What: Shares of both Energy Transfer Partners (NYSE: ETP) and its general partner, Energy Transfer Equity (NYSE:ET), slumped on Thursday morning, down 12% and 11%, respectively at 11:00 a.m. ET. Driving the selling were weaker segment earnings at Energy Transfer Partners, with its midstream unit continuing to be pressured by low natural gas and NLG prices.
So what: Energy Transfer Partners reported adjusted EBITDA of $1.36 billion, which was down $168 million from the year-ago period. Driving this weakness was a drop in earnings from its retail marketing and midstream segments:
The retail marketing segment's weaker results were primarily driven by a number of asset dropdown transactions completed with Sunoco (NYSE:SUN) as well as selling Sunoco's general partner to its own general partner, Energy Transfer Equity. That transition left the midstream segment as the primary weak spot, with its earnings slumping due to a big dip in non fee-based contracts and processing gross margin, which is directly exposed to lower natural gas and NLG prices.
Despite this weakness, as well as some pressure within some of its other segments, Energy Transfer Partners' distributable cash flow jumped $165 million to $959 million pushing its distribution coverage ratio to 1.07 times. While that sounds strong, the increase was largely due to some tax benefits, which has the market a bit concerned because without those benefits both distributable cash flow and the coverage ratio would have been much weaker. That's concerning to investors because it leaves open the potential for Energy Transfer Partners to be forced to reduce its distribution if conditions don't improve, which would also impact Energy Transfer Equity's ability to maintain its own distribution because the bulk of its cash flow comes from its namesake MLP.
Now what: Investors weren't thrilled with the results because Energy Transfer Partners is clearly feeling some impact from the downturn in commodity prices. This has investors nervous because it doesn't put an end to questions surrounding the sustainability of the company's distribution, which the market doesn't think is safe. So, until the company's numbers back up its statements that the distribution can be maintained, investors will remain skeptical.