Quick Look:  MPLX LP results for 4Q15

As MPLX LP reported 1Q15 results today, the market punished the units with as much as a 25% decrease through market hours.  This follows an announcement last week to increase unit holder distributions by 6.4% to $0.50 per common unit for the 4th quarter of 2015, for a 29% increase in 2015.

Recall the markets priced a 200 basis point increase after the merger, with the pre-merger yield of approximately 4.5%?

Today added another 250+ basis point yield increase given the markets reaction, closing today with a yield of 9.15%.

Why the downward plunge?

Management changed their future distribution growth forecasts since their Analysts Day two months ago, from describing themselves as “peer-leading” to “normal”, from a 25% growth rate as of 12/3/15 to a current 2016 forecast of 12-15% - - - due to:

1. Poor market price performance given the recently announced increase in distribution, so slowing future growth given the current yield levels
2. Need to reduce debt leverage ratios to 4x by yearend, from the present 4.7x, to retain Investment Grade ratings
3. Preserve capital and financing sources for when opportunities for growth improve versus the current yield chasing envirnoment.

The Good News

-  Future asset dropdowns from MPLX parent sponsor, Marathon Petroleum Corporation, to continue as planned for 2Q16 with issued units expected to be financed by MPC.  Dropdown of 2Q expected to add $30M to the quarterly EBITDA, or ~10.5%.

-  Other dropdowns under consideration for 3rd and 4th quarters, with $1.6B in EBITDA in potential dropdowns.

-  Ten new fractionation projects continue, although schedules are extended longer to reduce organic capital growth expenditures by $450M.

-  Project on schedule for completion of MPLX's first entry into the Permian Basin.

-  MPLX has strong financial flexibility to manage and grow asset base as market conditions improve.

-  For any MPLX forecasts beyond 2016, manage expects to target unit distribution coverage ratios at 1.1x distributable cash flow.

Conclusion

Management restated multiple times throughout the call that the merger combines strong underlying assets with complementing operations that are performing well, however as prudent managers and given the current yields, MPLX needs to reduce the growth expansion rate and “keep powder dry” for a more opportune market environment given the commodity prices.

The market certainly hasn’t rewarded 2015’s consecutive growth of MPLX distributions in the past as a self-described "peer-leading" growth manager of distributions, so perhaps it is time to try something new.