Pipeline operator Energy Transfer Partners L.P. (ETP) announced weak first quarter results, as volumes suffered due to a lower base of differentials between the West and East Texas market hubs.
The owner of the biggest intrastate pipeline system in Texas reported earnings per unit of 71 cents, below the Zacks Consensus Estimate of $1.03 and the year-ago profit of 74 cents. Revenues of $1,687.6 million were down 9.9% year-over-year and missed our projection by 19.1%.
Quarterly Cash Distribution
Last month, Energy Transfer announced first quarter distribution of 89.375 cents per unit ($3.575 per unit annualized), which remains unchanged from the year-earlier quarter and the previous quarter distribution. The distribution is payable on May 16, to unit-holders of record on May 6, 2011.
EBITDA & Operating Income
Adjusted EBITDA for the quarter was $471.3 million, compared with $513.7 million in the year-ago quarter. The year-over-year decrease in EBITDA was primarily due to lower natural gas storage activities. The partnership withdrew approximately 15 billion cubic feet (Bcf) from the natural gas storage inventory during the quarter, as against a much higher 27 Bcf withdrawal during the corresponding quarter last year.
However, operating income for the period, at $363.1 million, was up 5.5% from the first quarter of 2010, reflecting significant growth in Energy Transfer’s ‘Interstate Transportation’ segment.
Distributable Cash Flow
Energy Transfer Partners reported distributable cash flows of $337.1 million in the quarter, down from $384.6 million in the prior-year quarter.
Capital Expenditure
During the quarter, maintenance capital expenditure totaled $19.6 million, same as the year-earlier level. For the remainder of 2011, the partnership expects to devote $90–$110 million in maintenance capital spending.
Balance Sheet
As of March 31, 2011, Energy Transfer had cash and cash equivalents of $60.1 million and long-term debt (including current maturities) of $6,554.3 million. Debt-to-capitalization ratio was 57.9%.
Our Recommendation
Energy Transfer Partners – which competes with other large-cap pipeline master limited partnership (“MLP”) peers like Enterprise Products Partners L.P. (EPD), Kinder Morgan Energy Partners L.P. (KMP) and Plains All American Pipeline L.P. (PAA) – currently retains a Zacks #3 Rank (short-term Hold rating). Longer-term, we maintain our Neutral recommendation on the partnership.
Energy Transfer Partners remains a premier MLP with strategically-positioned assets that serve 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 growth to resume shortly, driven by the completion of a broad array of organic growth projects.
However, we believe that the near- to medium-term outlook for ETP’s natural gas gathering and processing business continues to be weak. The partnership’s seasonal propane business also remains a major liability, in our view.
ENTERPRISE PROD (EPD): Free Stock Analysis Report
ENERGY TRAN PTR (ETP): Free Stock Analysis Report
KINDER MORG ENG (KMP): Free Stock Analysis Report
PLAINS ALL AMER (PAA): Free Stock Analysis Report
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