Energy Transfer Partners L.P. (ETP), a master limited partnership (“MLP”), announced weak second quarter 2010 results. The partnership reported earnings per unit of 3 cents, well below the Zacks Consensus Estimate of 28 cents and the year-ago quarter’s earnings of 38 cents. The quarterly results were adversely affected by the Intrastate Transportation and Storage segment’s performance, coupled with higher operating expenses.
Including the charges associated with the transfer of the interests in the Midcontinent Express Pipeline (“MEP”), the partnership’s loss per limited partner’s unit was 26 cents as against the prior-year quarter’s earnings per unit of 38 cents.
The partnership generated revenues of $1.27 billion, up 10.1% year over year. However, the reported quarter’s revenues failed to meet the Zacks Consensus Estimate of $1.74 billion.
Distribution Unchanged
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 August 16, 2010 to unit holders of record at the close of business on August 9, 2010.
EBITDA and Operating Income
Adjusted EBITDA for the quarter was $335.6 million, compared with $268.2 million in the year-ago quarter.
Operating income for the quarter was $199.2 million, compared with $219.2 million in second quarter 2009. The declining results for the quarter were due to reduced transported volumes along with lower basis differentials across Texas.
Distributable Cash Flow
The company reported distributable cash flow of $200.0 million in the quarter, up from $134.6 million in the prior-year quarter.
Capital Expenditure
During the quarter, Energy Transfer Partners incurred a growth capital expenditure of $478.7 million (up from $224.4 million in the year-ago period), while maintenance capital expenditure totaled $24.2 million (compared with the year-earlier level of $29.7 million).
Looking forward to the remainder of 2010, the partnership expects to devote approximately $765 million to $855 million for growth capital spending and $40 million to $55 million for maintenance capital spending.
Balance Sheet
As of June 30, 2010, Energy Transfer had cash and cash equivalents of $78.8 million and long-term debt (including current maturities) of $6,090.1 million. The debt-to-capitalization ratio was 58.4%.
The partnership also had available capacity under its revolving credit facility of about $1.95 billion.
Our Recommendation
Energy Transfer is currently rated as Zacks #2 Rank (Buy). The optimism reflects our belief that the partnership is well positioned to compete in the industry with its geographically diverse asset mix and various lucrative projects. Moreover, other positive sentiments in favor of the partnership are steady distribution and substantial cash flow stability.
However, we remain apprehensive about the unstable natural gas supply-demand fundamentals and increased costs hampering the profitability of the projects. Taking into account these headwinds, our long-term recommendation on the stock remains Neutral.
ENERGY TRAN PTR (ETP): Free Stock Analysis Report
Zacks Investment Research
