Energy Transfer (ET 0.12%) had a third quarter for the record books. The midstream giant reported record volumes across several of its segments, fueling strong earnings and cash-flow growth. The company benefited from the strength of its underlying assets and its dual growth engines of organic expansions and acquisitions.
Those drivers position the master limited partnership (MLP) to continue growing. That will give it the fuel to deliver on its plan to increase its 9.5%-yielding distribution at a 3% to 5% annual rate.
Liquids fueled the quarter
Energy Transfer generated $3.5 billion of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) during the third quarter, up nearly 15% from the year-ago period. Meanwhile, distributable cash flow came in at almost $2 billion, an increase of over 25% from last year. That was enough cash to cover its monster distribution with $1 billion to spare. The midstream giant benefited from its diversified business model:
Data source: Energy Transfer. Chart by the author.
Energy Transfer's natural gas liquids (NGL) business stole the show in the period. Earnings surged 70%, fueled by record volumes. NGL fractionation volumes rose 9%, transportation volumes increased 14%, and export volumes leaped 20%, all setting new partnership records. The company benefited from the strength of its existing assets and expansion projects, including placing its eighth fractionator into service in Mont Belvieu, Texas, in August.
The company's crude oil segment also produced strong results in the period. Earnings jumped more than 50%, also fueled by robust volumes. Crude transportation and terminal volumes increased 23% and 15%, respectively, also setting new records for the partnership. The company benefited from the strength of its legacy assets and the impact of its $1.5 billion acquisition of Lotus Midstream, which enhanced its crude oil footprint in the Permian.
The strength of the company's liquids businesses helped offset weaker results in its natural gas-focused intrastate and midstream businesses. While volumes were up, including a 4% increase in midstream gathered volumes and a 2% improvement in intrastate gas transportation volumes, lower natural gas prices and other headwinds weighed on the earnings of those segments.
Adding more fuel to its growth engine
Energy Transfer's strong third-quarter results, along with its pending acquisition of Crestwood Equity Partners, drove the company to boost its full-year guidance range. It now expects adjusted EBITDA to be in the range of $13.5 billion and $13.6 billion, which includes contributions from Crestwood in November and December. That's up from its prior forecast of $13.1 billion to $13.4 billion of adjusted EBITDA this year.
That number should rise next year as the company gets the full benefit of the Crestwood merger that will close in early November. The $7.1 billion acquisition will boost its midstream business and enhance its liquid capabilities. The addition of Crestwood will increase Energy Transfer's annual EBITDA by about $800 million, with further upside from expected cost savings.
That deal is part of Energy Transfer's two-pronged growth strategy of mixing in accretive acquisitions with high-return organic expansions:
Image source: Energy Transfer.
As that slide shows, Energy Transfer has placed several organic expansion projects into service over the past year that are contributing to its cash flow. It has more projects on the way. The company is investing $2 billion on capital projects this year, which includes projects it already completed and those still to come, like its $1.3 billion Nederland terminal expansion that should come online in mid-2025. The MLP expects to spend $2 billion to $3 billion annually on organic expansions. It has several projects in development, including potentially converting its Lake Charles terminal to export LNG. The company is fully funding these investments with excess cash after covering its hefty distribution. That's allowing it to maintain a solid balance sheet, with its leverage ratio tracking toward the low end of its 4 to 4.5 times target range.
A strong quarter with more to come
Energy Transfer's liquids businesses captured record volumes in the third quarter, driven by strong underlying performance, expansion projects, and acquisitions. More growth is on the way. It expects to close its needle-moving deal for Crestwood soon and has several expansion projects under construction and in development. Those investments will give the MLP the fuel to continue growing its big-time distribution. That makes it a very attractive option for those seeking to generate income.
