San Antonio-based publicly traded partnership NuStar Energy L.P. (NS) announced strong first quarter results, driven by higher operating income from all three business segments.
The owner and operator of crude oil and refined products pipelines and storage facilities reported earnings per unit (EPU) of 40 cents (excluding the effect of early termination cost and other smaller items), comfortably surpassing the Zacks Consensus Estimate of 33 cents and way above the year-ago profit of 19 cents.
Revenue of $1,234.6 million surpassed our expectation of $961 million and was 30.6% above the year-earlier level.
Quarterly Distribution
NuStar announced a quarterly distribution of $1.075 per unit ($4.30 per unit annualized), representing a 0.9% increase over the year-earlier quarter and equal to the fourth quarter 2010 distribution. The new distribution is payable on May 13 to unitholders of record as on May 9, 2011. Distributable cash flow (DCF) available to limited partners for the first quarter was $45.1 million or 69.8 cents per unit (providing 0.65x distribution coverage), compared with $22.8 million or 37.8 cents per unit in the year-earlier quarter.
Segmental Performance
Transportation: Quarterly throughput volumes in the Transportation segment were down 8.7% year over year to 813,475 barrels per day. The decline can be attributed to decreased crude oil and refined products pipeline throughputs. Despite lower throughputs, segment operating income increased 1.9% year over year to $34.4 million, driven by increased shipments on higher-tariff pipelines and operating expense efficiencies. However, operating revenue was down 3.0% to $73.0 million.
Storage: Throughput volumes in the Storage segment fell 3.3% year over year to 620,582 barrels per day. Revenues increased approximately 8.0% to $136.8 million on the back of a 10.0% hike in the storage lease revenue. Quarterly operating income reached $48.7 million (13.5% year-over-year rise) due to higher renewal 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 improved gross margins, the Asphalt and Fuels Marketing segment recorded much better performance compared with the year-earlier quarter. Segment operating income, at $118,000, rebounded significantly from the loss of $7.9 million incurred during the first quarter of 2010.
Second Quarter Guidance
According to the partnership, earnings per unit during the June quarter are likely to be in the range of 90 cents to $1.10. Operating expenses are expected to be around $140 million to $145 million, G&A expenses in the range of $28 million to $29 million, DD&A expenses in the $40 million to $41 million range, and interest expense of $20 million to $21 million.
Outlook
NuStar’s management expects 2011 earnings and DCF to be higher than last year, depending on which the partnership intends to recommend a distribution increase to its Board of Directors.
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 gain from the purchase of certain refining and midstream properties from the bankrupt AGE Refining Inc., slightly higher asphalt margins, and improved fuels marketing earnings.
Our Recommendation
NuStar Energy – which competes in the ‘Oil and Gas Production Pipeline’ industry with firms like TC PipeLines L.P. (TCLP) and Williams Partners L.P. (WPZ) – has a Zacks #3 Rank (Hold rating) in the short run. It 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.
NUSTAR ENERGY (NS): Free Stock Analysis Report
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