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ETE, PAGP, WGP, WMB: Analyzing Earnings Growth in 3Q17

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Distribution income

Energy Transfer Equity’s (ETE) distribution income fell to $317 million in 3Q17, compared to $344 million in the same quarter of prior year, a year-over-year fall of 7.8%. This was mainly due to IDRs (incentive distribution rights) subsidies to Energy Transfer Partners (ETP).

Western Gas Equity Partners (WGP) saw a 20.9% YoY growth in distribution income during the third quarter, mainly driven by strong distribution growth at Western Gas Partners (WES).

Williams Companies’ (WMB) distribution income from Williams Partners (WPZ) was $421 million in 3Q17, compared to $522 million in the same quarter last year, which represents a YoY decline of 19.3%. This fall was mainly due to the distribution cut at Williams Partners (WPZ) and the removal of IDRs from limited partnerships’ capital structure.

Plains GP Holdings (PAGP), which indirectly owns general partner and limited partner interest in Plains All American Pipeline (PAA), posted a ~15% YoY decline in distribution income, mainly due to distribution cuts at PAA.

Distributable cash flows

Energy Transfer Equity’s 3Q17 distributable cash flow was $271 million compared to $281 million in 3Q16, a YoY (year-over-year) fall of 3.6% mainly due to lower distribution income. This fall led to a decline in the partnership’s distribution coverage ratio. ETE’s 3Q17 distribution coverage was 1.05x versus 1.16x in 3Q16. ETE’s distribution coverage might continue to fall until the fourth quarter of 2017. WGP’s distribution coverage fell below one during the recent quarter, which might raise concerns regarding WGP’s high distribution growth targets. WMB’s dividend coverage continued to fall in the third quarter of 2017.

In the next part of this series, we’ll look into the distributions and distribution yields for the four selected peers.

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