Enterprise Products Partners LP (EPD) reported fourth quarter 2010 earnings per limited units of 33 cents, missing the Zacks Consensus Estimate of 44 cents and deteriorating from the year-earlier earnings of 37 cents.
However, full-year 2010 earnings improved 16% year over year to $1.15 per unit, but still fell way short of the Zacks Consensus Estimate of $1.87. In 2010, natural gas liquid (NGL), crude oil, refined products and petrochemical pipeline volumes as well as natural gas pipeline volumes reached a record level.
Additionally, quarterly distribution of Enterprise increased 5.4% year over year to 59 cents per common unit, or $2.36 per unit on an annualized basis. Distribution coverage was solid at 1.2x, providing $92 million of retained cash flow, which reduced financing needs.
Revenues in the quarter increased about 14% to $9.6 billion from $8.4 billion in the comparable quarter prior year. In 2010, revenue surged 32% year over year to $33.74 billion.
Segmental Performance
Gross operating income in the NGL Pipeline & Services segment decreased more than 10% year over year to $457 million. Gross operating income in the natural gas processing business fell 20.1% to $239 million. Gross income for the partnership’s NGL pipeline and storage business increased approximately 2% year over year to $180 million. For the NGL fractionation business, gross income was up approximately 5.6% year over year at $38 million attributable to higher revenues from the Mont Belvieufacility.
Gross operating income for the partnership’s Onshore Natural Gas Pipeline and Services business increased more than 23% year over year to $136 million. The pipeline systems benefited from the acquired State Line and Fairplay natural gas gathering systems, the increase in volumes in the Texas Intrastate system as well as from the partnership’s natural gas storage business.
The gross operating income of Onshore Crude Oil Pipelines & Services segment plunged more than 31% year over year to $26 million in the reported quarter, primarily dueto lower crude oil sales margins as well as a decline in equity earnings from Seaway.
Enterprise’s Offshore Pipelines & Services’ gross operating income was $66 million in the fourth quarter, substantially below the year-ago quarter’s level of $98 million. The decrease was due to suppressed exploration and development activity in the Gulf of Mexico related to the federal regulatory issues.
Gross operating income in the Petrochemical & Refined Product Services segment improved significantly year over year to $140 million in the quarter from the year-earlier level of $109 million.
Financials
During the quarter, the partnership spent $694 million, which included $63 million in sustaining capital expenditures (capex). Full-year 2010 capex stood at $3.3 billion with $240 million of sustaining capex.
Interest expense in the quarter was $213 million (up approximately 19% year over year) on average debt balance of $13.8 billion.
Outlook
Enterprisehas 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 would 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.
However, all these positives are already reflected in its current valuation, leaving little room for further upside. Further, intense competition from MLPs (master limited partnerships) such as Kinder Morgan Energy Partners L.P. (KMP), Enbridge Energy Partners (EEP) and Energy Transfer Equity (ETE) is an added cause for concern. We maintain our long-term Neutral recommendation on Enterprise Products.
ENBRIDGE EGY PT (EEP): Free Stock Analysis Report
ENTERPRISE PROD (EPD): Free Stock Analysis Report
ENERGY TRAN EQT (ETE): Free Stock Analysis Report
KINDER MORG ENG (KMP): Free Stock Analysis Report
Zacks Investment Research
