Sunoco Logistics (SXL) Q1 Earnings Impress, Revenues Lag

Energy pipelines and terminals operator Sunoco Logistics Partners L.P. (NYSE:SXL) reported strong first-quarter 2016 earnings. Robust results from all three of the partnership’s operating segments led to the outperformance.

Sunoco Logistics reported adjusted earnings per unit of 24 cents, which was above the Zacks Consensus Estimate of 21 cents and the year-ago quarter earnings of 2 cents.

In more positive news, Sunoco Logistics' quarterly distributable cash flow (DCF) increased 79% year over year to $283 million.

However, quarterly revenues of $1,777 million were down 31% from first-quarter 2015 and also lagged the Zacks Consensus Estimate of $2,572 million amid the challenging macro environment.

Quarterly Distribution

Last month, Sunoco Logistics raised its quarterly distribution by 2% sequentially and 17% year over year to 48.90 cents per unit or $1.96 per unit annualized.

Segmental Performance

Crude Oil: Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the segment were up 40% to $224 million from the year-earlier level of $160 million. Apart from favorable LIFO accounting benefit, the segment was propped up by positive results from crude oil pipelines – spurred by the July 2015 start-up of the Permian Express 2 project – and bigger contribution from Sunoco Logistics’ crude oil terminals associated with nits Nederland facility. These factors were partly offset by lower margins associated with the partnership’s crude oil acquisition and marketing activities.

Natural Gas Liquids: Adjusted EBITDA for this segment came in at $74 million, a massive 164% jump from the first-quarter 2015 level. Higher volumes and fee-based earnings from the Mariner natural gas liquids (NGL) projects contributed to the improvement. Increased volumes related to NGL acquisition and marketing activities also contributed to the increase.

Refined Products: This segment’s EBITDA was $51 million, a 55% increase from the year ago period earnings of $33 million. Strong growth in Sunoco Logistics’ pipeline and marketing terminals businesses primarily led to the upside. In particular, Allegheny Access pipeline got up and running during 2015 first quarter, while the partnership also saw good contributions at its Eagle Point, Marcus Hook and other product terminal facilities.

Operating Expenses

Operating expenses totaled $23 million against $40 million in the prior-year quarter.

Capital Expenditure & Balance Sheet

For the three months ended Mar 31, 2016, Sunoco Logistics’ maintenance capital expenditure and expansion capital expenditure were $13 million and $574 million, respectively.

As of the end of the first quarter, Sunoco Logistics had $43 million in cash and cash equivalents. The partnership had $5,968 million in total debt (consisting of $942 million of borrowing under the partnership's revolving credit facility), representing a debt-to-capitalization ratio of approximately 43.5%.

Zacks Rank & Stocks to Consider

Sunoco Logistics currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked players from the same industry would be Boardwalk Pipeline Partners L.P. (NYSE:BWP) , CONE Midstream Partners L.P. (NYSE:CNNX) and Enable Midstream Partners L.P. (NYSE:ENBL) . All of them sport a Zacks Rank #2 (Buy).