Sunoco Logistics Partners L.P. (SXL) – a master limited partnership (MLP) − announced weaker-than-expected second-quarter 2010 results, hurt by higher interest expense associated with Senior Notes issued in 2010. Earnings were also pulled down by a significant fall in crude oil pipeline operating income.
The partnership reported diluted earnings per unit (EPU) of $1.29, below the Zacks Consensus Estimate of $1.37. In the year-ago period, Sunoco Logistics earned $1.74 per unit.
However, revenues of $2.0 billion were up 58% from the year-earlier level and 16% above the Zacks Consensus Estimate, driven by higher crude oil prices.
Raised Distribution
Importantly, the partnership raised its quarterly distribution by 2.2% sequentially and 9.6% year-over-year to $1.14 per unit or $4.56 per unit annualized, representing the twenty-eighth distribution increase in the past 29 quarters. Distributable cash flow decreased approximately 24% year over year to $54.9 million.
Refined Products Pipeline System
Operating income in the Refined Products Pipeline System segment increased nearly 20% year over year to $12.7 million. Sales and other revenue was up marginally to $31.4 million mainly on the back of higher pipeline volumes and fees, partially offset by the permanent shut-down of the Eagle Point refinery in the fourth quarter 2009. Results were also helped by a 12.4% decline in operating expenses.
Terminal Facilities
Sunoco’s Terminal Facilities business segment had an operating income of $27.8 million in the quarter, up more than 31% year over year, mainly resulting from a $10.9 million increase in total sales.
The revenue growth was primarily driven by higher fees and additional tankage at the Nederland crude oil terminal, coupled with results from the acquisition of the Romulus refined products terminal in the fourth quarter of 2009. The positive contributions were somewhat offset by increased cost of products and rise in depreciation and amortization expense.
Crude Oil Pipeline System
Operating income in the Crude Oil Pipeline System segment decreased approximately 38% from the year-earlier level to $29.1 million, pulled down by lower lease acquisition results and the absence of a non-recurring tariff adjustment recognized in 2009 related to prior period activity. This more than offset the effects of higher pipeline revenues and increased pipeline operating gains on the back of rise in crude oil prices. During the quarter, the average price of West Texas Intermediate crude oil at Cushing, Oklahoma, increased to $77.99 per barrel from $59.61 in the year-earlier quarter.
Capital Expenditure & Balance Sheet
The partnership’s maintenance capital expenditure and expansion capital expenditure for the quarter totaled $9.9 million and $39.6 million, respectively. Sunoco Logistics expects its full-year 2010 maintenance capital expenditure to be approximately $32.0 million, while expansion capital for the year is anticipated to be $175.0–$200.0 million (excluding acquisitions).
As of June 30, 2010, Sunoco had $1.2 billion in total debt (consisting of $115.3 million of borrowing under the partnership’s credit facility), representing a debt-to-capitalization ratio of approximately 64.6%.
Our Recommendation
Sunoco Logistics is currently rated as Zacks #3 Rank (Hold), implying that the stock is expected to perform in line with the broader U.S. equity market over the next one to three months.
Read the full analyst report on "SXL"
Zacks Investment Research
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