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Energy pipelines and terminals operator Sunoco Logistics Partners L.P. (SXL - Analyst Report) posted bright third-quarter 2012 profits, owing to higher average crude oil price and lower interest expense.

The partnership’s diluted earnings per unit (“EPU”) came in at $1.09, significantly ahead of the Zacks Consensus Estimate of 85 cents and the year-ago period profit of 78 cents.

Revenues of $3,218.0 million were up 12.9% from the third quarter of 2011 and were almost in line with our projection.

Quarterly Distribution

Importantly, the partnership raised its quarterly distribution by 10.0% sequentially and 25.0% year over year to 51.75 cents per unit or $2.07 per unit annualized. Distributable cash flow increased 37.0% year over year to $149 million.

Segmental Performance

Refined Products Pipeline System: Operating income in the ‘Refined Products Pipeline System’ segment was $11.0 million, unchanged from the third quarter of 2011. Higher income coming from asset sale was wiped out by a drop in pipeline revenues due to the shutdown of the Marcus Hook refinery in the fourth quarter of 2011.

Terminal Facilities: The partnership’s ‘Terminal Facilities’ business segment had an operating income of $39.0 million, up 18.2% year over year. This impressive outcome 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 as well as refined products terminal in East Boston from an energy major firm ConocoPhillips (COP - Analyst Report) also aided the upsurge.  

Crude Oil Pipeline System: Operating income in the Crude Oil Pipeline System segment shot up 55.8% from the year-earlier level to $67.0 million, driven by enhanced mix of pipeline movements along with growth in organic projects and better tariff rates.

Crude Oil Acquisition and Marketing: Operating income for the July-September period was $48 million, 17.1% above the third quarter of 2011 level. This reflects wider crude oil margins, 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 $90.0 million, respectively. As of September 30, 2012, Sunoco had $1,627.0 million in total debt (consisting of $179.0 million of borrowing under the partnership’s credit facility), representing a debt-to-capitalization ratio of approximately 54.1%.

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.

With its low-risk and stable cash flow-generating energy infrastructure assets, we believe that Sunoco Logistics offers investors an opportunity to capture income growth through steadily-rising cash distributions and capital appreciation.

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