Stock price reaction
Genesis Energy’s (GEL) shares rallied 3.32% on February 18, 2016, following its 4Q15 earnings announcement. The Alerian MLP ETF (AMLP) is comprised of 22 midstream MLPs. It rose by 1.5%. Genesis Energy’s outperformance could be due to its strong 4Q15 earnings. The partnership’s 4Q15 distribution coverage stood at 1.42x despite strong distribution growth. Strong distributable cash flow growth of 63% YoY (year-over-year) drove Genesis Energy’s distribution coverage.
However, Genesis Energy lost 47.9% of its market value in the past year. Genesis Energy’s peers, Martin Midstream Partners (MMLP), NuStar Energy (NS), and Shell Midstream Partners (SHLX) have lost 50.1%, 44.0%, and 13.5%, respectively. At the same time, the Alerian MLP ETF fell by 43.4%. This shows general weakness in the midstream sector.
Genesis Energy’s 4Q15 distributions
In a recent press release, Genesis Energy declared a distribution per unit of $0.655 for the fourth quarter. This represents a 10.1% YoY increase compared to 4Q14 and an ~2.3% sequential increase over 3Q15. According to the related press release, “This is the forty-second consecutive quarter in which Genesis has increased its quarterly distribution. During this period, thirty-seven of those quarterly increases have been 10% or greater year-over-year.” Based on Genesis Energy’s recent distribution, the partnership is currently trading at a distribution yield of 10.7%.
Genesis Energy’s headwinds
Genesis Energy’s Supply and Logistics segment was impacted the most by the decline in crude oil prices. The segment is losing $10 million every quarter. According to Grant E. Sims, Genesis Energy’s CEO, “competition for the marginal barrel in certain areas where we historically gathered lease crude we cannot, now compete against those that have sunk cost economics downstream.” Also, the partnership’s heavy crude oil business has been impacted by the shale revolution over the past several quarters. Genesis Energy doesn’t expect this situation to improve in the coming quarters.
Apart from this, Genesis Energy is losing ~$5 million every quarter. It’s losing on pipeline loss allowance volumes due to the decline in crude oil prices, lower utilization, and rates of Genesis Energy’s blue water coastwise barges. Despite these headwinds, the partnership has been able to grow its distributions and maintain an impressive distribution coverage.