Pipeline operator Magellan Midstream Partners LP (MMP) reported weak second-quarter 2014 results owing to a significant rise in operating expenses.
Following Magellan Midstream’s earnings release, the stock lost $1.71 or 2.1% to close at $80.06 on Aug 5. In the after-hours trading session, the partnership’s shares further fell by about 1.3% to $79.00.
The Tulsa, OK-based oil distributor reported earnings per unit (EPU) of 70 cents (excluding mark-to-market commodity-related pricing adjustments), which missed the Zacks Consensus Estimate by a penny. The reported earnings were also lower than the 72 cents guidance given by the partnership in May. The decline was a result of a non-cash impairment charge.
However, the bottom line improved from the year-ago quarter level of 65 cents per share owing to strong results from the Crude Oil segment.
Total revenue of $496.5 million rose 11.8% year over year but failed to meet the Zacks Consensus Estimate of $502 million.
Distributable Cash Flow
Magellan Midstream reported a record quarterly distributable cash flow of $195.9 million in second-quarter 2014, compared with $168.2 million in the prior-year quarter.
Segmental Performance
Refined Products: Quarterly operating margin was $162.7 million, down 8.5% from the year-ago period due to a considerable increase in operating expenses. However, this was partly offset by higher transportation and terminal revenues stemming from an increase in shipment volumes.
Crude Oil: In this segment, operating margin was approximately $73.5 million, significantly higher (up 81.5%) than the prior-year quarter. An increase in transportation and terminal revenues resulting from higher shipment of crude oil through the Longhorn pipeline led to the improvement.
Marine Storage: This segment’s operating margin decreased 16.6% year over year to $27.4 million due to lower product sales and significantly higher operating expenses.
Guidance
Magellan Midstream raised its full-year 2014 distributable cash flows estimate to $840 million from $810 million, based on strong financial results and a positive outlook for the remaining part of the year. The partnership anticipates annual distribution to grow by 20% in 2014 and 15% in 2015.
Magellan Midstream projects third-quarter earnings at 62 cents per unit. The partnership raised the full-year earnings guidance to $3.30 per unit from $3.25.
Zacks Rank & Other Stock Picks
Magellan Midstream currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, one can consider better-ranked players from the industry such as Atlas Pipeline Partners, L.P. (APL), Kinder Morgan Management LLC (KMR) and Plains All American Pipeline, L.P. (PAA). All these stocks have a Zacks Rank #2 (Buy).
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