Sunoco Logistics' Profits Surge - Analyst Blog

Crude oil pipelines and terminals operator Sunoco Logistics Partners L.P. (SXL) announced a jump in its second-quarter 2011 profits, driven by strong contributions from the crude pipeline system and terminals facilities.

The partnership’s diluted earnings per unit (“EPU”) came in at $2.40, significantly ahead of the Zacks Consensus Estimate of $1.31 and the year-ago period profit of $1.29. Revenues of $2,428.0 million were up 19.1% from the second quarter 2010 and also beat our projection by 12.0%.

Quarterly Distribution

Importantly, the partnership raised its quarterly distribution by 1.7% sequentially and 6.6% year-over-year to $1.215 per unit or $4.86 per unit annualized, representing the twenty-fifth consecutive quarterly distribution increase. Distributable cash flow increased approximately 92.7% year over year to a record $106.0 million.

Segmental Performance

Refined Products Pipeline System: Operating income in the ‘Refined Products Pipeline System’ segment was $8.0 million, down 38.5% from the second quarter of 2010. The negative variance can be attributed to lower pipeline volumes on Sunoco Logistics’ refined product pipelines in the southwest and unplanned refinery outages in the northeast, partially offset by results from the acquisition of a controlling interest in fuel transporter firm Inland Corporation in May.

Terminal Facilities: The partnership’s ‘Terminal Facilities’ business segment had an operating income of $34.0 million – a quarterly record – up 21.4% year over year. This can be mainly attributed to increased contribution from the butane blending business acquired in July 2010 and higher tank rentals/fees at the Nederland crude oil terminal. These factors were partially negated by lower throughput at the partnership’s refined products and refinery terminals. 

Crude Oil Pipeline System: Operating income in the Crude Oil Pipeline System segment was up by a whopping 172.4% from the year-earlier level to a record $79.0 million, driven by wider crude oil volumes and margins as well as increased earnings related to Sunoco Logistics’ acquisition of additional joint venture interests.

Capital Expenditure & Balance Sheet

The partnership’s maintenance capital expenditure and expansion capital expenditure (including acquisition) for the quarter totaled $7.0 million and $133.0 million, respectively. As of June 30, 2011, Sunoco had $1,463.0 million in total debt (consisting of $265.0 million of borrowing under the partnership’s credit facility), representing a debt-to-capitalization ratio of approximately 57.0%.

Asset Acquisition

Sunoco Logistics announced that it has agreed to purchase Texon L.P.'s crude oil purchasing and marketing business for $205 million plus inventory. The partnership, which plans to finance the acquisition with borrowings under its revolving credit facilities, expects to close the deal in the third quarter.

Our Recommendation

Sunoco Logistics – which competes in the ‘Oil and Gas Production Pipeline’ industry with firms like Atlas Pipeline Partners L.P. (APL), Williams Partners L.P. (WPZ), Regency Energy Partners L.P. (RGNC) etc. – has a Zacks #3 Rank (Hold rating) in the short run. We are maintaining our ‘Neutral’ recommendation in the longer term.

ATLAS PIPLN PTR (APL): Free Stock Analysis Report

REGENCY ENERGY (RGNC): Free Stock Analysis Report

SUNOCO LOGISTIC (SXL): Free Stock Analysis Report

WILLIAMS PTNRS (WPZ): Free Stock Analysis Report

Zacks Investment Research