Sunoco Logistics Profit Drops

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 |  About: Sunoco Logistics Partners, L.P. (SXL)
by: Zacks Investment Research

Sunoco Logistics Partners L.P. (SXL) – a master limited partnership (MLP) − announced significantly weaker-than-expected first quarter 2010 results, hurt by lower refined products volumes due to the permanent shutdown of a refinery as well as refinery maintenance. Earnings were also pulled down by a significant fall in crude oil pipeline operating income.

The partnership reported earnings per unit (EPU) of $1.06 are way below the Zacks Consensus Estimate of $1.46. In the year-ago period, Sunoco Logistics earned $2.36 per unit. However, revenue of $1.7 billion was up 62% from the year-earlier level, driven by higher crude oil prices.

Distribution Raised

Importantly, the partnership raised its quarterly distribution by 2.3% sequentially and 9.9% year-over-year to $1.115 per unit or $4.46 per unit annualized, representing the 27th distribution increase in the past 28 quarters. Distributable cash flow decreased approximately 41% year-over-year to $53.2 million.

Refined Products Pipeline System

Operating income in the Refined Products Pipeline System segment decreased nearly 29% year-over-year to $7.5 million, primarily resulting from a $2.3 million reduction in sales and other revenue. The revenue losses reflected decreased volumes related to refinery maintenance activity in the first quarter of 2010 and the permanent shut-down of the Eagle Point refinery in the fourth quarter 2009.

Terminal Facilities

Sunoco’s Terminal Facilities business segment had an operating income of $22.6 million for the quarter, up more than 6% year-over-year, mainly resulting from an $8.8 million increase in total sales.

The revenue growth was primarily driven by higher fees and additional tankage at the Nederland crude oil terminal, coupled with results from the acquisition of the Romulus refined products terminal in the fourth quarter of 2009. The positive contributions were somewhat offset by reduced volumes experienced in Sunoco Logistics’ refinery terminals, which resulted from refinery maintenance activity and the permanent idling of the Eagle Point refinery.

Crude Oil Pipeline System

Operating income in the Crude Oil Pipeline System segment decreased approximately 52% from the year-earlier level to $28.4 million, pulled down by lower market-related profits. This more than offset the increase in the average price of West Texas Intermediate crude oil at Cushing, Oklahoma. During the quarter, crude oil prices increased to $78.79 per barrel from $43.21 in the year-earlier quarter.

Capital Expenditure & Balance Sheet

The partnership’s maintenance capital expenditure and expansion capital expenditure for the quarter totaled $4.4 million and $22.3 million, respectively. Sunoco Logistics expects its full-year 2010 maintenance capital expenditure to be approximately $32.0 million, while expansion capital for the year is anticipated to be $175.0 – $200.0 million (excluding acquisitions).

As of Mar 31, 2010, Sunoco had $1.14 billion in total debt (consisting of $1.1 billion of senior notes and $43.3 million of borrowing under the partnership’s credit facility), representing a debt-to-capitalization ratio of approximately 63.5%.