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Energy Transfer Partners LP (ETP), Kinder Morgan Energy Partners LP (KMP): Three Key Takeaways From This High-Yielding Stock’s Earnings

Energy Transfer Partners LP (NYSE:ETP)Energy Transfer Partners LP (NYSE:ETP) was the second big-name midstream company to report exceptional second-quarter growth on the back of acquisitions this year. The partnership’s EBITDA and distributable cash flow were up $427 million and $126 million, respectively. Kinder Morgan Energy Partners LP (NYSE:KMP)‘ strong quarter was also powered by acquisitions, as revenue popped more than $1 billion year over year.

1. Distributions
Okay, there isn’t much to love about Energy Transfer Partners LP (NYSE:ETP)’s second-quarter distribution — it’s the same $0.89375 per unit it has been for five years now — however, management has announced the third-quarter distribution will be $0.01 higher per unit, and the fourth-quarter distribution $0.01 higher than that. No one but Energy Transfer unit holders will get excited about a penny increase on a quarterly distribution, but again, this has been five years in the making.

Management expects to continue to raise distributions in 2014, hopefully by more than a penny, while maintaining a distribution coverage ratio of 1.05 times payouts. The partnership’s coverage ratio through the first six months of the year was 0.95 times payouts.

2. Growth
Between the acquisitions and the organic growth, the Energy Transfer Partners LP (NYSE:ETP) of today barely resembles the ETP of 2012. You can see this quite clearly in the chart below, which shows the year-over-year adjusted EBITDA comparisons for each business segment.


Source: Company statement

All but one segment is outperforming last year’s numbers. On top of that, there are the segments that didn’t exist last year: the partnership’s stake in Sunoco Logistics Partners L.P. (NYSE:SXL) and the retail gasoline stations and convenience stores.

One of the real bright spots in the organic growth story is the natural gas liquids, or NGL, transportation and services segment, which had transportation volumes nearly double, and fractionation volumes more than quadruple year over year. This growth came at the hands of pipeline completions and connections at the NGL hub at Mont Belvieu, as well as the start up of a fractionator at the hub.

Also of note, fee-based revenue in the midstream segment increased from $74 million in 2012 to $114 million this year.

3. Cost reductions
It wasn’t all sunshine and lollipops at Energy Transfer Partners LP (NYSE:ETP) this quarter, however, as commodity prices continued to negatively impact the intrastate transportation and services segment.

On the earnings call, CFO Martin Salinas segued from addressing how commodity prices are beyond management’s control to the partnership’s plan to reduce costs across the entire organization. It certainly makes sense, given the recent acquisitions, but management is targeting reductions beyond that, aiming to cut $150 million in costs. Investors should have more detail on this initiative by the end of the year.

Forward march
After all of this, Energy Transfer Partners LP (NYSE:ETP) has also announced that it has received approval from the Department of Energy for exporting liquefied natural gas to countries not involved in a free trade agreement with the U.S. It is only the third such approval issued by the DOE, and it means Energy Transfer will move ahead with plans for its Lake Charles liquefaction facility, with an estimated time table of first exports by 2019. In other words, things aren’t quieting down at Energy Transfer Partners LP (NYSE:ETP) and investors have plenty to think about after all this news.

The article 3 Key Takeaways From This High-Yielding Stock’s Earnings originally appeared on and is written by Aimee Duffy.

Fool contributor Aimee Duffy has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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