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SemGroup (SEMG) Breaks Even in Q4 Earnings, Revenues Beat

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SemGroup Corporation (SEMG - Free Report) reported breakeven adjusted earnings in fourth-quarter 2018 compared with the Zacks Consensus Estimate of 8 cents and the year-ago quarter adjusted income of 3 cents. The underperformance stemmed from lower Canadian gas processing volumes and certain non-cash charges. 

Operating income was down 32% to $49.9 million, while adjusted EBITDA fell from $111.5 million in the fourth quarter of 2017 to $105.4 million.

Total revenues recorded in the quarter came in at $611.9 million, surpassing the Zacks Consensus Estimate of $588 million due to strong White Cliffs pipeline volumes. Further, the top line also edged up around 1% from the prior-year sales of $606.8 million.

SemGroup has reorganized its operating activities around three segments – U.S. Liquids, U.S. Gas, and Canada – to better reflect the company’s current business portfolio. 

Segmental Information

U.S. Liquids: This segment – which includes the operations of SemGroup U.S. Crude Transportation, Crude Facilities, and Storage Operation, Crude Supply & Logistics and HFOTCO – recorded a profit of $85.5 million, reflecting a decrease of 2% from the year-ago quarter. While White Cliffs pipeline volumes of 144 thousand barrels per day (Mbbl/d) were notably higher than the year-ago figure of 92 Mbbl/d, along with margin gains and contribution of certain new crude storage tanks to the Houston terminal, these factors were more than offset by non-cash inventory charges.

U.S. Gas: Profit generated from this segment (the erstwhile SemGas unit) amounted to $17.6 million, 21.1% greater than a year ago on 46% higher average processing volumes.

Canada: This unit contains the results of SemGroup’s legacy SemCAMS segment plus the company’s newly acquired Meritage assets.

The segment’s profit in the quarter under review narrowed to $17.2 million, from $23.7 million incurred in the corresponding quarter of the last year. The deterioration could be attributed to lower average gas processing volumes that fell 5% year over year to 430 million cubic feet per day.  

Balance Sheet

As of Dec 31, 2018, the company had cash and cash equivalents of $86.7 million and long-term debt of around $2.3 billion. The debt-to-capitalization ratio of the company was 55.3%, down from 63.2% six months ago. SemGroup was able to improve the leverage primarily on the back of asset sales.

2019 Guidance

SemGroup expects full-year 2019 net capital outlay of $307 million that include $45 million associated with maintenance projects. Further, the company projects adjusted EBITDA for the year in the $420-$465 million range.

Zacks Rank & Stock Picks

SemGroup currently retains a Zacks Rank #2 (Buy).

Apart from SemGroup, one can also look at some other players in the energy space like ProPetro Holding Corp. (PUMP - Free Report) , Archrock, Inc. (AROC - Free Report) and NuStar Energy L.P. (NS - Free Report) . These companies also sport a Zacks Rank #2.

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

The 2019 Zacks Consensus Estimate for ProPetro is $2.21, representing 10.6% earnings per unit growth over 2018. Next year’s average forecast is $2.52 pointing to another 13.9% growth.

The 2019 Zacks Consensus Estimate for Archrock is 67 cents, representing 38.9% earnings per unit growth over 2018. Next year’s average forecast is 73 cents pointing to another 10% growth.

The 2019 Zacks Consensus Estimate for NuStar is $1.10, representing 63.9% earnings per unit growth over 2018. Next year’s average forecast is $1.16 pointing to another 6% growth.

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