Sunoco Logistics Profit Drops - Analyst Blog

Sunoco Logistics Partners L.P. (SXL) – a master limited partnership (MLP) − announced weaker-than-expected fourth quarter results, hurt by lower earnings in the Crude Oil Pipeline System segment. The partnership reported earnings per unit (EPU) of $1.30, below the Zacks Consensus Estimate of $1.41. In the year-ago period, Sunoco Logistics earned $2.23 per unit. Quarterly revenue of $1.7 billion was up 6% from the year-earlier level, driven by higher crude oil prices.
 
Despite Sunoco Logistics’ earnings lag, estimates for the current quarter (first quarter of 2010) have been trending up over the last few days, with the quarterly Zacks Consensus Estimate going up by 4 cents in the last 7 days alone. Two of the nine analysts covering the stock have raised their estimates for the first quarter. With its stable fee-based revenue, geographically diverse assets and strong business fundamentals, Sunoco Logistics offers investors an opportunity to capture income growth through steadily rising cash distributions and capital appreciation.
 
Distribution Raised
 
However, the partnership raised its quarterly distribution by 2.3% sequentially and 10.1% year-over-year to $1.09 per unit or $4.36 per unit annualized, representing the 26th distribution increase in the past 27 quarters. Distributable cash flow decreased approximately 34% year-over-year to $50.2 million.
 
IDR Repurchase & Exchange
 
In a separate announcement, Sunoco Logistics and Sunoco Inc. (SUN) said they repurchased the incentive distribution rights (IDRs) held by the partnership’s general partner Sunoco Partners LLC (a subsidiary of Sunoco Inc.) in exchange for the issuance of a new class of IDRs and $201.2 million, secured by a promissory note.
 
Refined Products Pipeline System: Operating income in the Refined Products Pipeline System segment increased nearly 6% year-over-year to $10.2 million, primarily resulting from a $3.2 million increase in sales and other revenue. The revenue gains reflected contributions from the MagTex refined product pipeline and terminal systems and increased pipeline fees, partially offset by decreased volumes on the partnership’s northeastern pipelines.
 
Terminal Facilities: Sunoco’s Terminal Facilities business segment had an operating income of $20.5 million for the quarter, up more than 31% year-over-year, mainly resulting from an $8.8 million increase in sales and other operating revenue. The revenue growth was primarily driven by increased throughput, higher fees and additional tankage at the Nederland crude oil terminal, coupled with results from the acquisition of the MagTex refined product terminals. The positive contributions were somewhat offset by reduced volumes experienced in Sunoco Logistics’ refinery terminals, which resulted from the idling of the Eagle Point refinery.
 
Crude Oil Pipeline System: Operating income in the Crude Oil Pipeline System segment decreased more than 38% from the year-earlier level to $35.6 million, pulled down by lower lease acquisition performance. This more than offset the increase in the average price of West Texas Intermediate crude oil at Cushing, Oklahoma. During the quarter, crude oil prices increased to $76.17 per barrel from $58.75 per barrel in the year-earlier quarter.
 
Capital Expenditure & Balance Sheet
 
The partnership’s maintenance capital expenditure and expansion capital expenditure for the quarter totaled $16.8 million and $50.2 million, respectively. Sunoco Logistics expects its full-year 2010 maintenance capital expenditure to be approximately $32.0 million, down slightly from the 2009 figure of $32.2 million.
 
At the end of 2009, Sunoco had $868.4 million in long-term debt (consisting of $599.4 million of senior notes and $269.0 million of borrowing under the partnership’s credit facility), representing a net debt-to-capitalization ratio of approximately 50.2%.
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