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Enterprise Products Partners (NYSE: EPD ) reported second-quarter earnings yesterday. To the delight of investors, it was another strong quarter for the midstream company that's up around 14% this year.
Lower commodity prices resulted in a 13% drop in revenue compared with the same quarter last year. However, profit jumped from $433.7 million last year to $566.3 million. The 31% increase is mostly the result of lower operating expenses.
Earnings per unit climbed from $0.51 a year ago to $0.64, easily beating analyst expectations of $0.58 per unit.
Despite the miss on revenue, Enterprise is in great shape financially going into the second half of this year. Distributable cash flow was $876 million for the quarter, providing 1.6 times coverage for the company's next shareholder distribution of $0.635. The company is able to retain $331 million of that after the shareholder payout.
Four out of Enterprise's five business segments reported higher gross operating margin year over year, resulting in an overall gross operating margin increase of 12%; only the partnership's offshore pipelines and services segment posted a decline. The segment that showed the biggest increase was onshore crude oil pipelines and services, which popped 41% on the strength of higher volumes and sales margins.
In the past, a fair amount of Enterprise's growth came from plunking down a pile of cash to buy other businesses, but the company's future is an organic one. Enterprise is committed to growing its business more via new projects than through mergers and acquisitions.
The company is on schedule to complete $3 billion worth of organic growth projects this year, most of which are in the Eagle Ford shale play in Texas. Many of these projects are fee-based, and the partnership expects gross operating margin from fee-based activities to increase from 73% in 2011 to 80% in 2013.
Enterprise is an example of a company that simply executes well. In the face of low natural gas and NGL prices, the company was still able to increase profit on the strength of higher volumes, marketing activities, and strong hedges -- something that not all of its peers were able to do this quarter.