San Antonio-based publicly traded partnership NuStar Energy L.P. (NS) announced strong third quarter results, driven by higher operating income from the transportation and storage businesses.
The owner and operator of crude oil and refined products pipelines and storage facilities reported earnings per unit (EPU) of 92 cents, comfortably surpassing the Zacks Consensus Estimate of 69 cents and also exceeding the year-ago profit of 90 cents.
Revenue of $1,824.4 million surpassed our expectation of $1,287.0 million and was 60.3% above the year-earlier level.
Quarterly Distribution
NuStar announced a quarterly distribution of $1.095 per unit ($4.38 per unit annualized), representing a 1.9% increase over the year-earlier quarter and equal to the second quarter 2011 distribution. The new distribution is payable on November 14 to unitholders of record as on November 8, 2011.
Distributable cash flow (DCF) available to limited partners for the third quarter was $80.3 million or $1.24 per unit (providing 1.13x distribution coverage), compared with $84.0 million or $1.30 per unit in the year-earlier quarter.
Segmental Performance
Transportation: Quarterly throughput volumes in the Transportation segment were down 7.4% year over year to 842,382 barrels per day. The decline can be attributed to lower crude oil and refined products pipeline throughputs on the back of turnaround activity, unplanned downtime and operating issues at some of NuStar’s customers’ refineries as well as the effect of competitive supply economics.
However, these factors were more than offset by higher pipeline revenues as a result of tariff adjustment and additional sales generated by the Eagle Ford shale projects. As a result, segment operating income increased 2.0% year over year to $38.2 million. Operating revenue was up 1.6% to $81.9 million.
Storage: Throughput volumes in the Storage segment rose 7.2% year over year to 721,618 barrels per day. Revenues increased approximately 8.2% to $141.9 million on the back of a 7.3% hike in the storage lease revenue.
Quarterly operating income reached $48.8 million (up 6.9% year-over-year), driven by higher rates on the existing contracts, increased customer demand for storage services and contributions from NuStar’s recent acquisitions/project completions.
Asphalt and Fuels Marketing: As a result of muted demand for asphalt, the Asphalt and Fuels Marketing segment recorded weak performance compared with the year-earlier quarter. Segment operating income, at $25.4 million, was 28.3% lower than the profit of $35.5 million achieved during the third quarter of 2010.
Fourth Quarter Guidance
According to the partnership, earnings per unit during the December quarter are likely to be in the range of 20 cents to 30 cents.
Outlook
NuStar’s management expects 2011 earnings to be comparable to that of last year.
Going forward, NuStar anticipates its Storage unit to benefit from internal growth projects and recently completed acquisitions. However, the firm believes that transportation segment profitability will suffer due to reduced throughputs on the back of refinery turnaround activity.
Finally, according to NuStar, its Asphalt and Fuels Marketing segment is poised to post flat profits, as expected earnings from its April 2011 San Antonio refinery acquisition and better performance in fuels marketing unit are expected to be offset by weak asphalt margins.
Our Recommendation
NuStar Energy – which competes in the ‘Oil and Gas Production Pipeline’ industry with firms like Enterprise Products Partners L.P. (EPD), Plains All American Pipeline L.P. (PAA), Enbridge Energy Management LLC (EEQ), etc. – has a Zacks #3 Rank (Hold rating) in the short run. We are also maintaining our long-term Neutral recommendation on the stock.
The company is the fourth largest independent liquids terminal operator in the world and second largest in the U.S., apart from being the number one asphalt producer on the East Coast and number three asphalt producer in the U.S.
