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Must-know: Analysis of Sunoco Logistics' first quarter earnings

Part 2
Must-know: Analysis of Sunoco Logistics' first quarter earnings (Part 2 of 8)

Must-know: Sunoco Logistics’ 1Q14 earnings

Sunoco Logistics Partners L.P. (SXL) released its financial information for 1Q14 on May 6, 2014. The company recorded total revenues of $4.47 billion for 1Q14, up 4.4% from the $4.28 billion recorded in 4Q13. Operating income remained almost unchanged at ~$127 million in both the quarters. Net income improved marginally by 4.7% to $110 million in 1Q14 compared to the previous quarter figure of $105 million. Net income attributable to the limited partners increased from $66 million in 4Q13 to $60 million in 1Q14. Net income per common unit went up to $0.66 from $0.63 recorded in the last quarter of 2013. The stock price of SXL has gone down by 0.2% from $93.11 since the day of its latest earnings on May 6, 2014 to $92.97 on May 8, 2014. In the past year, the company’s stock price has gone up by ~67%.

Crude oil pipelines throughput for the 2014 first quarter totaled 2.04 million barrels per day, or an increase of 1.6% from the 4Q13 throughput of 2 million cubic feet per day. In 1Q14, the company’s purchase of crude oil activity increased by 14.4% to 0.84 million per day or 0.73 million per day. Throughput at the Nederland terminal increased 35.3% to 1.3 million barrels per day in 1Q14 from 0.9 million barrels per day in 4Q13. Higher throughput was achieved through higher volume coming online from various expansion projects. Increased demand for West Texas oil supported the increased volume. However, during the quarter, throughput at the refinery terminal and the refined product pipelines decreased 30.2% and 11.1%, respectively, in 1Q14 as compared to 4Q13. This was due to the relatively poor performance of refined products at the Marcus Hook facility.

1Q14 Volume and revenueEnlarge Graph

Operating expenses and depreciation and amortization expenses increased by 13.3% and 60.8%, respectively, during the reported quarter over the previous quarter. This was due to higher maintenance costs at the refinery terminals and lower crude oil pipeline operating gains.

Michael J. Hennigan, the president and chief executive officer of SXL, commented during the conference call of 1Q14, “Our first quarter results demonstrate this as we saw year-over-year growth in three of our four segments. Our Permian Express 1 and Longview Access projects bolstered our Crude Pipeline earnings. We continue to see growth in our Terminal Facilities, particularly with the expanded oil flows through Nederland and with our growing butane blending business. In addition, with the startup of our Mariner West project, our Refined Products Pipelines earnings have increased as we begin to convert under-performing gasoline and distillate pipeline assets to higher demand natural gas liquid service.”

Quarterly DCFEnlarge Graph

On April 23, 2014, SXL declared a cash distribution of $0.695 per unit, or $2.78 per unit annualized, for 1Q14. This amounts to a distribution yield of 3% for a stock price of $92.97 as of May 8, 2014. The distributable cash flow for 1Q14 was $158 million with a distribution coverage ratio of ~2.2x. In comparison, distributable cash flow for 4Q13 was $155 million, or a distribution coverage of ~2.2x. The first quarter cash distribution represents a marginal increase of 1.9%, compared to the 4Q13 and a decrease of 19%, compared to the 1Q13. The distribution $2.78 per common unit on an annualized basis represents the eighth consecutive time SXL raised its quarterly distribution by at least 5% and the 36th consecutive increase overall.

Update on capex: Spending to increase to $1.7 billion in 2014

SXL now expects to spend $1.7 billion on growth capex in 2014, up from its previous estimates $1.3 billion declared by end of 2013. The additional capital expenditure represents increased spending on the Permian Express Phase 2 project. It also represents an ~80% increase over its 2013 growth capital expenditures of $970 million. On the company’s 2014 organic capital program, Michael J. Hennigan, the CEO of SXL noted, “We now expect our 2014 organic growth to be approximately $1.7 billion, almost twice as much as our record 2013 organic program of $965 million. This increase from our previous guidance reflects the inclusion of our successful Permian Express 2 open season as well as some capital spend timing updates on our previously announced projects.”

EBITDA-Actual vs ConsensusEnlarge Graph

Sunoco Logistics Partners L.P. (SXL) is a master limited partnership (or MLP) that operates in the midstream business. The general partnership (or GP) interest of SXL is owned by Energy Transfer Partners (ETP); while the GP interest of ETP is owned by Energy Transfer Equity L.P. (ETE). Other energy players operating in the same sector as SXL include Enterprise Products Partners L.P. (EPD), Plains All American Pipeline L.P. (PAA), and Energy Transfer Partners L.P. (ETP). All of these companies are components of the Alerian MLP ETF (AMLP). ETE is a component of Global X MLP & Energy Infrastructure ETF (MLPX).

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