recommendation on the partnership.

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