Sunday, May 15, 2022

Magellan Midstream Reports First-Quarter 2022 Financial Results and Raises 2022 Annual Guidance

[Previously regarding Magellan Midstream Partners: Pipeline Earnings - 2021, Pipeline Earnings - Q3 2021, Magellan Midstream Partners, L.P..]

Magellan Midstream Partners (MMP) reported results last week. Highlights from the results: 

  • Magellan Midstream Partners, L.P. (NYSE: MMP) today reported net income of $166 million for first quarter 2022 compared to $221 million for first quarter 2021. The decrease in net income primarily resulted from mark-to-market (MTM) adjustments for hedge positions related to our commodity-related activities in the current higher commodity pricing environment as well as the favorable impact to our prior-year results from the 2021 winter storms.
  • 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 $265 million for first quarter 2022 compared to $276 million for first quarter 2021. Free cash flow (FCF), a non-GAAP financial measure that represents the amount of cash available for distributions, expansion capital opportunities, equity repurchases, debt reduction or other partnership uses, was $240 million during first quarter 2022 versus $267 million during first quarter 2021.
  • Refined products operating margin was $235 million, a decrease of $26 million primarily related to the impact of MTM adjustments for futures contracts used to hedge our commodity-related activities. Excluding these adjustments, financial results from this segment's fee-based activities increased between periods. Transportation and terminals revenue increased $12 million primarily due to increased transportation volumes as a result of the continued demand recovery from pandemic levels as well as additional contributions from our Texas pipeline expansion projects.
  • Crude oil operating margin was $104 million, a decrease of $6 million. Transportation and terminals revenue decreased slightly primarily related to reduced storage revenue due to lower utilization and rates following recent contract expirations. Otherwise, higher average rates on our Longhorn pipeline and higher terminal throughput fees as a result of more customers utilizing a simplified pricing structure for services in the Houston area offset fewer tariff movements on our Houston distribution system.
  • During first quarter 2022, Magellan repurchased over 1 million of our common units for $50 million, resulting in total repurchases since inception of 17.5 million units for $850 million under our $1.5 billion repurchase program authorized through 2024. 
  • FCF is now projected to be nearly $1.46 billion for 2022, or $575 million after distributions. Full-year FCF guidance includes the expected $435 million proceeds from the pending sale of our independent terminals.
  • Based on actual first-quarter results and current number of units outstanding, net income per unit is estimated to be $4.35 for 2022, with second-quarter guidance of $1.12 per unit.

The current market capitalization is $10 billion and enterprise value is $15 billion. The earnings yield based on management guidance is 9%.

Current dividend yield is 8.5% and their 2050 debt is yielding 5.3%. That's an equity risk premium of about 3.2%. When we first wrote about Magellan in March 2021, it was 5.8%. It has contracted partly because of higher interest rates (and corporate bond yields) and partly because the dividend yield has fallen. 

See how low Magellan's dividend yield got at the peak of the midstream boom in 2014-2015. It was yielding under 3% - yet their debt was yielding closer to 5%. As a negative 2% ERP, the equity was not very compelling, and it subsequently had a substantial decline.

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