Sunoco Logistics Meets Estimate - Analyst Blog

Sunoco Logistics Partners L.P. (SXL), a master limited partnership, announced impressive fourth-quarter and full-year 2010 results, driven by solid performance at its ‘Crude Oil Pipeline System' segment on the back of increased pipeline volumes and strong operating performance.

The partnership's diluted earnings per unit (“EPU”) came in at $1.42 in the fourth quarter, in line with the Zacks Consensus Estimate. On a year-over-year comparison, the results increased 9.2%.

Revenues of $2.23 billion shot up 33.6% from the year-earlier level and surpassed our expectation of $1.87 billion.

Segment Details

Refined Products Pipeline System: Operating income from the segment was $10 million in the fourth quarter, unchanged from the year-earlier quarter. Higher equity income from the partnership's joint venture interests and reduced utility and tax expenses counterbalanced lower pipeline volumes.

Terminal Facilities: The segment's operating income remained static year over year at $21 million in the quarter. The partnership benefited from higher volumes and fees at the refined products terminals as well as greater volumes at the Nederland terminal facility.

These were partially offset by increased depreciation and amortization expense and non-cash impairment charge associated with the cancellation of a construction project.

Crude Oil Pipeline System: Operating income from the segment leaped to $52 million from the year-ago level of $35 million, aided by increased pipeline volumes and incremental earnings from acquisitions of joint venture interests.

Financials

The partnership's maintenance capital and expansion capital expenditures (including acquisition) for the quarter were $12 million and $58 million, respectively, totaling $70 million of capital spending. Sunoco Logistics expects its full-year 2011 maintenance capital expenditure of approximately $45 million, while expansion capital for the year is anticipated at $100–$150 million (excluding acquisitions).

As of December 31, 2010, Sunoco had $1.23 billion in total long-term debt (consisting of $31 million of borrowing under the partnership's credit facility and $100 million promissory note utilized to acquire butane blending business), representing a debt-to-capitalization ratio of approximately 54.1%.

The partnership recognized a distributable cash flow of $69 million for the quarter, up 38% year over year and declared a quarterly cash distribution of $1.18 per unit or $4.72 per unit annualized.

Our Recommendation

We believe that Sunoco Logistics, with the help of its low-risk and stable cash flow-generating energy infrastructure assets, is set to sustain its growth momentum, going forward. The partnership also stands to benefit from recent acquisitions, exposure to the Marcellus Shale properties and expansion of terminal blending services.

However, an uncertain economic environment, declining refined products demand and cost overruns on expansion projects remain key areas of concern, in our view. We maintain our long-term Neutral rating on the stock.

Philadelphia-based Sunoco Logistics, whose partnership interest of 40.2% is owned by Sunoco Inc. (SUN), currently retains a Zacks #3 Rank (short-term Hold recommendation).

 
SUNOCO INC (SUN): Free Stock Analysis Report
 
SUNOCO LOGISTIC (SXL): Free Stock Analysis Report
 
Zacks Investment Research