Magellan Midstream Partners, L.P. (NYSE:MMP) reported its second-quarter results before the opening bell on Thursday. The petroleum-product focused MLP reported strong results as new expansion projects fueled distributable cash flow growth. Thanks to the solid quarter, and expectations for more of the same, the company is raising its full-year guidance for distributable cash flow.
A look at the numbers
For the quarter, Magellan reported distributable cash flow of $228 million, which is up 14% from the year-ago quarter. Driving this strong growth was the company's crude oil segment as that segment's operating margin jumped $33.4 million year-over-year to $106.9 million. Roughly half of this growth was supplied by the contribution of the 40-mile Houston crude oil pipeline that the company acquired last November as well as new leased storage contracts and a one-time benefit from a customer buying out its remaining storage lease. The other big driver here was increased equity earnings from the company's interest in the BridgeTex pipeline. These increases more than offset higher costs and weakness from lower commodity prices.
Magellan's strong crude oil segment also helped offset weakness in its refined products segment. That segment's operating margin actually declined by $14.5 million year-over-year to $148.2 million. However, that decline was primarily related to the timing of marked-to-market adjustments of hedged positions. Outside of that, the company's transportation and terminals revenue actually increased $1.2 million from the year-ago quarter thanks to the benefit of its recently acquired Atlanta terminal as well as increased demand.
Finally, the company's marine storage segment was solid as its operating margin increased by $2.8 million to $30.2 million. This increase was largely due to improved utilization and higher storage rates at its marine terminals.
A look at the outlook
Thanks to these solid results Magellan is increasing its full-year guidance for distributable cash flow by $10 million to $880 million. That will boost the company's distribution coverage ratio to a very solid 1.3 times, meaning it is generating plenty of excess cash. Further, the company also reiterated its plans to increase distributions by 15% this year and by at least another 10% next year.
Driving this expected distribution growth is the fact that Magellan Midstream Partners has several growth projects under construction. It's leading the construction of the 600-mile Saddlehorn crude oil pipeline in the Rockies with the initial phase of the project expected to be in service by mid-2016. The company is also building an extension to Saddlehorn, which should be complete by the end of next year. In addition to this the company is building a condensate splitter in Texas and the Little Rock pipeline, both of which should be operational by the middle of next year. Overall, Magellen is expecting to spend $1.4 billion on new projects over the next two years, with the potential to increase that spending by $500 million for projects it's currently evaluating.
Magellan Midstream Partners turned in a very strong quarter as new expansion projects fueled growing distributable cash flow. That strong growth should continue for at least the next year as the company has several projects in the pipeline that are expected to be in service next year. That's giving the company's management team increased confidence in their ability to continue to grow investor distributions even in a very weak commodity price environment.