Magellan Midstream Partners L.P. (MMP), a master limited partnership (“MLP”), announced significantly better-than-expected fourth quarter 2010 results, aided by strong transportation volumes.
The oil distributor reported earnings per unit (EPU) of 93 cents (excluding mark-to-market commodity-related pricing adjustments), 16 cents ahead of both the Zacks Consensus Estimate and the year-ago profit.
Revenues came in at $398.5 million, up 12.8% year over year, though it was slightly below the Zacks Consensus Estimate of $405 million.
Recently, Magellan raised its fourth quarter 2010 cash distribution by 1.7% sequentially and 6.7% year over year to 75.75 cents per unit (or $3.03 per unit annualized). The cash distribution is up 189% since its initial public offering (“IPO”) in the beginning of 2001. Magellan’s new distribution is payable on February 14 to unitholders of record as on February 7, 2011.
Segmental Performance
Petroleum Products Pipeline System:In the Petroleum Products Pipeline System, quarterly operating profits (before affiliate G&A and D&A expenses) were $132.8 million, up 16.5% year over year. The increase reflects higher transportation and terminals revenues, improved fees for leased storage, terminal throughput, ethanol blending and additive injection, as well as decrease in operating expenses.
Petroleum Products Terminals:In the Petroleum Products Terminals segment, operating margin was $37.4 million, up approximately 14.2% year over year. The positive comparison was on account of contributions from the recently-acquired tankage at the partnership’s storage facilities, higher inland throughput volume, as well as higher ethanol and additive fees. Results were further helped by lower operating expenses.
Ammonia Pipeline System:The partnership’s Ammonia Pipeline System reported an operating margin of $1.8 million, down 64.2% from that incurred in the fourth quarter of 2009. The segment results were adversely affected on account of downtime caused by pipeline maintenance work.
2011 Guidance
Management expects record distributable cash flows of approximately $410 million for the full year and is targeting an annual distribution growth of 7%. Magellan guided towards first-quarter and full-year earnings per unit of 75 cents and $3.13, respectively.
The partnership plans to spend approximately $170 million on growth projects in 2011, with expenditures of $30 million thereafter 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
Even though Magellan Midstream has a Zacks #2 Rank (short-term Buy rating) in the short run, we are Neutral on the units in the longer term.
Magellan Midstream competes in the ‘Oil/Gas Production Pipeline MLP’ industry with firms like Pioneer Southwest Energy Partners L.P. (PSE), Spectra Energy Partners L.P. (SEP), TC PipeLines L.P. (TCLP) etc.
MAGELLAN MDSTRM (MMP): Free Stock Analysis Report
PIONEER SW EGY (PSE): Free Stock Analysis Report
SPECTRA EGY PTR (SEP): Free Stock Analysis Report
TC PIPELINES (TCLP): Free Stock Analysis Report
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