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Analyzing ETE and ETP’s 2Q17 Earnings

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Analyzing ETE and ETP’s 2Q17 Earnings PART 1 OF 6

What Drove Energy Transfer Partners’ 2Q17 Earnings Growth

2Q17 adjusted EBITDA

Energy Transfer Equity (ETE) and its subsidiary, Energy Transfer Partners (ETP), reported their 2Q17 earnings on August 8, 2017, and held their earnings call the next day. ETP’s peer Enterprise Product Partners (EPD) reported its 2Q17 earnings on August 3, 2017. For post-earnings analysis of EPD, please read Enterprise Products Partners’ Earnings Rose Marginally in 2Q17.

Energy Transfer Equity’s earnings depend on distribution income from Energy Transfer Partners and Sunoco LP (SUN). As a result, ETP’s and SUN’s EBITDA (earnings before interest, tax, depreciation, and amortization) growth drives ETE’s earnings.

What Drove Energy Transfer Partners’ 2Q17 Earnings Growth

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Energy Transfer Partners’ adjusted EBITDA rose to $1.600 billion in 2Q17 from $1.370 billion in 2Q17, a YoY (year-over-year) increase of 16.8%. Moreover, the partnership beat its 2Q17 EBITDA estimate by 4.4%. The YoY growth in the partnership’s 2Q17 EBITDA was driven by strong performance at its Midstream and Crude Oil Transportation and services segments, which was slightly offset by declines at its Interstate and Intrastate transportation segments. We’ll look more into this question in the next part of this series.

2Q17 distributable cash flows

Energy Transfer Partners’ distributable cash flows rose to $990 million in 2Q17 compared to $815 million in 2Q16, a YoY increase of 21.5%. The YoY growth in the partnership’s 2Q17 distributable cash flows was mainly due to higher EBITDA growth, which was slightly offset by higher interest and maintenance expenses.

Energy Transfer Equity’s distributable cash flows fell to $240 million in the second quarter of 2017 from $276 million in the same quarter of the prior year, a year-over-year decline of 13.0%, which was mainly due to the increase in IDR (incentive distribution right) subsidies from ETE to ETP. ETE owns 100% of IDRs, 100% of GP interest, and 2.5% of limited partner interest in ETP. The IDR entitles its holder a higher share of incremental cash flows, resulting in higher cost of equity capital at the limited partnership. Williams Partners (WPZ), Plains All American Partners (PAA), and Buckeye Partners (BPL) are among the MLPs that have removed IDRs from their capital structure.

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