Pipeline operator Magellan Midstream Partners, L.P. (MMP - Analyst Report) announced mixed fourth-quarter 2012 results, with good contributions from the business segments.
The Tulsa, Oklahoma-based oil distributor reported earnings per unit (EPU) of 69 cents (excluding mark-to-market commodity-related pricing adjustments), breezing past the Zacks Consensus Estimate of 65 cents and the prior-year quarter profit of 51 cents.
Total revenues, at $503.2 million, were up 3.3% year over year but fell short of the Zacks Consensus Estimate of $520.0 million.
In mid-October 2012, Magellan Midstream completed the split of its limited partner units in the ratio 2:1. The quarterly results reflect the effects of the stock split.
Recently, Magellan raised its fourth-quarter 2012 cash distribution by 3% sequentially and 23% year over year to 50 cents per unit ($2.00 per unit annualized). Magellan’s new distribution is payable on Feb 14 to unitholders of record as on Feb 6, 2013.
Petroleum Products Pipeline System: In the Petroleum Products Pipeline System, quarterly operating profits (before affiliate G&A and D&A expenses) were a record $193.4 million, up 28.8% year over year. The increase in transportation volumes by 10% and the hike in average tariff rate mainly contributed to the revenue growth.
Petroleum Terminals: In the Petroleum Terminals segment, operating margin was at an all time high of $50.1 million, up 11.3% year over year on strong contributions from the recently acquired tankage at the partnership’s storage facilities and also from partnership’s higher rate at its marine terminals.
Ammonia Pipeline System: The Ammonia Pipeline System’s operating margin surged 30.3% year over year to $4.3 million, due to transportation of higher volumes at higher rates.
Management expects to generate distributable cash flows of approximately $570 million for the full year 2013 and is targeting an annual distribution growth of 10%. The partnership plans to achieve an annual payout growth of at least 10% in 2014. Magellan guided toward first quarter and full-year 2013 earnings per unit of 45 cents and $2.20, respectively.
The partnership plans to spend approximately $700 million on growth projects in 2013, with expenditures of an additional $290 million in 2014 to complete the projects. Moreover, the partnership is looking to put in more than $500 million in potential growth projects.
The company currently carries a Zacks Rank #2 (Buy), implying that it is expected to outperform the broader U.S. equity market over the next one to three months.
We believe that the attractive portfolio of energy infrastructure assets, which the company owns will be able to generate stable and recurring fee- and tariff-based revenues. The assets include the longest U.S. refined petroleum products pipeline system, access to more than 40% of refining capacity in the continental U.S. along with imports, and 85 petroleum terminals with more than 80 million barrels of storage.
We also remain upbeat regarding Magellan’s acquisition of petroleum storage and pipelines from a subsidiary of BP plc (BP - Analyst Report). Following the acquisition, Magellan owns one of the largest crude oil storages in the Cushing crude oil region and will continue to exploit opportunities necessary for improving the utilization of these assets.
Meanwhile, two firms in the energy sector that are expected to significantly outperform the equity markets in the next one to three months are Cabot Oil & Gas Corporation (COG - Analyst Report) and CVR Energy Inc. . Both these stocks carry a Zacks Rank #1 (Strong Buy).