What's Behind Energy Transfer's Mixed Earnings?

Fourth-quarter revenue was up at Dallas-based Energy Transfer Partners (NYSE: ETP  ) , but the partnership posted a loss anyway on the impact of a goodwill impairment charge. Let's take a closer look at the partnership's fourth-quarter and full-year results.

The elephant in the room
Energy Transfer's fourth-quarter loss of $462 million was caused by a non-cash goodwill impairment of $689 million related to the partnership's Trunkline LNG subsidiary. Energy Transfer Equity (NYSE: ETE  ) has since closed on its purchase of Trunkline. The charge obliterated what would otherwise have been a $75 million year-over-year increase in operating income. The loss was exacerbated by increased interest and tax expenses.

The net income loss translated into a loss of $1.90 per limited partner unit for the quarter, and a loss of $0.18 per unit for the full year -- a far cry from last year's net income of $4.42 per unit, but the market more or less shrugged it off.

That said, revenue, adjusted EBITDA, and distributable cash flow were all significantly higher on a year-over-year basis:

 

2012

2013

Revenue

$15.702

$46.339

Adjusted EBITDA

$2.744

$3.953

DCF

$1.191

$1.835

Source: Energy Transfer Partners. Dollar figures in billions.

These numbers imply growth. Indeed, management spent quite a bit of effort in 2013 consolidating numerous acquisitions under one roof. But they also suggest health in the underlying operations. With this chart in mind, let's take a look at ETP's quarter segment by segment.

Operations overview
At the segment level, Energy Transfer's fourth-quarter results vary widely year over year:

Source: Energy Transfer Partners.

As the chart shows, slight declines in four of the seven segments are not enough to mitigate the gains posted in the midstream, NGL transportation and services, and "other" segments, as 2013's adjusted EBITDA of $986 million was a $35 million improvement over the prior year.

The gains in the NGL transportation segment are particularly noteworthy; earnings received a boost from higher margins across all categories, including transportation, processing and fractionation, and storage. Higher volumes in transportation, processing, and fractionation contributed to the margin expansion.

The two weakest segments based on adjusted EBITDA decline were the intrastate transportation and storage unit and the retail marketing unit. Problems in the intrastate segment stemmed from a significant decline in volume, which dropped revenue $67 million for the quarter. Revenue also declined in the retail marketing segment, from $5.9 billion a year ago to $5.2 billion, largely due to exceptionally high gasoline margins in 2012.

On the bright side
Despite the ugly net income figure, Energy Transfer did post positive distribution coverage for the fourth quarter and the full year. This is extremely important given the partnership's commitment to increasing its quarterly distribution on a consistent basis going forward. In contrast, Energy Transfer did not post positive coverage for its distribution last year. Its annualized payout now stands at $3.68 per limited partner unit, good for a 6.8% yield at today's price. That's a solid yield given the payout is probably the most reliable it's been in the last five years.

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