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Enterprise Products Partners' Earnings Remained Resilient Against COVID-19

By Matthew DiLallo – Jul 29, 2020 at 10:40AM

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The midstream company delivered solid results amid the market storm in the second quarter.

The second quarter was a brutal period for the energy market, as crashing crude prices forced many oil and gas producers to shut in wells to save money. While that volatility had some impact on Enterprise Products Partners (EPD 3.00%) during the period, its results proved to be highly resilient thanks to the strength of its contract profile and diversified business model. Because of that, its 9.7%-yielding dividend looks to be secure despite all the market turbulence.

Drilling down into Enterprise Products Partners' second-quarter earnings

Metric

Q2 2020

Q2 2019

Year-Over-Year Change

Adjusted EBITDA

$1.961 billion

$2.089 billion

(6.1%)

Distributable cash flow (DCF)

$1.577 billion

$1.722 billion

(8.4%)

DCF per unit

$0.72

$0.78

(7.7%)

Distribution coverage ratio

1.6 times

1.8 times

(11.1%)

Data source: Enterprise Products Partners. 

While Enterprise Products Partners' earnings and cash flow declined by a mid-single-digit rate year over year during the second quarter, its diversification helped cushion the blow of the turbulent market conditions in the period:

Enterprise Products Partners earnings by segment in the second quarter of 2020 and 2019.

Data source: Enterprise Products Partners. Chart by author.

Earnings from natural gas liquids (NGL) pipelines and services were up slightly during the second quarter. The company benefited from strong NGL fractionation results, as earnings from this business -- which separates raw NGLs into pure streams like ethane and propane -- jumped 26% thanks to expansion projects. That more than offset weaker natural gas processing and NGL marketing results.

Crude oil pipeline and service earnings jumped 23.6% year over year, fueled mainly by oil marketing activities as the company took advantage of market volatility to use its uncontracted storage space. That more than offset weaker pipeline results due to lower volumes as producers shut in oil wells to combat lower pricing.

Earnings from natural gas pipelines and services slumped 30.8% because of the lower volumes.

Finally, earnings from petrochemical and refined products services tumbled 37.8% year over year. While pipeline volumes rose, margins were under pressure from impacts related to COVID-19.

An oil storage complex with pipelines.

Image source: Getty Images.

A look at what's ahead for Enterprise Products Partners

Enterprise noted that refinery industry use rates bottomed in April at around 68%. They've since started recovering and are currently about 80%. Further, the company noted that oil and natural gas production volumes have started improving from the lows experienced in May. For example, it said that natural gas processing and NGL production volumes have recovered to 88% and 98%, respectively.

In addition to that volume improvement, Enterprise expects to finish two major expansion projects during the third quarter. That will enable it to capture even more volumes as industry conditions improve, which should boost its cash flow.

While those are clear positives, Enterprise CEO Jim Teague cautioned that the "pace and the scope of the reopening [of the global economy] is uncertain at this time and may extend well into 2021." Further, he noted that "the energy industry is going through a period of significant financial restructuring that has been accelerated by the impacts of the pandemic," with several companies filing for bankruptcy in recent months. Thus the recovery in both the market and Enterprise's results will likely be uneven.

However, Teague also noted that "with our integrated system and business diversification, we believe Enterprise is well positioned to navigate this period. We continue to focus on maintaining a strong balance sheet, financial flexibility, and ample liquidity while providing a reliable income stream to our investors."

Strength amid the storm

Enterprise Products Partners' earnings were quite resilient during the second quarter thanks to the durability of its diversified operations. That enabled the company to generate plenty of cash to support its distribution in this turbulent period. Meanwhile, with market conditions starting to improve, the risks of a payout reduction seem remote, making this an excellent stock for income investors to consider buying these days.  

Matthew DiLallo owns shares of Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.

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Enterprise Products Partners L.P. Stock Quote
Enterprise Products Partners L.P.
EPD
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