Enterprise Products Partners' (NYSE:EPD) quarterly earnings reports usually come in one of two forms: They either show significant gains from the company adding a major capital project to its operations, or earnings hold serve until the next project starts up. This most recent quarter was of the latter type as no new assets were added to the Enterprise network. 

Here's a look at Enterprise's latest earnings results and an overview of what happened in what was a rather quiet quarter for the oil and gas midstream giant.

Aerial view of oil export terminal

Image source: Getty Images.

Enterprise Products Partners' earnings: The raw numbers

Metric Q2 2017 Q1 2017 Q2 2016
Gross operating margin $1.38 billion $1.47 billion $1.25 billion
Net income $666 million $771 million $570 million
EPS $0.30 $0.36 $0.27
Distributable cash flow $1.05 billion $1.13 billion $1.04 billion

Data source: Enterprise Products Partners earnings release.

When we stack up this most recent quarter's results against the first quarter, they don't look that impressive. Then again, Enterprise did post record volumes across several of its systems and benefited from some one-time mark-to-market value and hedging gains in the first quarter. It was pretty much the closest thing to a perfect quarter for Enterprise. If we handicap for that, this quarter looks pretty good.

Enterprise recorded volume gains in its pipeline volumes for crude oil, natural gas liquids (NGL), and refined and petrochemical products; its NGL processing volumes; and its equity NGL production volumes compared to this time last year. As a result, the company posted year-over-year gains in every business segment.

Enterprise Products Partners gross operating margin for Q2 2016, Q1 2017, and Q2 2017. Shows year-over-year growth in every business segment.

Data source: Enterprise Products Partners earnings release. Chart by author.

What happened with Enterprise Products Partners this quarter?

  • Total capital spending for the quarter was $869 million, which puts first-half spending at $1.3 billion. With management expecting to spend $2.8 billion to $3 billion in 2017, we can expect capital expenditures to ramp up slightly in the second half of the year.
  • Enterprise kept its distribution growth rate the same with a 5.1% year-over-year payout increase. This was the 52nd consecutive quarter with a distribution increase.
  • The distribution coverage ratio slipped slightly in the quarter to 1.2, but that meant the company still retained $381 million in cash after distributions to reinvest in the business.
  • Construction at the company's propane dehydrogenation (PDH) facility, which produces propylene, is complete, and Enterprise is currently commissioning the project. Management expects the plant to start commercial operations in September. Its Midland-to-ECHO pipeline is progressing ahead of schedule and should begin shipping limited amounts in the fourth quarter, with full commercial capacity in the first quarter of 2018.
  • After the end of the quarter but before earnings were released, Enterprise announced a joint venture with natural gas liquids shipper Navigator Holdings (NYSE:NVGS) to construct an ethylene export terminal dock at Enterprise's Morgan Point export facility. The final price tag for the facility has not yet been disclosed.

What management had to say

There has been a flurry of announced pipeline projects of late, which may have some people wondering if too many projects have been sanctioned. According to CEO Jim Teague, that may not be much of an issue. He said in his prepared remarks that customer demand for two pipelines to carry product from the Permian Basin to the Houston area is high:

During the quarter, we had success in sanctioning two new midstream projects: a second processing unit at our Orla natural gas processing plant and the Shin Oak NGL pipeline, both supported by volume growth in the Permian Basin. We also executed additional long-term contracts for the Midland-to-ECHO crude oil pipeline to bring total commitments to 83 percent of the pipeline's 405,000 barrels per day of committed capacity. Our commercial teams are continuing efforts to develop an ethylene export facility on the Houston Ship Channel and several other fee-based facilities to support petrochemical and refining customers.

10-second takeaway

Enterprise's most recent quarter was rather low-key as the company brings a major capital project on line. With the PDH facility complete, we can expect some significant cash flow growth in the upcoming quarters. In the meantime, management continues to balance its sizable portfolio of growth projects with financial discipline that has allowed the company to maintain its impressive distribution streak. It's hard to find anything in the Q2 earnings report that suggests any significant changes to this solid income investment.

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