Energy Transfer Equity (ET -0.75%) made headlines heading into its second-quarter report by agreeing to acquire its namesake master limited partnership, Energy Transfer Partners (ETP), in a $27 billion deal. It's a game-changing transaction since it will simplify the organizational structure and increase its financial flexibility. However, while that transaction will likely get a lot of attention when both companies announce results later this week, there are a few other things investors should keep an eye on when reviewing those reports.
Check if Energy Transfer Partners' quarterly results continued making progress
After struggling during the oil market downturn, Energy Transfer Partners' financial results have turned sharply higher in recent quarters thanks in part to newly completed expansion projects. That was certainly the case in this year's first quarter as earnings and cash flow both increased roughly 30% from the prior-year period.
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With several more expansions entering service in the past few months, investors should see if the MLP's financial results continued expanding in the second quarter. One area to pay the closest attention to is whether the Rebel II Processing Plant, Old Ocean Pipeline, Red Bluff Express Pipeline, and Rover Pipeline all came on line as expected during the quarter. The company did already state that Rover's mainline pipeline entered full service at the end of May, which is good news since that's one of its largest expansions.
Look at Sunoco LP's results
Because Energy Transfer Partners supplies the bulk of Energy Transfer Equity's income, it's easy to forget about Sunoco LP (SUN -4.07%), which is another company it controls. The motor fuel distributing MLP is undergoing a significant transformation, which is why investors should keep an eye on it this quarter.
The first quarter was an important one from a strategic standpoint as Sunoco LP closed the sale of the bulk of its company-owned retail sites to 7-Eleven and used the cash to refinance debt and buy back some of its equity, including preferred units owned by Energy Transfer. While that transaction improved Sunoco's balance sheet, it parted with a significant portion of its cash flow in the process. Because of that, investors should keep an eye on the company's distribution coverage ratio during the quarter. That metric was a tight 1.0 times in the first quarter, and if it doesn't improve, Sunoco LP might have to cut its payout, which would impact the income Energy Transfer earns from this investment.
See how its latest addition fared during the quarter
Energy Transfer recently added a new company to its holdings by closing a deal for a stake in USA Compression Partners (USAC -2.16%) in April. Given that second-quarter close, the new addition should have an impact on the company's results during the quarter, making it worth watching.
USA Compression Partners expects to report its results the day before Energy Transfer Equity, which gives investors the opportunity to take a peek at that company's progress before reviewing Energy Transfer's results. One number to watch is USA Compression Partners' outlook for distributable cash flow. After closing the Energy Transfer deal, USA Compression boosted its outlook to a range of $170 million to $190 million (up from its prior view of $130 million to $140 million). Ideally, the company will report solid second-quarter results, which will keep it on pace to achieve that goal, especially since, like Sunoco LP, USA Compression's coverage ratio was razor-thin in the first quarter.
All eyes are elsewhere for now
As a holding company, Energy Transfer Equity gets nearly all its earnings from other sources, which is why investors need to watch their results this quarter. However, that will change later this year when it completes its transformative merger with Energy Transfer Partners. That deal is one of the many reasons why Energy Transfer has become a compelling company for income investors to put on their watchlist.
