Maybe it’s the contrarian in me but I keep expecting EPD to disappoint. Or maybe I’m hoping they disappoint so I can buy a ton more shares. But alas I was the one disappointed yet again. EPD reported strong Q2 2012 results on Aug 1st. Full release is here. Lets see how strong and resilient their results were.
We are now smack in the middle of MLP earnings season with Kinder Morgan having kicked it off last week. So far the trend in the results has been some weakness in the numbers mainly due to lower oil and NGL prices. In particular, NGL prices were down about 25% from last quarter. This weakness in NGL prices has been mainly felt by the gas processing MLPs. For example, MWE, NGLS, and WPZ all pre-announced weaker Q2 numbers. Even the mighty Kinder Morgan felt some weakness from these lower commodity prices. But then again these results also show the resiliency of the MLP business model. Despite this weak environment all the MLPs I mentioned are sticking to their distribution growth targets for 2012. Their distribution coverage ratios have come down significantly but that’s why they have them in the first place, for times like this. Of course, EPD, along with a few others, has bucked this trend.
Despite NGLs being their largest business, and the weak NGL environment, EPD reported strong numbers and continued strong distribution coverage ratios. The distribution coverage ratio was 1.4x for Q2 2012 after excluding one time gains. From the release:
“Enterprise reported strong results for the second quarter of 2012 with four of our five business segments posting higher gross operating margin than the second quarter of last year,” stated Michael A. Creel, president and CEO of Enterprise. “Gross operating margin for the second quarter of 2012 increased 12 percent from the second quarter of 2011 primarily due to higher volumes of NGLs, natural gas and crude oil handled by our integrated midstream system of assets. The partnership set records with respect to fee-based natural gas processing volumes, natural gas pipeline volumes and NGL fractionation volumes.”
Business is doing well and growth opportunities look great. While EPD is my favorite large cap MLP, results at the other big boys look pretty good too. KMP reported decent numbers despite some weakness. OKS also continues to shine. And I expect PAA which reports this week will also do well. In tougher times the MLPs with diversified business models will tend to perform better. As far as the smaller cap MLPs these tough times may present nice buying opportunities for patient long term investors.
Disclosure: long EPD, KMI
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