Crude oil pipelines and terminals operator Sunoco Logistics Partners L.P. (SXL) announced impressive third-quarter 2011 results, driven by well performing crude pipelines and terminals facilities.
The partnership’s diluted earnings per unit (EPU) came in at $2.34, striding past the Zacks Consensus Estimate of $1.60 and the year-ago profit of $1.64.
Revenues of $2,850.0 million shot up 51.4% from $1,883.0 million in the third quarter of 2010 and also beat our projection by 35.2%.
Quarterly Distribution
Importantly, the partnership raised its quarterly distribution by 2.1% sequentially to $1.24 per unit or $4.96 per unit annualized, representing the twenty-sixth consecutive quarterly distribution increase. Sunoco Logistics Partners issued guidance to hike its cash distribution by 7% in 2012.
Distributable cash flow escalated approximately 55.7% year over year to a record $109.0 million.
Segmental Performance
Effective third quarter, the partnership is reporting in four segments: Refined Products Pipelines, Terminal Facilities, Crude Oil Pipelines and the newly formed, Crude Oil Acquisition and Marketing.
Refined Products Pipeline System: Operating income from segment was $11.0 million, down 15.4% from the third quarter of 2010. The negative variance was due to reduced profits from the Partnership’s joint venture pipelines as well as the problems related to a pipeline relocation project.
Terminal Facilities: The partnership’s Terminal Facilities business segment generated an operating income of $33.0 million, up 37.5% year over year. This can be mainly attributed to increased contribution from the butane blending business acquired in July 2010 and higher tank rentals/fees at the Nederland crude oil terminal. Contributions from the acquisition of the Eagle Point tank farm also boosted the results. These factors were partially negated by lower throughput at the partnership’s refined products terminals.
Crude Oil Pipelines: Operating income in the Crude Oil Pipelines segment was up by 26.5% from the year-earlier level to $43.0 million, driven by higher crude oil volumes and fees as well as increased earnings related to Sunoco Logistics’ acquisition of additional joint venture interests.
Crude Oil Acquisition and Marketing: The brand new segment registered an operating income of $41 million that grew a whooping 115.8% from the prior-year quarter, supported by increased crude oil volumes and margins plus benefits of the acquired business.
Capital Expenditure & Balance Sheet
The partnership’s maintenance capital expenditure and expansion capital expenditure (including acquisition) for the quarter totaled $10.0 million and $438.0 million, respectively.
As of September 30, 2011, Sunoco had $1,798.0 million in total debt, representing a debt-to-capitalization ratio of approximately 60.3%.
Asset Acquisition
During the quarter, Sunoco Logistics acquired an oil storage plant – Eagle Point tank – from Sunoco Inc. (SUN) for $100 million and bought a refined products terminal located in East Boston, Massachusetts from ConocoPhillips (COP) for $56 million along with its inventory.
Sunoco Logistics’s board of directors declared a three-for-one split of the partnership’s common units and Class A units, expected to be completed in early December.
Our Recommendation
Sunoco Logistics owns a high-quality and diverse portfolio of midstream assets that generate stable and recurring revenues by way of long-term fee-based contracts. With its low-risk and stable cash flow-generating energy infrastructure assets, the partnership offers investors an opportunity to capture income growth through steadily rising cash distributions and capital appreciation.
Sunoco Logistics currently retains a Zacks #2 Rank (Buy rating) for the short term. We are maintaining our ‘Outperform’ recommendation for the longer term.
