Guides to 2021 Net Income of $793 Million, Distributable Cash Flow of $1.02 Billion and 1.1 Times Distribution Coverage as Economy Continues to Recover
TULSA, Okla., Feb. 2, 2021 /PRNewswire/ -- Magellan Midstream Partners, L.P. (NYSE: MMP) today reported net income of $183.9 million for fourth quarter 2020 compared to $286.4 million for fourth quarter 2019. The decrease in fourth-quarter 2020 net income continued to be driven by reduced demand for refined products from the ongoing impact of COVID-19 and related restrictions, the negative impact of the lower commodity price environment on various aspects of the partnership's business as well as lower volumes and average rates on its crude oil pipelines.
Diluted net income per common unit was 82 cents in fourth quarter 2020 and $1.25 in fourth quarter 2019. Diluted net income per unit excluding mark-to-market (MTM) commodity-related pricing adjustments, a non-generally accepted accounting principles (non-GAAP) financial measure, of 94 cents for fourth quarter 2020 was higher than the 80-cent guidance provided by management last fall, primarily due to incremental revenues from the partnership's refined products pipeline system as a result of higher-than-expected shipments and average tariff rates.
< Adjusted net income of $0.94 compares to my forecast of $0.97.
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 $269.7 million for fourth quarter 2020 compared to $357.8 million for fourth quarter 2019.
"Despite the backdrop of the most challenging industry and economic conditions experienced in our 20-year history as a public company, Magellan produced solid financial results during 2020 while ensuring continuity of important fuel supply for our country. We also returned nearly $1.2 billion of value to our investors through payment of a consistent cash distribution and equity repurchases," said Michael Mears, chief executive officer. "Magellan's business fundamentals remain sound, and we stand ready to serve the nation as travel and economic activity progress with additional reopening efforts. Magellan enters the new year in a strong position with an investment-grade balance sheet and resilient business model to manage our company for the long term."
An analysis by segment comparing fourth quarter 2020 to fourth quarter 2019 is provided below based on operating margin, a non-GAAP financial measure that reflects operating profit before depreciation, amortization and impairment expense and general and administrative (G&A) expense:
Refined products. Refined products operating margin was $249.6 million, a decrease of $46.7 million. Transportation and terminals revenue decreased $18.9 million primarily due to continued lower demand associated with the ongoing impact from COVID-19 and related restrictions as well as reduced drilling activity in response to the lower commodity price environment during 2020. Revenues also decreased due to the sale of three marine terminals in first quarter 2020. These declines were partially offset by contributions from the recently-expanded West Texas pipeline segment that began operations in the third quarter of 2020 and higher tariff rates as a result of the 3.5% average increase that occurred on July 1, 2020.
Operating expenses decreased $11.3 million primarily due to lower throughput activity during the 2020 period, as well as the absence of costs associated with the assets sold in first quarter 2020. Earnings of non-controlled entities decreased slightly between periods as lower financial results from the partnership's Powder Springs Logistics joint venture offset additional contributions from new storage and dock assets placed into service in early 2020 at its Pasadena joint venture marine terminal.
Product margin (a non-GAAP measure defined as product sales revenue less cost of product sales) decreased $38.2 million between periods primarily due to lower sales volume and reduced margins on the partnership's gas liquids blending activities as a result of the overall lower commodity price environment.
Magellan Midstream Partners (MMP) Q4 Results - Feb 231
Magellan Midstream Partners (MMP) Q4 Results - Feb 231
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Magellan Midstream Partners (MMP) Q4 Results - Feb 231
Financial guidance for 2021
Management currently expects the partnership to generate annual DCF of $1.02 billion for 2021. Guidance assumes that refined products demand will continue to increase during 2021 as vaccines become more readily available, travel and economic activity recover and drilling activity returns due to an improved demand and commodity price environment. Further, Magellan’s refined products shipments are expected to benefit from commitments associated with recent expansion projects within the state of Texas, which should drive more volume to the partnership’s pipeline system. As a result, current 2021 estimates assume total refined products shipments increase 13% compared to 2020 results, comprised of 16% higher gasoline, 8% higher distillate and 20% higher aviation fuel. For reference, total 2021 refined products shipments are expected to increase 3% versus 2019, which is more representative of historical demand, as improved gasoline volumes from expansion projects are partially offset by lower aviation fuel.
Guidance also assumes long-haul crude oil pipeline shipments generally in-line with customer commitments and lower profits from the partnership’s gas liquids blending activities due to compressed margins between the price of gasoline and butane. Further, Magellan has made significant progress on its business optimization effort started more than a year ago, with 2021 guidance including an approximate $50 million benefit from identified efficiencies.
As previously announced, Magellan intends to maintain its quarterly cash distribution at the current level of $1.0275 per unit for the remainder of 2021. Based on the current distribution amount and number of units outstanding, distribution coverage for 2021 is expected to be 1.1 times the amount necessary to pay cash distributions for the year, generating excess cash of $100 million for 2021.
Management does not intend to provide specific financial guidance beyond 2021 at this time but expects annual DCF to improve over the next few years. Further, management continues to target distribution coverage of at least 1.2 times once refined products demand and commodity prices return to more historical levels.
Net income per common unit is estimated to be $3.55 for 2021, with first-quarter guidance of 75 cents. Guidance excludes future MTM adjustments on the partnership’s commodity-related activities.
Management continues to expect the large majority of the partnership’s operating margin will be generated by fee-based transportation and terminals services, with direct commodity-related activities contributing less than 15% of the partnership’s operating margin.
Management currently expects the partnership to generate annual DCF of $1.02 billion for 2021. Guidance assumes that refined products demand will continue to increase during 2021 as vaccines become more readily available, travel and economic activity recover and drilling activity returns due to an improved demand and commodity price environment. Further, Magellan’s refined products shipments are expected to benefit from commitments associated with recent expansion projects within the state of Texas, which should drive more volume to the partnership’s pipeline system. As a result, current 2021 estimates assume total refined products shipments increase 13% compared to 2020 results, comprised of 16% higher gasoline, 8% higher distillate and 20% higher aviation fuel. For reference, total 2021 refined products shipments are expected to increase 3% versus 2019, which is more representative of historical demand, as improved gasoline volumes from expansion projects are partially offset by lower aviation fuel.
Guidance also assumes long-haul crude oil pipeline shipments generally in-line with customer commitments and lower profits from the partnership’s gas liquids blending activities due to compressed margins between the price of gasoline and butane. Further, Magellan has made significant progress on its business optimization effort started more than a year ago, with 2021 guidance including an approximate $50 million benefit from identified efficiencies.
As previously announced, Magellan intends to maintain its quarterly cash distribution at the current level of $1.0275 per unit for the remainder of 2021. Based on the current distribution amount and number of units outstanding, distribution coverage for 2021 is expected to be 1.1 times the amount necessary to pay cash distributions for the year, generating excess cash of $100 million for 2021.
Management does not intend to provide specific financial guidance beyond 2021 at this time but expects annual DCF to improve over the next few years. Further, management continues to target distribution coverage of at least 1.2 times once refined products demand and commodity prices return to more historical levels.
Net income per common unit is estimated to be $3.55 for 2021, with first-quarter guidance of 75 cents. Guidance excludes future MTM adjustments on the partnership’s commodity-related activities.
Management continues to expect the large majority of the partnership’s operating margin will be generated by fee-based transportation and terminals services, with direct commodity-related activities contributing less than 15% of the partnership’s operating margin.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Magellan Midstream Partners (MMP) Q4 Results - Feb 231
This morning I updated my forecast/valuation model for MMP based on Q4 results and their guidance for 2021. My valuation is now $49.50, which compares to four analysts' price targets that have been update since the MLP's Q4 results came out that range from $46 to $48.
MMP's quarterly distributions should stay at $1.0275 for annual yield of ~9.9% based today's unit price.
MMP is a rock solid midstream company that will have a lot of upside in the Post Pandemic world.
MMP's quarterly distributions should stay at $1.0275 for annual yield of ~9.9% based today's unit price.
MMP is a rock solid midstream company that will have a lot of upside in the Post Pandemic world.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group