Energy Transfer's (NYSE:ET) strategic initiatives kept paying off during the fourth quarter. The energy infrastructure giant delivered record earnings and cash flow thanks to the investments and other transactions it completed during the year. The company expects that trend to persist in 2019 as its expansion projects continue to boost its bottom line.

Drilling down into the results

Metric

Q4 2018

Q4 2017

Year-Over-Year Change

Adjusted EBITDA

$2.67 billion

$2.08 billion

28.5%

Distributable cash flow (DCF)

$1.52 billion

$1.18 billion

28.7%

DCF per unit

$0.58

$0.47

24.4%

Distribution coverage ratio

1.9 times

1.66 times

14.5%

Data source: Energy Transfer.

As expected, Energy Transfer's growth engine remained in high gear during the fourth quarter as the company set records for both EBITDA and DCF. That strong finish pushed full-year EBITDA up to $9.5 billion, a nearly 30% jump from 2017, while DCF increased roughly 31% to $5.4 billion.

Driving the strong finish to the year was nearly across-the-board growth in the company's various business units and strategic investments:

Energy Transfer's earnings by segment in the fourth quarter of 2018 and 2017.

Data source: Energy Transfer. Chart by the author.

While most of Energy Transfer's segments reported higher earnings, the biggest contributions came from its intrastate, interstate, and NGL and refined products businesses, which all delivered record quarterly results. The intrastate segment's earnings more than doubled due in large part to the company's ability to optimize the activity on its pipelines. Interstate earnings, meanwhile, surged more than 40% largely thanks to the completion of the Rover Pipeline. Finally, the NGL and refined products segment's earnings leaped 31% because of higher transportation and export volumes across its systems thanks to growing supplies and strong demand.

The lone apparent weak spot was the company's "all other" catchall segment. However, that's due to a significant degree to the company contributing its compression business to USA Compression (NYSE:USAC). Energy Transfer acquired a stake in USA Compression as part of that transaction, which allowed the company to record earnings from that investment during the quarter, more than offsetting the loss in its "all other" segment.

Sunset through the twists of a pipeline system.

Image source: Getty Images.

A look at what's ahead

Energy Transfer recently completed several more expansion projects, including placing its Mariner East 2 pipeline in service in December and adding enough new customer contracts to its Bakken Pipeline system to boost its capacity up to 570,000 barrels per day. Those expansions position the company to continue growing earnings in 2019, with it expecting to generate between $10.6 billion to $10.8 billion in adjusted EBITDA this year, which at the midpoint is 12.6% above 2018's total.

Energy Transfer has several more growth projects under construction, including the Red Bluff Express and Mariner East 2X pipelines that should start up in the second half of this year. On top of that, the company expects to finish the Permian Gulf Coast pipeline by the middle of next year and its Orbit ethane export terminal by the end of 2020. Overall, Energy Transfer expects to spend $5 billion on expansion projects this year. It currently believes it can generate between $2.5 billion to $3 billion in excess cash after paying its high-yielding distribution to help fund a large portion of those projects. It should be able to bridge the gap with its credit facility, which had nearly $2.25 billion available at the end of last year, though the company did recently issue $4 billion of new debt to refinance some higher-cost borrowings as well as pay down a portion of its $6 billion credit facility.

The strategic initiatives are paying off

Energy Transfer spent the past year completing a string of strategic initiatives, including investing in expansion projects, rolling up its MLP, and selling noncore assets like its compression business to USA Compression. These moves enabled the company to deliver record-setting results to end 2018 and set it up for continued growth in 2019 and beyond. That upside makes this pipeline giant an increasingly intriguing investment option.