Targa Q2 Earnings Beat Estimates, Revenues Rise Y/Y

Targa Resources Corp. TRGP reported second-quarter 2024 earnings of $1.33 per share, which beat the Zacks Consensus Estimate of $1.21. The outperformance could be attributed to strong volumes across its systems in the reported quarter. However, the bottom line deteriorated from the year-ago quarter's level of $1.44. The year-over-year underperformance resulted from higher product costs.

Revenues totaled $3.6 billion, up 4.6% year over year. The increase was driven by higher sales of commodities and fees from midstream services year over year. However, the top line missed the Zacks Consensus Estimate of $4.3 billion.

The company's adjusted EBITDA for the second quarter totaled $984.3 million, up from $789.1 million in the prior-year period.

On Jul 11, Targa declared a quarterly cash dividend of 75 cents per common share or $3 on an annualized basis for the second quarter of 2024. Total cash dividends of approximately $164 million will be distributed on Aug 15, to its shareholders of record as of the close of business on Jul 31.

Targa repurchased more than 2.9 million shares of its common stock in this quarter, spending approximately $355 million at an average price of $118.91 per share. As of Jun 30, the company had $291.3 million remaining in its existing $1 billion share repurchase program. In July 2024, Targa's board authorized a new share repurchase program of up to $1 billion, increasing the total available funds for share repurchases to $1.3 billion.

In the second quarter, the company recorded significant volumes in the Permian Basin, indicating robust activity levels across the Permian Midland and Permian Delaware systems. Furthermore, the new 230 million cubic feet per day (MMcf/d) Roadrunner II plant in the Permian Delaware commenced operations and achieved high utilization in this period.

The company announced plans to build two new gas processing plants in the Permian Basin, each capable of processing 275 million cubic feet of gas per day.

Operational Performance 

Gathering and Processing: The segment recorded an operating margin of $572.6 million, up 14% from $502.5 million recorded in the year-ago period.

This primarily reflects higher Permian Basin volumes that increased 12% year over year to an average of 5,671.5 MMcf/d

Logistics and Transportation: This unit mainly reflects the company's downstream operations. Its operating margin of $547.7 million increased 34.2% year over year. The rise can be attributed to higher pipeline transportation and fractionation, and LPG export margins.

The Logistics and Transportation segment saw its adjusted operating margin increase sequentially attributed to record-high NGL pipeline transportation and fractionation volumes. This growth was driven by increased NGL supplies from Targa's Permian G&P operations.

TRGP's fractionation volumes totaled 902.2 thousand barrels per day, up 14% from 794.4 thousand barrels per day recorded a year ago. NGL pipeline transportation volumes rose 26% year over year, export volumes increased 30% and NGL sales saw an 8% improvement in the same period.

Costs, Capex & Balance Sheet 

Targa incurred product costs of $2.2 billion in the second quarter, up 6% from the year-ago quarter's actual. At the same time, the company reported operating expenses of $290.7 million, up 7% from the year-ago quarter's level of $272.6 million.

The company spent $798.7 million on growth capital programs compared with $579.5 million in the year-ago period.

As of Jun 30, TRGP had cash and cash equivalents of $166.4 million and long-term debt of $13 billion, with a debt-to-capitalization of around 75.7%.

Guidance

2024 Guidance: Targa Resources anticipates a strong year with adjusted EBITDA expected to reach between $3.95 billion and $4.05 billion, representing a 5% increase from the previous estimate. This growth is fueled by increased activity across its operations.

To accommodate higher volumes and new projects, the company expects its capital expenditure estimate for 2024 to be at $2.7 billion, with net maintenance capital expenditures totaling $225 million. This includes investments in new gas processing plants, expanded infrastructure and accelerated downstream connections in the Permian Basin. Targa expects to begin operations on the reactivation of Gulf Coast Fractionators in Mont Belvieu in the third quarter of 2024.

2025 Guidance: Targa expects continued growth in 2025, with significantly higher adjusted EBITDA and free cash flow compared to the previous prediction. This should increase the amount to be returned to its shareholders through dividend growth and share repurchases.  

Capital expenditures are projected to decrease significantly in 2025 compared to 2024, as major projects like the Daytona NGL Pipeline and Train 10 fractionator are near completion. However, the company's management believes investments in Permian infrastructure will continue to drive growth.

2026 Guidance: The Bull Moose II plant is anticipated to start operations in the first quarter of 2026 and the East Pembrook plant is expected to commence operations in the third quarter. Blackcomb Pipeline is expected to start operating in the second half of 2026, subject to regulatory approval.

TRGP currently has a Zacks Rank #3 (Hold).

Important Energy Earnings So Far

While it's early in the earnings season, there have been a few key energy releases thus far. Let's glance through a couple of them.

Liberty Energy LBRT, the Denver-CO-based oil and gas equipment company, announced second-quarter 2024 adjusted earnings of 61 cents per share, which marginally beat the Zacks Consensus Estimate of 60 cents. However, LBRT's bottom line underperformed the year-ago quarter's reported figure of 87 cents due to a year-over-year increase in costs and expenses.

Ahead of the earnings release, Liberty's board of directors announced a cash dividend of 7 cents per common share, payable on Sep 20, 2024, to its stockholders of record as of Sep 6. As part of its shareholder return policy, LBRT repurchased the company's shares worth $30 million at an average price of $20.39 per share in the reported quarter. Liberty returned $41 million to its shareholders through share repurchases and cash dividends.

Houston, TX-based Halliburton Company HAL, an oil and gas equipment and services provider, reported second-quarter 2024 adjusted net income per share of 80 cents, in line with the Zacks Consensus Estimate and above the year-ago quarter profit of 77 cents (adjusted). The robust numbers reflect strength in the international markets.

As of Jun 30, 2024, the company reported $2.1 billion in cash and cash equivalents and $7.6 billion in long-term debt, representing a debt-to-capitalization ratio of 43.2. HAL also bought back $250 million worth of its stock in the April-June period. The company generated $1.1 billion of cash flow from operations in the second quarter, leading to a free cash flow of $793 million.  

Meanwhile, energy infrastructure provider Kinder Morgan KMI reported second-quarter adjusted earnings per share of 26 cents, in line with the Zacks Consensus Estimate. The bottom line was favorably impacted by strong financial contributions from the Natural Gas Pipelines, Products Pipelines and Terminals business segments. Moreover, KMI's second-quarter discounted cash flow (DCF) was $1.10 billion, up from $1.07 billion a year ago.