Magellan Midstream Partners L.P. (MMP), a master limited partnership, announced excellent second quarter 2010 results, buoyed by higher rates and improved demand for its transportation services.
The partnership reported earnings per unit (EPU) of 86 cents (excluding mark-to-market commodity-related pricing adjustments), comfortably surpassing the Zacks Consensus Estimate of 64 cents and the year-ago profit of 45 cents.
Total revenues more than doubled year-over-year to $423.1 million and easily beat the Zacks consensus estimate of $310.0 million.
Importantly, Magellan declared a quarterly distribution of 73.25 cents per unit ($2.93 per unit annualized), representing a 3.2% increase over the year-earlier quarter and 1.7% increase over the first quarter 2010 distribution. The distribution will be paid on August 13 to unit-holders of record on August 6, 2010.
Petroleum Products Pipeline System
In the Petroleum Products Pipeline System, quarterly operating profits (before affiliate G&A and D&A expenses) were a record $134.4 million, up 73.3% year over year. The increase reflects higher transportation and terminals revenues, improved leased storage volumes, and incremental fees for terminal throughput, ethanol blending and additive injection. These factors were partly offset by increase in operating expenses.
Petroleum Products Terminals
In the Petroleum Products Terminals segment, operating margin was again a record $35.0 million, up approximately 30.7% year over year. The positive comparison was on account of the effects of expansion projects at the partnership’s terminals, higher storage rates on existing marine capacities, and higher inland throughput volume, which were partly offset by higher operating expenses and lower product margin.
Ammonia Pipeline System
The partnership’s Ammonia Pipeline System reported an operating profit of $548,000, as against $2.0 million in the second quarter of 2009. The segment results were adversely affected on account of downtime caused by pipeline maintenance work.
2010 Guidance
Management expects distributable cash flows of approximately $360 million (up $10 million from the previous guidance) for the full year and is targeting an annual distribution growth of 4%. Magellan guided towards third-quarter and full-year earnings per unit of 48 cents and $2.73 (up from the previous guidance of $2.69), respectively.
The partnership plans to spend approximately $565 million (as against previously slated $250 million) on growth projects in 2010, with expenditures of $100 million in 2011 required to complete these projects. Additionally, the partnership continues to look out for more than $500 million of potential growth projects in the earlier stages of development.
Our Recommendation
Magellan units are currently rated as Zacks #3 Rank (‘Hold’), implying that the stock is expected to perform in line with the broader U.S. equity market over the next one to three months. This is supported by our long-term Neutral recommendation
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