Enterprise Products Partners (EPD) reported third quarter 2010 earnings per limited units of 47 cents, exceeding the Zacks Consensus Estimate of 45 cents and year-earlier earnings of 36 cents. The increase was driven by strong prices and volumes across its integrated midstream system, which operated at or near record levels.
Additionally, quarterly distribution of Enterprise increased 5.4% year over year to 58.25 cents per common unit, or $2.33 per unit on an annualized basis. Distribution coverage was solid at 1.4x, providing $133 million of retained cash flow, which reduces financing needs.
Revenues in the quarter increased about 19% to $8.1 billion from $6.8 billion in the comparable quarter last year, driven by increased sales volumes and energy prices. However, the Zacks Consensus Estimate for third quarter revenue was $8 billion.
Segmental Performance
Gross operating income in the NGL Pipeline & Services segment decreased more than 1% year over year to $397 million. Gross operating income in the natural gas processing business fell 6.3% to $224 million. Gross income for the partnership’s NGL pipeline and storage business increased nearly 4% year over year to $136 million.
For the NGL fractionation business, gross income was up approximately 12% year over year to $37 million due to the increase in revenues from the Mont Belvieufacility.
Gross operating income for the partnership’s Onshore Natural Gas Pipeline and Services business increased more than 42% year over year to $154 million. The pipeline systems benefited from an increase in volumes from the Piceance Basin, Haynesville Shale, Barnett Shale, Eagle Ford Shale and the San Juan Basin.
The gross operating income of Onshore Crude Oil Pipelines & Services segment surged slightly year over year to $35 million in the reported quarter.
Enterprise’s Offshore Pipelines & Services’ gross operating income was $68 million in the third quarter, compared with $23 million in the year-ago quarter.
Gross operating income in the Petrochemical & Refined Product Services segment improved significantly year over year to a record $166 million in the third quarter.
During the quarter, the partnership spent $662 million on capital expenditures, which included $72 million in sustaining capital expenditures. Interest expense in the quarter was $180 million (up approximately 12% year over year) on an average debt balance of $12.7 billion.
Outlook
Enterprise has been balancing well between distribution of cash flows and retained earnings. While the partnership increased its cash flow distribution in the reported quarter, it also deployed money in various fee-based development projects that will generate operating cash flow to support Enterprise’s future distribution growth.
We believe the partnership’s premium valuation is supported by its solid organic as well as inorganic growth profile. Its impressive financial position will likely open up new organic growth opportunities and expand its integrated system. Enterprise is currently rated Neutral with the Zacks #3 Rank (Hold).
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