Natural gas processor and distributor MarkWest Energy Partners LP MWE reported lower-than-expected first-quarter 2014 earnings. The results suffered due to a significant rise in operating expenses.
MarkWest Energy's earnings – excluding mark-to-market derivative activity, compensation expense and asset sale adjustments – came in at approximately 5 cents per unit, substantially lower than the Zacks Consensus Estimate of 26 cents.
However, the reported figure improved from the year-ago adjusted loss per unit of 21 cents. Strong result from the Marcellus segment, which led to higher natural gas processing volumes, favored the year-over-year improvement.
Revenues of $512.5 million failed to meet the Zacks Consensus Estimate of $522.0 million. The top line, however, was up approximately 37.3% from the first quarter of 2013.
Quarterly Cash Distribution
On Apr 23, 2014, MarkWest Energy raised its first-quarter 2014 cash distribution by 1.2% sequentially and 4.8% year over year to 87 cents per unit ($3.48 per unit annualized). The distribution will be paid on May 15.
Distributable Cash Flow
During the reported quarter, MarkWest Energy generated distributable cash flow (DCF) – an indicator of cash paid out for distribution to unitholders – of $148.5 million, 35.2% higher than the prior-year quarter level of $109.8 million, providing 1.05x distribution coverage.
Business Units Performance
Southwest: With regard to business units, the Southwest segment's operating income increased 13.1% from the year-ago level to $74.1 million. The results reflect higher sales volumes from East Texas and the Gulf Coast, partially offset by a substantial fall in Southeast Oklahoma sales.
Northeast: The segment's operating profit of $33.7 million was up 8.1% from last year's income of $31.2 million on the back of higher fractionation volumes.
Marcellus: This segment (the partnership's Marcellus Shale joint venture) reported a profit of $105.4 million, up 57.1% from $67.1 million in the year-earlier quarter. A significant improvement in natural gas processing volume aided the results.
Utica: Operating income from MarkWest Energy's newest segment, Utica, was $4.6 million, against a loss of $2.0 million in first-quarter 2013. Higher throughput and processing volumes led to the improvement.
Operating Cost
The partnership reported operating expenses of roughly $440.5 million, reflecting a significant increase of 42.3% from $309.6 million reported in the year-ago quarter.
Capital Expenditure & Balance Sheet
During the first quarter, MarkWest Energy spent approximately $584.4 million on growth capital projects, down from $629.7 million a year ago. The partnership also declared that it had roughly $123.1 million of cash and cash equivalents in its wholly owned subsidiaries. Total outstanding debt came in at approximately $3.4 billion, representing a debt-to-capitalization ratio of about 40.3%.
Guidance
Management reaffirmed its projected DCF of $600.0–$690.0 million for 2014, taking into consideration the forecasted volume and commodity prices. MarkWest Energy narrowed its projected 2014 growth capital spending in the band of $2.0–$2.3 billion and maintenance capital expenditure at $25.0 million.
Zacks Rank & Other Stocks to Consider
MarkWest Energy currently has a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, one can consider better-ranked players in the oil and production pipeline sectors like Boardwalk Pipeline Partners, LP BWP, Targa Resources Partners LP NGLS and Delek Logistics Partners, LP DKL. While Boardwalk Pipeline and Targa Resources sport a Zacks Rank #1 (Strong Buy), Delek Logistics has a Zacks Rank #2 (Buy).
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