spooh/E+ via Getty Images On Tuesday, February 22, 2022, midsized midstream partnership Crestwood Equity Partners LP ( CEQP ) announced its fourth-quarter 2021 earnings results. The headline numbers here were certainly impressive as the company beat the expectations of its analysts in terms of both revenues and net income. This certainly spiked the company’s market price on the open, despite the fact that both revenue and net income are not particularly important metrics for judging the performance of a midstream company. In the case of a company like this, cash flows are the most important thing, and while these were certainly decent, they were not nearly as strong as the headline numbers might lead one to think. In fact, the company’s cash flows were weaker than what we saw last year. Overall though, Crestwood Equity Partners remains one of the better companies in the midstream space.
As my long-time readers are no doubt well aware, it is my usual practice to share the highlights from a company’s earnings report before delving into an analysis of its results. This is because these highlights provide a background for the remainder of the article as well as serve as a framework for the resultant analysis. Therefore, here are the highlights from Crestwood Equity Partners’ fourth quarter 2021 earnings results: Crestwood Equity Partners brought in total revenues of $1.3804 billion during the fourth quarter of 2021. This represents a substantial 110.91% increase over the $654.5 million that the company reported during the prior-year quarter.
The company reported an operating income of $104.2 million in the most recent quarter. This compares quite favorably to the $54.3 million that the company reported in the year-ago quarter.
Crestwood Equity Partners’ flagship operation in the Bakken shale gathered an average of 243.7 million cubic feet of natural gas per day during the reporting period. This represents a slight improvement over the 224.6 million cubic feet per day that the company averaged in the equivalent period of last year.
The company reported a distributable cash flow of $91.1 million in the most current quarter. This represents a 14.30% decline over the $106.3 million that the company reported last year.
Crestwood Equity Partners reported a net income of $78.6 million in the fourth quarter of 2021. This represents a substantial 182.73% increase over the $27.8 million that the company reported in the fourth quarter of 2020.
As was the case with pretty much every midstream company that has reported thus far, Crestwood Equity Partners saw its revenues increase substantially compared to the prior-year quarter. This was largely due to the increase in energy prices that occurred over the course of 2021. One of Crestwood Equity Partners’ largest businesses is the processing of natural gas. Indeed, the company has the ability to process a total of 1.4 billion cubic feet of natural gas per day. The processing of natural gas is certainly not a business operation that most people think of when they picture a midstream company but most of them do it. It is an integral part of the work required to bring natural gas to the market because the gas that is found in the ground contains a number of contaminants, such as water and sulfur, that must be removed before the gas can be used. This is the task that is performed at natural gas processing plants such as the ones operated by Crestwood Equity Partners. The reason why this has an impact on the company’s revenues is that this is generally a margin-based business, much like refining. Crestwood Equity Partners makes its money based on the difference between the price of raw natural gas and the price of the processed. These two items both tend to increase together, as we can clearly see here: Crestwood Equity Partners Earnings Press Release This is the reason why midstream companies typically report their gross margins (the difference between revenue and cost of goods sold) as their top-line performance measure instead of revenues. In the fourth quarter of 2021, Crestwood Equity Partners reported a gross margin of $246.8 million compared to $172.8 million in the year-ago quarter. Although the company did see a year-over-year improvement, it was nowhere near as large as the increase in revenues would suggest. In addition, the company’s gross margin comparison reiterates the stability that I have consistently stated that these companies enjoy.
We can see the company’s general stability emphasized further by looking at its adjusted EBITDA, which is akin to its pre-tax cash flow. During the […]
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