The Daley Note: October 17, 2022
Weekly refined products supplied data through Oct. 14 shows waning demand for finished motor gasoline and distillates. We expect soft products demand to drag on Magellan Midstream (MMP) when the company reports 3Q22 earnings.
Since the start of 3Q22, demand for both categories of refined products is down 6-7% on average vs 3Q21, according to Energy Information Administration (EIA) data (see figure). High pump prices for gasoline and diesel appear to be altering consumer behavior, with inflation and economic uncertainty also acting as anchors on consumption.
The EIA refined products data encompasses all PADD districts, including the East and West Coasts (i.e. PADDs 1 & 5) where demand has been the weakest but are outside of MMP's markets. However, we also expect to see some impacts in the Gulf Coast and Midwest regions (i.e. PADDs 2, 3 & 4) where products demand has been more resilient and that directly affect MMP’s performance.
In our updated Blueprint Financial Model and 3Q22 Earnings Preview, East Daley is 7% below Street estimates ($334 million vs $359 million) for MMP. Our expectations are driven by two factors: 1) lower volume expectations for the quarter (-2% vs 3Q21) and 2) higher operating and G&A expenses, which have trended upward due to hotter-than-expected inflation.
On the bright side for MMP, much of the negative cash flow implications will be absorbed by higher rates, which were adjusted upward by +8.71% at the start of the quarter on FERC-regulated pipelines. However, due to the factors outlined above, as well as forgone earnings from the recently sold Independent Terminals assets, our model falls below the flat Y-o-Y EBITDA expected in consensus estimates.
Magellan reports on Oct. 27 before the market open. Should MMP disappoint the Street, we think full-year 2022 EBITDA guidance of $1,397 million may be out of reach. Our current estimate for the year is $1,360 million vs Street consensus of $1,387 million. For a complete outlook on MMP’s cash flow forecast, log in to see our 3Q22 Blueprint Financial Model and accompanying Earnings Preview. – AJ O’ Donnell Tickers: MMP.
3Q22 Earnings Previews Now Available
East Daley has published a first group of 3Q22 Earnings Previews and Blueprint Financial Models for midstream companies within our coverage. Quarterly Earnings Previews and Blueprints are now available for Antero Midstream (AM), Crestwood Equity (CEQP), EnLink Midstream (ENLC), Enterprise Products (EPD), Equitrans Midstream (ETRN), Kinder Morgan (KMI), Kinetik Holdings (KNTK), Magellan Midstream (MMP), Plains All American (PAA), Summit Midstream (SMLP), Targa Resources (TRGP) and TC Pipelines (TRP).
Our Earnings Previews include quarterly earnings forecasts compared to Street consensus, a detailed list of the top assets that will impact the quarter, analysis of near- and long-term risks to future earnings, along with forecasts for Adj. EBITDA by segments. Please log in to access these reports.
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