Magellan Reports Weak Results - Analyst Blog

Magellan Midstream Partners L.P. (MMP), a master limited partnership (MLP), announced weak third quarter results, as low commodity prices more than offset record results from its Terminals segment. The partnership reported earnings per unit (EPU) of 43 cents, missing the Zacks Consensus Estimate by 17 cents. In the year-ago period, Magellan had earned 46 cents per unit. 

Distribution Maintained 

Magellan maintained its quarterly distribution of 71 cents per unit ($2.84 per unit annualized), representing a 1.1% increase over the year-earlier quarter and equal to the second quarter distribution. The distribution will be paid on Nov 13 to unit-holders of record on Nov 6, 2009. Based on the current economic conditions, management expects to maintain the current quarterly distribution level throughout 2009. 

Petroleum Products Pipeline System 

In the Petroleum Products Pipeline System, quarterly operating margin (operating profits before affiliate G&A and D&A expenses) was $94.1 million, down marginally (0.4%) year-over-year. The decline reflected a $15.4 million fall in product margin and lower average transportation rates. These factors were almost offset by lower operating expenses, higher transportation volumes and higher fees for incremental storage, pipeline capacity leases and ethanol blending services. 

Petroleum Products Terminals 

In the Petroleum Products Terminals segment, operating margin was $27.7 million, up approximately 2.2% year-over-year. The positive comparison was on account of the effects of expansion projects at the partnership’s terminals, higher storage rates, and increased volumes, partly offset by higher operating expenses and lower product margin. 

Ammonia Pipeline System 

The partnership’s Ammonia Pipeline System reported an operating loss of $3.4 million, as against earnings of $362,000 in the third quarter of 2008. Segment results were adversely affected on account of additional maintenance work performed on the pipeline during the reported quarter. 

Guidance 

Management expects distributable cash flows for the full year to be approximately $310 million. The company guided towards fourth-quarter and full-year 2009 earnings per unit of 78 cents and $2.25, respectively. The partnership plans to spend approximately $510 million on growth projects in 2009, with expenditure of $160 million in future years required to complete these projects. Of the 2009 budget, Magellan spent about $396 million through the reported quarter. Additionally, the partnership continues to look out for more than $500 million of potential growth projects in the earlier stages of development.
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