Magellan Midstream Partners LP (NYSE:MMP) Q1 2018 Earnings Conference Call - Preliminary Transcript

May 03, 2018 • 01:30 pm ET


Magellan Midstream Partners LP (NYSE:MMP) Q1 2018 Earnings Conference Call - Preliminary Transcript


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Good day and welcome to the Magellan Midstream Partners First Quarter 2018 Earnings Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Chief Executive Officer, Mike Mears.

Michael N. Mears

All right. Well, thank you for joining us today. I'd like to start by thanking those of you who had the opportunity to attend our Analyst Day. We hope you received some valuable detail about our company and found the event to be a good use of your time.

Before we dive into first quarter earnings, I'll remind you that management will be making forward-looking statements as defined by the SEC. Such statements are based on our current judgments regarding the factors that could impact the future performance of Magellan. You should review the risk factors and other information discussed in our filings with the SEC and form your own opinions about Magellan's future performance.

We announced solid first quarter financial results this morning for a good start to the year, setting aside the onetime pension correction and mark-to-market on our open futures contracts, we exceeded our guidance by $0.10 per unit, primarily related to stronger than expected refined products and crude oil transportation revenues during the quarter.

Our core fee-based activities continue to generate solid results, emphasizing the stability and consistency of our business model. Our CFO, Aaron Milford, will now review Magellan's first quarter financial results in more detail. Then, I'll be back to discuss our outlook for the rest of the year, and the status of the few of our larger expansion projects before opening the call to your questions.

Aaron L. Milford

Thank you, Mike. During my comments today, I will be making references to certain non-GAAP financial metrics, including operating margin and distributable cash flow. We've included exhibits to our earnings release that reconcile these metrics to their nearest GAAP measure.

Earlier this morning, we reported first quarter net income of $210.9 million or $0.92 per unit on a diluted basis, which was lower than the $222.7 million or $0.98 per diluted unit reported for the first quarter of 2017. Excluding the impact of mark-to-market futures contract activity in the current quarter, adjusted diluted earnings per unit of $0.98 exceeded our guidance of $0.95 provided on a similar basis back in February.

Distributable cash flow of $258.9 million for the first quarter of 2018 was almost 14% higher than the $227.6 million reported in the first quarter of 2017. As mentioned in our earnings release, both our reported net income and distributable cash flow were negatively impacted by a $16 million onetime correction of pension expense due to estimation errors made by our third-party actuary in calculating our pension benefit obligations dating back to 2010.

We rely on the expertise of our third-party actuary to estimate our pension liabilities. These liability estimates also impact the amount of pension expense we recognize annually and our pension funding decisions. In essence, the error is made by our actuary in estimating our liabilities since