Magellan Midstream: What's Next After A Stellar Second Quarter


  • Magellan Midstream had an excellent quarter in the 2Q2019.
  • Operating profit at its flagship business segment - refined products - grew 24% year over year.
  • In spite of an asset divestment, the crude oil segment was still up 3.7% over one year ago.
  • Organic growth projects progress as expected, to contribute to 2019-2020 growth.
  • I expect cash distribution to be raised in each of the following two quarters, to deliver a 5% annual increase as promised by the management.
  • Looking for more? I update all of my investing ideas and strategies to members of The Natural Resources Hub. Get started today »

Megallen Midstream Partners, the leading refined products pipeline operator

On August 1, 2019, Magellan Midstream Partners, L.P. (NYSE:MMP) reported the 2Q2019 results, beating Wall Street estimates across the board.

Below, I'd like to present a review of these results, hoping to shine some new light on the investment thesis which we presented here, here, here, and here.


Refined products: The refined product business segment generated a revenue of $489.90 million, up 10.7% over the 2Q2018 and 15.9% sequentially (Fig. 1).

  • Transportation and terminals revenue increased by $15.2 million, due to higher average transportation rates following the 2018 mid-year tariff adjustment of 4.4% and to longer haul shipments on the Mid-Continent pipelines, which move at a higher rate.
  • The refined product volume on the South Texas portion of the system dropped in the quarter, causing (1) a decrease of about 1% in the overall refined products volumes and (2) the fluctuations in the overall product mix as South Texas saw higher distillate and aviation volumes and lower gasoline volumes, as compared with the 2Q2018. Because volumes on the South Texas portion of the system move at rates much lower than the average tariff rate, so the lower volumes of these shorter-haul movements cause the overall average tariff rate per barrel to increase. Excluding South Texas, refined products demand across the rest of the system was relatively unchanged, in spite of the flooding that occurred in many of its markets during the 2Q2019.

Fig. 1. Quarterly revenue of the refined product business segment by sources. Source: Laurentian Research, based on company 10Q and 10K.

Total segment operating expenses increased by $2.5 million due to higher spending on asset integrity as a result of lumpy maintenance work schedule and less favorable product overages, which reduce operating expenses. However, the segment's operating margin still reached $224.1 million, up 17.1% over the 2Q2018 and up 30.3% sequentially (Fig. 2); measured in percentage, the operating

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Disclosure: Besides myself, TNRH is fortunate enough to have multiple other contributing authors who post articles for and share their views with our thriving community. These authors include Silver Coast Research, ..., among others. I'd like to emphasize that the articles contributed by these authors are the product of their respective independent research and analysis.

Disclosure: I am/we are long MMP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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