Energy Transfer Beats, Profit Rises - Analyst Blog

Energy Transfer Partners L.P. (ETP), a master limited partnership (MLP), announced better-than-expected fourth quarter results, helped by improved margins at its ‘Intrastate Transportation & Storage’ segment. The pipeline operator’s results were also boosted by a significant enhancement in its ‘Retail Propane’ segment results.
 
The partnership reported earnings per unit of 91 cents, handsomely beating the Zacks Consensus Estimate of 75 cents and more than double that of the year-ago earnings of 45 cents. However, revenue was down 16.1% year-over-year to $1.5 billion, in the process missing the Zacks Consensus Estimate. The negative comparisons were mainly on account of a 16.5% fall in sales from natural gas operations (which accounts for 74% of total sales).
 
Distribution Unchanged
 
Energy Transfer’s quarterly distribution of 89.375 cents per unit ($3.575 per unit annualized), remains unchanged from the year-earlier quarter and the previous quarter distribution. The distribution was paid on Feb 15 to unit-holders of record as on Feb 8, 2010.
 
EBITDA
 
Adjusted EBITDA for the quarter was $477.1 million, compared to $337.9 million in the year-ago quarter. The year-over-year increase in EBITDA was primarily due to the rebounding natural gas prices and modest improvement in natural gas basis differentials in Texas.
 
Capital Expenditure
 
During the quarter, maintenance capital expenditure totaled $31 million, bringing the full-year total to $103 million. Looking forward to 2010, the partnership expects to devote between $110 million and $120 million in maintenance capital spending. 
 
Balance Sheet
 
As of Dec 31, 2009, Energy Transfer had cash on hand of $68.2 million and long-term debt of $6.2 billion. Debt-to-capitalization ratio was 57.5%.
 
Earnings Revisions & Surprise Trend
 
With respect to earnings surprises, the stock has fluctuated substantially over the last four quarters, with two positive and two negative surprises. However, the average remained negative at 31.4%, reflecting the partnership’s poor performance during this period. This implies that Energy Transfer has missed the Zacks Consensus Estimate by 31.4% over the last four quarters, pulled down by reduced volumes (due to the reduction in drilling activity that started in late 2008, early 2009), lower natural gas prices, and low basis differentials across Texas.
 
Looking ahead to the first quarter of 2010, the overall trend in estimate revisions for Energy Transfer has been bearish. Over the last 7 days, one of the 7 analysts covering the stock lowered his estimates; while there have been 2 downward revisions during the past month. There have been no positive revisions during these time frames as a result of which the quarterly Zacks Estimate has come down from $1.10 (30 days ago) to $1.06 (7 days ago) to $1.05 (currently).
 
The full year 2010 earnings estimates for the company have been trending down over the past month, with the quarterly Zacks Consensus Estimate going down by 14 cents (from $2.84 to $2.70). Overall, 4 of 15 analysts covering the stock have pulled back on first quarter projections during that time, while a lone analyst raised estimates. During the last 7 days, 2 analysts have lowered their estimates, with no upward revisions. The Zacks Consensus Estimate has come down 10 cents (from $2.80 to $2.70) over the past week.
 
As a result, our short-term as well as long-term recommendations on Energy Transfer remain Sell (Zacks Rank #4) and Underperform, respectively.
 

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