MMP for High Yield + Growth - Feb 13

[dan_s]

TULSA, Okla. – Magellan Midstream Partners, L.P. (NYSE: MMP) reported net income of $314.1 million for fourth quarter 2018 compared to $237.9 million for fourth quarter 2017. < Compares to my forecast of $284.1 million net income for Q4 2018.

The increase in current year net income was largely driven by higher profits from the partnership’s commodity-related activities due to favorable mark-to-market (MTM) adjustments for related hedge positions. The 2018 results also were negatively impacted by a $49.1 million impairment to the partnership’s ammonia pipeline system. Magellan has made the decision to discontinue commercial operations of the ammonia pipeline beginning in late 2019 due to the system’s low profitability and the expected decline in anhydrous ammonia production.

Diluted net income per limited partner unit was $1.37 in fourth quarter 2018 and $1.04 in fourth quarter 2017. Diluted net income per unit excluding MTM commodity-related pricing adjustments, a non-generally accepted accounting principles (non-GAAP) financial measure, was $1.03 for fourth quarter 2018, or $1.24 excluding the 21-cent negative impact of the ammonia pipeline impairment, consistent with guidance provided by management in early November. < Compares to my forecast of $1.24 Adjusted Net Income per unit.

Distributable cash flow (DCF), a non-GAAP financial measure that represents the amount of cash generated during the period that is available to pay distributions, was $302.4 million for fourth quarter 2018 compared to $308.3 million for fourth quarter 2017. DCF for the 2018 period was negatively impacted by $9.0 million of expected cash costs associated with the future shutdown of the ammonia pipeline as well as $9.0 million of write-off charges for discontinued capital projects.

“Despite the volatility in the energy space during 2018, Magellan generated record distributable cash flow for the year driven by continued strong demand for our essential fee-based refined petroleum products and crude oil pipeline and terminal services,” said Michael Mears, chief executive officer. “Magellan remains committed to our stable fee-based business model, conservative financial policy and disciplined management approach with a long-term perspective. This approach has proven to be very successful in the past and we believe will continue to be the most effective way to manage and grow our company in order to maximize the value created for our investors.”

Financial guidance for 2019

Consistent with its previously-stated goal, management expects to increase annual cash distributions by 5% for 2019 and currently expects to generate annual DCF of $1.14 billion in 2019, resulting in approximately 1.2 times the amount needed to pay cash distributions for 2019. Due to the volatility in the pricing differential between the Permian Basin and Houston that encourages spot shipments on the Longhorn and BridgeTex pipelines, current guidance assumes spot shipments occur on both pipelines during the first quarter of 2019 only. If spot shipments continued throughout the remainder of the year, the partnership’s DCF could be up to $1.2 billion for 2019. Management does not intend to provide financial guidance beyond 2019 at this time but intends to target distribution coverage of at least 1.2 times for the foreseeable future.

“Magellan will continue managing our business in a responsible manner with a focus on creating long-term value for our investors,” added Mears. “We believe our stated goal of increasing annual distributions by 5% for 2019 while maintaining annual distribution coverage of at least 1.2 times for the foreseeable future provides a healthy balance of growth, stability and financial strength during what we expect to be a dynamic period for the energy industry.”

Net income per limited partner unit is estimated to be $3.80 for 2019, with first-quarter guidance of 90 cents. Guidance excludes future MTM adjustments on the partnership’s commodity-related activities.

Management continues to believe the large majority of the partnership’s operating margin will be generated by fee-based transportation and terminals services, with commodity-related activities contributing less than 15% of the partnership’s operating margin.