Crestwood Equity Partners' (NYSE:CEQP) turnaround continued during the fourth quarter as its earnings nudged higher while cash flow growth accelerated. That strong finish to 2018 pushed the midstream company's full-year earnings above the high end of its guidance range. The master limited partnership (MLP), meanwhile, expects even faster growth in 2019, fueled by a growing slate of expansion projects.

Drilling down into the results


Q4 2018

Q4 2017

Year-Over-Year Change

Adjusted EBITDA

$114.1 million

$110.9 million


Distributable cash flow

$64.3 million

$56.8 million


Distribution coverage ratio

1.51 times

1.4 times


Data source: Crestwood Equity Partners.

Crestwood Equity Partners' solid fourth-quarter showing pushed its full-year adjusted EBITDA up to $420.1 million, which exceeded the high end of its $390 million to $420 million guidance range and was 6% higher than 2017's total. DCF, in the meantime, came in at $223.6 million, which was toward the top end of the company's $195 million to $225 million forecast. While that was slightly below 2017's level, that's mainly because new preferred units were issued toward the end of 2017, which reduced DCF to common unitholders by roughly $30 million. Adjusting for that difference and DCF would have increased 11% year over year. 

Driving the company's solid finish to the year were the contributions of two of its three business segments:

Crestwood Equity Partners earnings by segment in the fourth quarter of 2017 and 2018.

Data source: Crestwood Equity Partners. Chart by the author.

Earnings in Crestwood's gathering and processing segment rose 9% year over year thanks to a 16% increase in processing volumes, a 45% surge in produced water volumes, and a 19% decline in operating and maintenance expenses in the Marcellus and Fayetteville regions. Driving the growth was the recent completion of several expansion projects, including the capacity of the company's Bucking Horse gas processing plant in the Powder River Basin, which came on line during the quarter.

Marketing, supply, and logistics earnings, meanwhile, surged 41% versus the year-ago period. Crestwood benefited from regional pipeline project delays, which enabled the company to use its extensive network of trucking, rail, and terminal assets to move natural gas liquids and crude oil from supply basins to demand centers.

Finally, earnings in the storage and transportation segment declined 31% from the year-ago quarter. However, that was due in large part to a $6.7 million one-time payment the company received in the year-ago period. It also experienced a slight decline in natural gas storage and transportation volumes. On a more positive note, volumes at the company's COLT Hub rocketed 142% year over year due to increased production out of the Bakken shale.

A close up of a pipeline under construction.

Image source: Getty Images.

A look at what's ahead

Crestwood Equity Partners expects to continue benefiting from expansion projects completed during 2018 as well as those it anticipates finishing this year. In addition to that, the company will begin receiving 50% of the income from its Stagecoach joint venture this July, up from 40%, which will provide it with an estimated $10 million in incremental EBITDA this year, 20% more than it received last year. Those factors lead the company to believe it can generate between $460 million to $490 million in adjusted EBITDA this year, a 13% increase at the midpoint from 2018. Meanwhile, the company sees DCF rising to between $245 million and $275 million, up 15% at the mid-point on a per-unit basis, which should be enough to cover its high-yielding distribution by a comfortable 1.4 to 1.6 times.

The company has opted to maintain its current distribution level for the full year rather than return some of its growing stream of cash flow to investors. Instead, the company will reinvest that money into high-return expansions that should enable it to grow cash flow at a higher per-unit rate in the future.

Overall, Crestwood expects to invest $275 million to $325 million into expansion projects this year, slightly above its initial forecast to spend between $250 million and $300 million on capital projects. One driver of the increased budget is that oil and gas producer Enerplus (NYSE:ERF) awarded the company a contract to expand its water system in the Bakken. Crestwood expects to invest $60 million over the next two years on this project, which will help support Enerplus' volume growth in the region. Meanwhile, the company is in advanced discussions with customers to provide a range of midstream services in the Delaware Basin, which could include building a new natural gas processing plant in the region.

Check out the latest Crestwood Equity Partners earnings call transcript.

Full speed ahead

Crestwood Equity Partners' turnaround started gaining steam during the second half of 2018 as its growth projects began coming online. With more expansions slated to start up this year, and the final step-up at Stagecoach coming by mid-year, the company sees its earnings and cash flow growth accelerating in 2019. That will help further secure Crestwood's financial foundation, which should enable the company to continue creating value for investors.