Energy Transfer Partners L.P. ( “>ETP ) , a master limited partnership (“MLP”), announced disappointing third quarter results, pulled down by a weakness in its ‘Intrastate’ segment on the back of a pipeline outage, partially offset by robust propane margins.
The pipeline operator’s earnings per unit came in at 5 cents, well below the Zacks Consensus Estimate of 21 cents, while revenues of $1.3 billion missed our projection by 15.1%.
However, compared to the year-ago period, Energy Transfer’s earnings per unit improved considerably from the third quarter 2009 loss of 10 cents. Quarterly revenue rose 14.3%, driven by a 14.7% rise in natural gas sales.
Quarterly Cash Distribution
Energy Transfer’s quarterly distribution of 89.375 cents per unit ($3.575 per unit annualized), remains unchanged from the year-earlier quarter and the previous quarter distribution. The distribution will be paid on November 15, to unit-holders of record on November 8, 2010.
EBITDA & Operating Income
Adjusted EBITDA for the quarter was $280.5 million, compared with $284.7 million in the year-ago quarter. The year-over-year decrease in EBITDA was primarily due to weakness in the intrastate transportation and storage natural gas operations.
However, operating income for the period, at $208.1 million, was up 17.4% from the third quarter of 2009, as the partnership collected more fees for transporting and storing natural gas.
Distributable Cash Flow
The partnership reported distributable cash flow of $160.5 million in the quarter, up from $146.2 million in the prior-year quarter.
Capital Expenditure
During the quarter, maintenance capital expenditure totaled $26.4 million, as against the year-earlier level of $27.5 million. Looking forward to the remainder of 2010, the partnership expects to devote between $25 million and $40 million in maintenance capital spending. Next year, the figure is anticipated to be around $120 – $140 million.
Balance Sheet
As of September 30, 2010, Energy Transfer had cash and cash equivalents of $77.7 million and long-term debt (including current maturities) of $6.0 billion. Debt-to-capitalization ratio was 56.1%.
Our Recommendation
Energy Transfer Partners remains a premier MLP with strategically positioned assets serving major North American natural gas-producing basins. We like the partnership’s robust organic growth profile, stable fee-based operating income and strong liquidity position. While the partnership kept its distribution unchanged, we expect distribution growth to resume next year, driven by the completion of a broad array of organic growth projects. However, we believe that the near- to medium-term outlook for Energy Transfer’s natural gas gathering and processing business remains weak. The partnership’s seasonal propane business also remains a major liability, in our view.
Taking these factors into account, we remain comfortable with Energy Transfer’s Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
ENERGY TRAN PTR (ETP): Free Stock Analysis Report
Zacks Investment Research
