Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



A Closer Look at Enterprise Products Partners' Earnings

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Enterprise Products Partners (NYSE: EPD  ) is the second big-name American midstream company to report fourth-quarter and annual earnings, after Kinder Morgan knocked it out of the park earlier this month. Analysts were expecting earnings of $0.66 per unit and revenue of $11.93 billion. Enterprise blew past the EPS estimate, earning $0.68 per unit. It failed to meet on revenue, however, recording $11 billion. This was the second-straight quarter the partnership missed on revenue.

There is always more to earnings than analysts' expectations, so let's take a closer look.

General rundown
Fourth-quarter revenue fell to $11.01 billion from $11.59 billion last year. Net income followed a similar path, dropping from $721.1 million last year, to $615.5 million this year. Distributable cash flow was $886 million, of which the partnership retained $308 million.

For the year, Enterprise actually set several partnership records, including the following:

  • $2.4 billion in net income
  • $2.71 earnings per unit
  • $4.4 billion in gross operating margin
  • $4.1 billion in distributable cash flow ($1.2 billion via asset sales)

That makes for a very strong year, and contributes to the fact that even though Enterprise "missed" estimates, units rose a little over 1% after reporting.

Q4: Digging deeper
We'll address the good and the bad segment by segment: 

  • The natural gas liquids (NGL) pipelines and services segment was troublesome in the third quarter, and that didn't change in the fourth, as gross operating margin was $3 million lower than last year, coming in at $632 million. Enterprise watched natural gas processing and NGL marketing lose $66 million in gross margin compared to last year. Much of the decrease can once again be blamed on falling NGL prices, and a drop in equity NGL production. One bright spot for the segment -- and it's important -- was that there was a 15% increase in fee-based processing volumes. NGL pipeline volumes and fractionating volumes both increased year over year, more or less bailing out the segment.
  • Offshore pipelines and services was the next segment to suffer a decline, as gross operating margin contracted $18 million year over year. Declining natural gas volumes are the culprit here, though oil volumes did post slight gains.
  • On the flip side of things, onshore pipelines and services posted a gain in natural gas volumes compared to last year, and gross operating margin increased by $11 million to $210 million for the quarter. Volumes were up 9% on its Texas intrastate system, receiving a boost from the Eagle Ford Shale.
  • Petrochemical and refined products services also posted a gain over 2011's numbers, as gross operating margin rose to $143 million. While a $6 million gain is nothing to write home about, its impressive in this case because three of the five businesses that make up this segment -- propylene, butane isomerization, octane enhancement, and high-purity isobutylene -- all fell year over year. Enterprise's refined products pipelines and marine transportation businesses carried the weight this quarter, posting gains of $35 million and $2 million respectively.
  • It should come as no surprise that the final segment, onshore crude oil pipelines and services, was the best-performing segment this quarter. Registering $67 million in the fourth quarter of 2011, this unit more than doubled its performance to post gross operating margin of $135 million this quarter. Pipeline volumes gained 32%, largely on the strength of the Seaway pipeline, and production in the Eagle Ford Shale.

The quarter was a mix of good news and bad news as far as segment performance goes, but this does really hammer home the point that diversity in your business model is essential to success. Even within these segments, particularly the petrochemical and refined products segment, that pattern is clear.

Expect Enterprises' best-performing segment to continue on that path. The Seaway pipeline, which it co-owns with Enbridge, recently completed its first expansion, which more than doubled its capacity to 400,000 barrels per day. Another expansion is coming, and production in the Eagle Ford will continue to grow, which means this segment will continue to outshine the others, at least in the near future.

Money talks
As stated earlier, Enterprise generated an outstanding $4.1 billion in distributable cash flow in 2012, allowing the partnership to continue to increase its distributions to unit holders. It has now done so for 34 straight quarters, increasing its Q4 payment to $0.66 per unit, which brings its 2012 payout to $2.64 per unit.

Remember that Enterprise has no general partner, and does not pay incentive distributions, which gives it a lower cost of capital and allows it, at least theoretically, to distribute more money to unitholders and to retain more cash for development. This structure, combined with its commitment to developing its fee-based business, means the above trend in distribution growth is something investors can count on quarter after quarter.

Foolish takeaway
All told, it was a good quarter, and a great year for Enterprise Products Partners. Some segments suffered, but others boomed, highlighting the importance of diversifying business mix in the midstream industry.

The growing production of natural gas from hydraulic fracturing and horizontal drilling is flooding the North American market and resulting in record-low prices for natural gas. Enterprise Products Partners, with its superior integrated asset base, can profit from the massive bottlenecks in takeaway capacity by taking on large-scale projects. To help investors decide whether Enterprise Products Partners is a buy or a sell today, click here now to check out The Motley Fool's brand-new premium research report on the company.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2481143, ~/Articles/ArticleHandler.aspx, 9/27/2016 11:34:40 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 hours ago Sponsored by:
DOW 18,228.30 133.47 0.74%
S&P 500 2,159.93 13.83 0.64%
NASD 5,305.71 48.22 0.92%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/27/2016 4:02 PM
EPD $26.93 Down -0.19 -0.70%
Enterprise Product… CAPS Rating: ****