Pipeline operator Energy Transfer Partners L.P. (ETP) announced disappointing second quarter 2011 results, hurt by lower natural gas volumes and higher operating expenses.
The owner of the biggest intrastate pipeline system in Texas reported earnings per unit of 19 cents, which came in way below the Zacks Consensus Estimate of 30 cents. However, earnings improved remarkably from the year-ago loss of 26 cents.
Quarterly revenues of $1,628.1 million missed our projection of $1,787.0 million. Comparing year over year, sales shot up 28.4% from $1,267.7 million, attributed to higher transportation fees related to the Tiger pipeline.
Quarterly Cash Distribution
Last month, Energy Transfer announced second quarter distribution of 89.375 cents per unit ($3.575 per unit annualized), which remains unchanged from the year-earlier and previous quarter distributions. The distribution is payable on August 15, to unit-holders of record on August 5.
EBITDA & Operating Income
Adjusted EBITDA for the quarter was $388.1 million, compared with $335.6 million in the year-ago quarter.
However, operating income of $270.4 million escalated 35.7% from the second quarter of 2010, reflecting significant growth in Energy Transfer’s Interstate Transportation and Midstream business units.
The partnership withdrew approximately 647.4 million cubic feet (mmcf) from the natural gas storage inventory during the quarter, as against a much higher, 871.2 mmcf, withdrawal during the corresponding quarter last year.
Distributable Cash Flow
Energy Transfer Partners reported distributable cash flows of $223.3 million in the quarter, up from $200.2 million in the prior-year quarter.
Capital Expenditure
During the quarter, maintenance capital expenditure totaled $29.5 million, up 21.9% year over year.
Balance Sheet
As of June 30, 2011, Energy Transfer had cash and cash equivalents of $130.9 million and long-term debt (including current maturities) of $7,646.1 million. Debt-to-capitalization ratio was 56.3%.
Our Recommendation
We expect Energy Transfer Partners to have a challenging time ahead due to the lingering effects of the weak natural gas market that would dilute growth prospects of the rapidly expanding natural gas liquids business. Moreover, the uncertain macro environment and cost overruns on expansion projects remain major areas of concern.
Counterbalancing these negative aspects, we expect the partnership to drive distribution growth in the coming months aided by multiple acquisitions and joint ventures, organic growth, strong volume expansion, and modest price increases.
Energy Transfer Partners –– which competes with other large-cap pipeline master limited partnership peers like Enterprise Products Partners L.P. (EPD), Kinder Morgan Energy Partners L.P. (KMP) and Plains All American Pipeline L.P. (PAA) –– currently retains a Zacks #3 Rank (short-term Hold rating). Longer-term, we maintain our Neutral recommendation on the partnership.
ENTERPRISE PROD (EPD): Free Stock Analysis Report
ENERGY TRAN PTR (ETP): Free Stock Analysis Report
KINDER MORG ENG (KMP): Free Stock Analysis Report
PLAINS ALL AMER (PAA): Free Stock Analysis Report
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