Enterprise Products Partners L.P. (EPD) reported second-quarter 2013 adjusted earnings per limited partner unit of 65 cents, missing the Zacks Consensus Estimate of 67 cents but improving a penny year over year.
Transportation of more crude, natural gas and other commodities through its pipelines led to the improvement. Enterprise transported 4,888 thousand barrels per day of natural gas liquids (NGL), crude oil, refined products and petrochemical products, up 20% on a year-over-year basis. This was partially offset by more than 15% year-over-year increase in total costs and expenses.
Quarterly distribution at Enterprise increased 7.1% year over year to 68 cents per common unit, or $2.72 per unit on an annualized basis. Distributable cash flow of $925 million provided coverage of 1.5x. The partnership retained $318 million in cash flow, thereby reducing its financing needs.
Revenues increased nearly 14% year over year to $11,149.3 million. This however, came below the Zacks Consensus Estimate of $11,785.0 million.
Second Quarter Segmental Performance
Gross operating income in the NGL Pipeline & Services segment dropped 3.7% year over year to $545.0 million. Gross operating income in the natural gas processing business plunged 22.1% mainly due to lower system-wide natural gas processing margins. A decrease in equity NGL production from the Rocky Mountain natural gas processing plant also contributed to the decline. The partnership’s NGL pipeline and storage business’ gross operating margin increased 19% year over year. For the NGL fractionation business, gross income surged 35% year over year to $93 million, aided by higher revenues and volumes from its sixth NGL fractionator that came online in Oct 2012.
Onshore Natural Gas Pipeline and Services’ gross operating income increased 12.5% year over year to $198.0 million. The pipeline systems benefited from Texas Intrastate along with San Juan, Carlsbad and South Texas natural gas gathering systems.
Gross operating income from the Onshore Crude Oil Pipelines & Services segment shot up significantly by 105.2% year over year to $197.0 million in the reported quarter, primarily on higher crude oil marketing and volume growth in all major onshore crude oil pipelines of Enterprise. The segment also benefited from the South Texas crude oil pipeline system as well as the Seaway Crude Oil Pipeline.
Gross operating income in the Petrochemical & Refined Product Services segment improved to $163.0 million in the quarter from the year-earlier level of $157.0 million.
However, Enterprise’s Offshore Pipelines & Services’ gross operating income was $40 million, higher than $38.0 million a year ago.
Financials
During the quarter, the partnership spent $1.1 billion, including $75 million in sustaining capital expenditures. Total debt principal outstanding at the end of the quarter was $17 billion.
Outlook
Enterprise Products remains a core holding in a master limited partnership portfolio and focuses on projects that generate stable cash flow and contribute to its integrated value chain. While Enterprise increased its cash flow distribution by 7.1% in the reported quarter, it also deployed cash in various fee-based development projects that will likely generate operating cash flow to support its future distribution growth.
Given a broad and vertically integrated asset base, steady cash flow generation ability and financial strength for strategic growth, we believe Enterprise is well positioned to deliver an impressive total return going forward. The partnership is hopeful of new sources of fee-based cash flow from projects under construction to increase the percentage of its gross operating margin attributable to fee-based operations from 73% in 2012 to approximately 80% in 2013.
However, Enterprise remains vulnerable to macro conditions and unstable oil and gas prices, which in turn could hurt margins in NGL, natural gas and other businesses. Enterprise carries a Zacks Rank #3 (Hold). Other sector stocks like Range Resources Corporation (RRC), Gulfmark Offshore, Inc. (GLF) and Dril-Quip, Inc. (DRQ) hold a Zacks Rank #1 (Strong Buy) and are expected to perform better in the near term.
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