It's incredible how consistent Magellan Midstream Partners' (MMP) earnings are from quarter to quarter. It happened this past quarter again, as the company posted modest growth thanks to new projects coming online and a small uptick in commodity prices -- not that commodity prices matter that much to Magellan, anyways. Here's an overview of Magellan's most recent quarter, and what the company did to deliver consistent cash flow growth again.
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Magellan Midstream Partners earnings: The raw numbers
| Metric | Q2 2017 | Q1 2017 | Q2 2016 |
|---|---|---|---|
| Revenue | $619.4 million | $642.1 million | $518.9 million |
| Adjusted EBITDA | $323.9 million | $288.3 million | $292.5 million |
| Earnings per share | $0.92 | $0.98 | $0.82 |
| Distributable cash flow | $250.3 million | $227.6 million | $221 million |
Data source: Magellan Midstream Partners earnings releases. EBITDA = earnings before interest, taxes, depreciation, and amortization.
What is there to say about these results? Revenue and cash flows increased compared to the prior year, thanks to new projects coming on stream and modest price increases across the company's existing pipelines and storage terminals. These results were higher than what management had anticipated when reporting earnings last quarter, as demand for distillate -- a byproduct of natural gas liquids -- from its new condensate splitter was higher than expected.
This past quarter's results were good enough that management raised its distributable cash flow guidance for 2017 by $20 million. Management now expects to generate $1.02 billion in distributable cash flow for the year and a distribution coverage ratio -- distributable cash flow divided by total paid out to shareholders -- of 1.2.
Data source: Magellan Midstream Partners earnings release. Chart by author.
What happened with Magellan Midstream Partners this past quarter?
- Magellan started operations at its Corpus Christi condensate splitter in June, so we only saw a partial contribution from this asset in the second quarter. Management was able to settle a contract dispute with its primary customer, Trafigura Trading LLC, before the facility went operational.
- Crude oil volumes increased for both its Saddlehorn Pipeline and BridgeTex Pipeline.
- Magellan and its BridgeTex partner recently completed a new origin point for the pipeline and increased its capacity from 300,000 barrels per day to 400,000 BPD. There is currently an open season to solicit contract commitments from producers for the additional pipeline space. Management has also hinted that it is ready to expand BridgeTex's capacity to 440,000 BPD if there is enough demand.
- The Cheyenne extension for the Saddlehorn pipeline is almost complete and will be fully operational in the third quarter.
- The company broke ground on its largest project -- an export terminal in Pasadena, Texas. The initial investment of $335 million doesn't look like much, but the company has hinted it will go ahead with the second phase of the terminal, which will cost $1 billion.
- Even though distributable cash flow guidance increased for the year, management kept distribution growth the same at 8% for 2017 and 2018 while maintaining a distribution coverage ratio of 1.2.
What management had to say
CEO Michael Mears commented on the company's steady-as-she-goes results and suggested that the company is leaning toward pipeline expansions and new projects:
Magellan continues to generate strong financial results, with higher contributions generated from each of our operating segments again this quarter. During the second quarter of 2017, we commenced commercial operations for our recently constructed condensate splitter and benefited from record refined products pipeline volumes. Demand for Magellan's fee-based pipeline and terminal services remains solid, and based on active discussions with potential customers, we remain optimistic about the future development of additional growth opportunities to further benefit our company.
Ten-second takeaway
It's hard to find fault with anything in Magellan's most recent earnings release. Its existing assets appear to be in high demand, as management considers expanding pipelines and building more export terminals to meet the needs of America's shale boom. Magellan should have enough irons in the fire to keep its quarterly distribution growth streak alive for some time.
