Crestwood Equity Partners (CEQP) Misses Q3 EPS by 22c, Revenues Miss

Crestwood Equity Partners (NYSE: CEQP) reported Q3 EPS of ($0.28), $0.22 worse than the analyst estimate of ($0.06). Revenue for the quarter came in at $519.2 million versus the consensus estimate of $602.87 million.

Third Quarter 2020 Highlights (1)

• Third quarter 2020 net income of $4.6 million, compared to net income of $33.6 million in third quarter 2019
• Third quarter 2020 Adjusted EBITDA of $136.0 million, compared to $140.9 million in the third quarter 2019
• Third quarter 2020 distributable cash flow to common unitholders of $86.5 million; Third quarter 2020 coverage ratio was 1.9x
• Ended September 30, 2020 with approximately $2.6 billion in total debt and a 4.1x leverage ratio; Crestwood had $780 million drawn under its $1.25 billion revolver as of September 30, 2020
• Announced third quarter 2020 cash distribution of $0.625 per common unit, or $2.50 per common unit on an annualized basis, payable on November 13, 2020, to unitholders of record as of November 6, 2020

Management Commentary

“In the third quarter, Crestwood’s diversified portfolio once again produced solid cash flow, despite continued commodity volatility, generating Adjusted EBITDA of $136.0 million and Distributable Cash Flow of $86.5 million. Both performance metrics were above consensus estimates and drove strong financial results of 4.1x leverage and 1.9x coverage allowing us to maintain our quarterly distribution unchanged,” said Robert G. Phillips, Chairman, President and Chief Executive Officer of Crestwood’s general partner. “Our third quarter results were highlighted by record natural gas volumes on the Arrow system, improved rig activity in the Bakken and Delaware Basin, strong demand for Crestwood’s natural gas and NGL storage assets and record natural gas transportation volumes across our Stagecoach pipelines in the Marcellus dry gas region. Additionally, our Marketing, Supply & Logistics segment continued to outperform expectations due largely to the NGL assets acquired in April 2020, which increased Crestwood’s NGL market share, hub access, storage capacity, customer base and optimization opportunities across the US.”

Mr. Phillips continued, “I am also pleased to announce that Crestwood achieved a key milestone of positive free cash flow after capital expenditures and distributions in the third quarter. When paired with the recent sale of our non-core Fayetteville assets, Crestwood has generated in excess of $50 million which we are using to reduce debt through the repayment of revolver borrowings and opportunistically repurchasing our 2023 senior notes. The improving fundamentals across the portfolio gives us confidence in the ability to deliver full-year Adjusted EBITDA in excess of the mid-point of our revised 2020 guidance range. Taking a peek into 2021, based on current forward pricing, we expect our assets to continue to perform well, with limited future capital expansions due to available capacity in all the areas we operate, and continue to generate free cash flow resulting in further debt reduction.”

Fourth Quarter 2020 and Preliminary 2021 Outlook

Based on year-to-date results and current activity across all three operating segments, Crestwood expects to exceed the mid-point of its revised 2020 guidance range of $520 million to $570 million and continue to generate excess free cash flow after distributions in the fourth quarter, allowing the partnership to end the year with conservative leverage and coverage ratios. The improved outlook is a result of lower-than-expected producer shut-ins across the Bakken and Delaware Basin, new well activity in the Bakken, Delaware Basin and Barnett assets, record natural gas gathering and processing volumes on the Arrow system, strong demand for storage assets in the MS&L and S&T segments, and the successful integration of the newly acquired NGL assets.

Based on preliminary customer discussions, forecasted activity levels and 2021 commodity prices, Crestwood expects its 2021 outlook to be consistent with its revised 2020 guidance range. After completion of the company’s multi-year capital investments across the G&P portfolio, growth capital expenditures in 2021 should be at or below $40 million and 2021 maintenance capital to be at or below $20 million. Due to potential volatility in the sector, Crestwood expects to provide formal 2021 guidance in February 2021 as customer forecasts may be positively or negatively impacted by commodity prices, basin returns, capital availability and macroeconomic factors.

Robert T. Halpin, Executive Vice President and Chief Financial Officer, commented, “During the third quarter 2020, Crestwood achieved a significant milestone of generating positive free cash flow after capital expenditures and both common and preferred distributions, that we utilized to opportunistically begin repurchasing bonds and paying down the revolver. Based on our preliminary outlook for 2021, we remain pleased with the resiliency and forecast of the business and we expect to meaningfully grow free cash flow that will be utilized to strengthen the balance sheet by enhancing liquidity and further deleveraging.”

For earnings history and earnings-related data on Crestwood Equity Partners (CEQP) click here.

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