Zacks_Analysts' Blog : TEPPCO Profit Takes Plunge - Analyst Blog

TEPPCO Partners (TPP) reported a net income of $0.09 per limited partner unit for the second quarter of 2009, way below the Zacks Consensus Estimate of $0.37.

Net income was largely impacted by a consolidated charge of $44.3 million, or $0.35 per limited partner unit, comprising of non-cash charges of $34.2 million connected with exit from Texas Offshore Port System (TOPS) partnership, announced earlier this April, $6.8 million of expenses associated to the definitive merger agreement with Enterprise Products Partners (EPD), declared last month, and $3.3 million of non-cash charges related to idling of a river terminal at Helena, Arkansas and to write-off obsolete and damaged storage tanks. TEPPCO posted a net income of $0.42 per limited partner unit in the same quarter a year ago.

Revenues declined 54.2% to $1.9 billion, primarily being hit by the Upstream (down 56.5%) and the Marine Services (down 9.1%) segments. Revenues were up 13.7% and 1.6% in the Midstream and the Downstream segments, respectively.

Adjusted EBITDA grew 4.7% to $134.1 million, largely from positive impact of the Upstream (up 12.3%) and the Downstream segment (up 6.4%). Adjusted EBITDA excludes the loss of $34.2 million related to the forfeiture of the TEPPCO’s investment in TOPS.

 

Higher margins on storage and terminal services at the Cushing, Oklahoma facilities favored the Upstream business. The Downstream business gained from the higher volumes of long-haul propane transportation.

Marine Services segment’s adjusted EBITDA fell 1.3% on lower utilization rate of inland and offshore vessel fleet resulting from the ongoing economic downturn. Adjusted EBITDA of the Midstream segment remained almost flat.

Last month, TEPPCO declared its merger plan with EPD. The merged entity will be the largest publicly traded energy partnership with an estimated enterprise value of more than $26 billion. We expected the newly formed partnership to command a lower cost of capital and enjoy superior access to the capital markets. This will give the firm a competitive edge and will also boost the long-term growth and profitability.

 

Moreover, initial signs of capital market recovery are becoming visible – credit spreads have started contracting and a number of large equity offerings have recently been priced. This should help in lowering the distribution yields of master limited partnerships (MLP), therefore increasing the unit price. We continue to maintain our Buy recommendation for the partnership.