Enterprise Products Partners L.P. (EPD) reported its third quarter earnings per limited partners unit at 43 cents, in line with the Zacks Consensus Estimate and year-ago earnings of 49 cents. Before adjusting one-time items, earnings per limited partner unit reached 36 cents.

Importantly, Enterprise increased its quarterly distribution by 5.7% year-over-year to the annualized run rate of $2.21 per unit. This was the 21st consecutive quarterly distribution increase. Following the merger, Enterprise and TEPPCO generated distributable cash flow of $359 million and $43 million, respectively, in the quarter. Total distributable cash flow (DCF) for Enterprise and TEPPCO provided 1.03X distribution coverage.

Revenue for the quarter decreased nearly 27% year-over-year to $4.6 billion, due primarily to lower commodity prices. However, gross operating margin increased more than 17% to $561 million, driven by volume growth and strong natural gas processing margins.

At the individual business level, gross operating margin in the NGL (natural gas liquids) Pipeline & Services segment went up 17% year-over-year to $392 million. Gross operating margin in the natural gas processing business was flat year over year to $239 million.

Gross margin for the partnership’s NGL pipeline and storage business went up 69% year-over-year to $122 million. For the NGL fractionation business, gross margin was up approximately 19% to $31 million.

The gross operating margin for Enterprise’s Onshore Natural Gas Pipeline and Services segment decreased nearly 30% year-over-year to $62 million, due to poor contribution from the San Juan pipeline systems.

The Offshore Pipelines & Services segment recorded a gross operating margin of $56 million Incorporatedreasing significantly from the year-earlier level. Gross operating margin in the Petrochemical Services segment increased more than 35% year-over-year to $50 million.

During the quarter, the partnership spent $211 million on capital expenditures, which included $44 million in sustaining capital expenditures. Interest expense for the quarter was $128 million on an average debt balance of $9.4 billion.

We view Enterprise as a core holding in a master limited partnership portfolio, given its strong balance sheet, liquidity position and investment-grade credit rating. The partnership is one of the largest fully integrated midstream service providers with a positive long-term outlook, given its significant geographic and business diversity.

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