Context is crucial when reviewing Energy Transfer's (ET 0.12%) first-quarter results. At first glance, it looked like the master limited partnership (MLP) took a significant step back from the prior-year period. However, that's due entirely to the non-recurring favorable impact of Winter Storm Uri last year. When seen in this light, it's clear that the company is off to an excellent start to the year.
A strong quarter
Energy Transfer generated more than $5 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in last-year's first quarter. That makes the $3.34 billion of adjusted EBITDA it produced in the first quarter of 2022 look light in comparison. However, after excluding the positive impact of Winter Storm Uri on its 2021 results, Energy Transfer's adjusted EBITDA would have increased, versus the year-ago period.
The same goes for distributable cash flow. While it declined from $3.91 billion to $2.08 billion, that's entirely due to the winter storm.
To put that number into a better context, it was enough money to cover the company's distribution by a comfortable 3.36 times, even though it boosted the payout by 15%. That enabled Energy Transfer to retain $1.5 billion in excess cash after paying its distribution.
The company used that money to fund $390 million in growth capital expenses and continue to strengthen its balance sheet. Meanwhile, Energy Transfer recently gave its investors another raise, bringing its total 2022 increase to more than 30%.
Overall, Energy Transfer had higher transportation volumes across all its segments during the first quarter. The pipeline company also benefited from its acquisition of Enable Midstream, which closed last December.
On track for an even better year
Energy Transfer's strong showing in the first quarter, along with continued increasing demand, is giving the MLP the confidence to increase its full-year outlook. The company now expects to generate between $12.2 billion and $12.6 billion of adjusted EBITDA this year, up from its initial forecast of $11.8 billion to $12.2 billion.
Meanwhile, improving conditions in the energy market have the company boosting its capital-spending plans. It now expects to invest $1.8 billion to $2.1 billion on growth projects in 2022, up from $1.6 billion to $1.9 billion.
The MLP recently completed three expansion projects while starting construction on several more. In addition, it's pursuing two other large-scale projects. It has secured several sales and purchase agreements to support its Lake Charles LNG Export Project. After years of working on this project, the company could make a positive final investment decision by year-end. It's also working to secure customer agreements to support a natural gas takeaway project for the Permian Basin.
These investments could give the company the fuel to continue growing its cash flow and distribution in the future. Energy Transfer set an ultimate goal to return its distribution to its former peak of $0.305 per unit each quarter, up from its current level of $0.20 per unit each quarter.
While it has the cash flow to support that higher level now, it's balancing its desire to grow the distribution with maintaining a strong balance sheet and pursuing growth opportunities. With two potential large-scale projects on the horizon, the company might continue retaining more cash each quarter to fund those expansions, which could be major long-term growth drivers.
A strong start to what should be an excellent year
Energy Transfer delivered better-than-expected first-quarter results. Because of that, improving market conditions, and a strengthening balance sheet, the MLP has been able to boost its distribution by more than 30% this year, pushing the yield up toward 7%.
There's more upside ahead, given its cash flow and growth prospects. Because of that, the MLP looks like a solid option for investors seeking a big-time passive-income stream.