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Magellan Midstream (MMP) to Report Q3 Results: What Awaits?

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Magellan Midstream Partners, L.P. (MMP - Free Report) is set to release third-quarter 2020 results before the opening bell on Friday, Oct 30. The current Zacks Consensus Estimate for the to-be-reported quarter is a profit of 85 cents per unit on revenues of $565.3 million.

Let’s delve into the factors that might have influenced the energy infrastructure provider’s performance in the September quarter. But it’s worth taking a look at Magellan Midstream’s previous-quarter performance first.

Highlights of Q2 Earnings & Surprise History

In the last-reported quarter, the Tulsa, OK-based operator missed the consensus mark due to lower refined products transportation volumes and a decline in crude oil shipments. Magellan Midstream reported adjusted earnings per unit of 65 cents, lower than the Zacks Consensus Estimate of 73 cents. Further, the refined products pipeline giant’s quarterly revenues of $460.4 million came below the Zacks Consensus Estimate of $596 million.

As far as earnings surprises are concerned, Magellan Midstream beat the Zacks Consensus Estimate in three of the last four quarters and missed in the other, delivering an earnings surprise of 8.38%, on average. This is depicted in the graph below:

Magellan Midstream Partners, L.P. Price and EPS Surprise

Magellan Midstream Partners, L.P. Price and EPS Surprise

Magellan Midstream Partners, L.P. price-eps-surprise | Magellan Midstream Partners, L.P. Quote

 

Trend in Estimate Revision

The Zacks Consensus Estimate for the third-quarter bottom line remained the same in the last seven days. However, the estimated figure indicates 28.6% deterioration year over year. The Zacks Consensus Estimate for revenues, meanwhile, suggests a 13.9% decline from the year-ago period.

Factors to Consider This Quarter

While pipeline entities like Magellan Midstream have a lower correlation to oil and gas prices compared to its peers, this energy sub-industry hasn’t been immune to the coronavirus-induced downturn. With E&P operators pulling back activities and curtailing production in response to sharply lower commodity pricing and demand, Magellan Midstream faces a potential decline in volumes through its facilities, contributing to expectations for lower profits. In fact, during the previous quarter’s conference call, the partnership said it expects second-half volumes for gasoline, distillates and aviation fuel to be 6%, 12% and 40% lower year over year, respectively. This is likely to have impacted Magellan Midstream’s third-quarter revenues and cash flows.

However, as a counter to these negatives, Magellan Midstream's crude oil business is secured by long-term contracts with creditworthy partners. Moreover, the partnership's revenues are supported by take-or-pay contracts where customers book pipeline capacity, while the midstream operator receives fees irrespective of any product movement. This is expected to have provided some support to Magellan Midstream’s third-quarter revenues.

What Does Our Model Say?

The proven Zacks model does not conclusively show that Magellan Midstream is likely to beat estimates in the fiscal first quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. But that’s not the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, for this company is +2.96%.

Zacks Rank: Magellan Midstream has a Zacks Rank #4 (Sell).

Stocks to Consider

While an earnings beat looks uncertain for Magellan Midstream, here are some firms from the energy space that you may want to consider on the basis of our model:

DCP Midstream, LP (DCP - Free Report) has an Earnings ESP of +4.77% and a Zacks Rank #1. The firm is scheduled to release earnings on Nov 4.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Southwestern Energy Company (SWN - Free Report) has an Earnings ESP of +18.13% and is Zacks #3 Ranked. The firm is scheduled to release earnings on Oct 29.

TC Energy Corporation (TRP - Free Report) has an Earnings ESP of +1.45% and is Zacks #3 Ranked. The firm is scheduled to release earnings on Oct 29.

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