Sunoco Logistics Posts Strong 2Q

Energy pipelines and terminals operator Sunoco Logistics Partners L.P. ( SXL - Analyst Report ) announced a jump in its second quarter 2012 profits, driven by strong demand for its crude oil business.

The partnership’s diluted earnings per unit (“EPU”) came in at $1.28, significantly ahead of the Zacks Consensus Estimate of 72 cents and the year-ago period profit of 80 cents. Revenues of $3,318.0 million were up 36.7% from the second quarter of 2011 and also beat our projection by 3.9%.

Quarterly Distribution

Importantly, the partnership raised its quarterly distribution by 9.9% sequentially and 16.0% year over year to 47 cents per unit or $1.88 per unit annualized, representing the twenty-ninth consecutive quarterly distribution increase. Distributable cash flow increased 56.6% year over year to a record $166.0 million.

Segmental Performance

Refined Products Pipeline System: Operating income in the ‘Refined Products Pipeline System’ segment was $7.0 million, down 12.5% from the second quarter of 2011. The negative variance can be attributed to lower pipeline revenues due to the shutdown of the Marcus Hook refinery in the fourth quarter of 2011, partially offset by increased contribution from the May 2011 acquisition of a controlling interest in fuel transporter firm Inland Corporation.

Terminal Facilities: The partnership’s ‘Terminal Facilities’ business segment had an operating income of $61.0 million – a quarterly record – up by a whopping 79.4% year over year. This growth can be mainly attributed to improved results from Sunoco Logistics’ refined products acquisition and marketing initiatives. Contributions from the last year’s purchases of the Eagle Point tank farm from parent Sunoco Inc. ( ) and a refined products terminal in East Boston from energy major from ConocoPhillips ( COP - Analyst Report ) also aided the upsurge.

Crude Oil Pipeline System: Operating income in the Crude Oil Pipeline System segment was up by 36.2% from the year-earlier level to a record $64.0 million, driven by higher pipeline fees and lower operating expenses.

Crude Oil Acquisition and Marketing: Operating income for the April-June period was a record $52 million, 62.5% above the second quarter of 2011 level. This reflects wider crude oil volumes/margins, further supported by contribution from the purchase of Texon L.P.'s crude oil purchasing and marketing business in the third quarter of 2011.

Capital Expenditure & Balance Sheet

The partnership’s maintenance capital expenditure and expansion capital expenditure for the quarter totaled $11.0 million and $73.0 million, respectively. As of June 30, 2012, Sunoco had $1,559.0 million in total debt (consisting of $111.0 million of borrowing under the partnership’s credit facility), representing a debt-to-capitalization ratio of approximately 54.0%.

Rating & Recommendation

Sunoco Logistics Partners currently retains a Zacks #1 Rank (short-term Strong Buy rating). We are also maintaining our long-term Outperform recommendation on the unit.