Buckeye Lags on Both Counts - Analyst Blog


Buckeye Partners L.P. ( BPL ) announced first quarter 2012 results. During the quarter, operating earnings of 54 cents per unit were much lower than the year-ago earnings of 79 cents per unit. Earnings also fell short of the Zacks Consensus Estimate of 74 cents per unit.

The significant earnings underperformance can be attributed to the combined effect of softness in demand owing to warm winter weather and the near-term negative impact of the partnership's Energy Service segment withdrawing its position from the Midwest.

Decline in volumes by 32% from the partnership's Pipelines & Terminals and Energy Services segments and strategic losses incurred in terms of exposure to market volatility through inventory reduction were additional factors responsible for the decrease in earnings.

Total Revenue

Total revenue at the end of the first quarter 2012 was $1,259.4 million versus $1,252.5 million in the prior-year quarter, reflecting marginal growth of 0.5%. Revenue during the quarter was lower than the Zacks Consensus Estimate of $1,268 million.

The modest revenue growth was attributed to favorable transportation and storage activities from its crude oil and petroleum products partially offset by low product sales.

Segment Analysis

Higher revenues owed primarily to a solid performance at Pipelines & Terminals . Revenue from this division increased 15.0% year over year to $165.9 million in the first quarter, constituting 13.1% of the total revenue. Also, International operations revenue increased a sharp 11.5% which constituted 3.9% of the total revenue.

However, this upward movement of revenue was partially constrained by a combined negative effect of 62.9% from the partnership's Energy Services and Natural Gas storage .

Operational Highlights

During the quarter, total costs and expenses rose 1.6% year over year to $1,179.0 million. Operating expenses increased 21.5% to $97.5 million and general & administrative expenses raised by 9.0% to $16.9 million.

The partnership's adjusted EBITDA declined 5.8% to $115.0 million from $122.2 million in the first quarter of 2011. 

Interest and debt expenses increased marginally to $28.8 million from $28.4 million reported in the year-ago quarter.

Agreements & Mergers

Buckeye entered in to a long-term agreement for crude oil storage at its BORCO facility in Bahamas. This contract constitutes infrastructural expansion through construction of additional 1.2 million barrels of crude oil storage capacity which is expected to be operational from the third quarter of 2013.

The partnership reached a consensus with Chevron U.S.A Inc.a unit of Chevron Inc. ( CVX ) for the acquisition of a marine terminal facility for liquid petroleum products in New York Harbor in February. This will enable strong connection between waterborne imports with end destination markets through its internal pipeline and terminal imports. This also includes inland linkages with BORCO operations.

Financial Screening

Total cash and cash equivalents as of March 31, 2012, were $15 million versus $12.9 million as of December 31, 2011.

Buckeye's long-term debt as of March 31, 2012, was $2,249.7 million compared with $2,393.5 million of long-term debt as of December 31, 2011.

Buckeye spent $74.3 million on capital expenditure during the quarter compared with $38.0 million in the prior-year quarter.

Cash Distribution

The partnership once again raised its cash distribution rate. The current distribution rate of the partnership stands at $1.0375 per unit, which reflects a 3.75% increase from the first quarter 2011 cash distribution per unit of $1.0 per unit. The distribution will be payable on May 31, 2012, to unit holders of record on May 14, 2012.

Peer Comparison

One of its close peers, The Williams Companies, Inc. ( WMB ) announced first quarter 2012 results. Williams' earnings per share, excluding special items, came in at 39 cents, breezing past the Zacks Consensus Estimate of 36 cents. On a year-over-year basis, earnings improved 39.3% from 28 cents in the year-ago period.

The company generated revenues of $2,019 million, ahead of our expectation of $1,847 million.

Our View

The partnership's earnings as well as revenue lagged the Zacks Consensus Estimate for the current quarter of 2012 attributable to lower demand for refined products due to warmer winter weather coupled with decrease in oil pipeline volumes. We observe that Buckeye has failed to match our earnings per unit projection for the past three quarters.

We expect the partnership to benefit from increased long term demand of crude oil and liquid petroleum. The production from the BORCO facilities, which is expected to commence from the later half of 2013, will benefit the partnership.  

However, we presently have a bearish outlook on the partnership's due to the threats of price instability of refined petroleum products and natural gas services, adverse weather impacts and environmental regulations  resulting in windfall costs, and unexpected changes in market related factors.

The partnership presently retains a short-term Zacks #3 Rank (Hold). We have a long term Underperform recommendation for the partnership.

Based in Houston, Texas Buckeye Partners, L.P. owns and operates refined petroleum products pipeline systems in the United States. The partnership's Pipelines and Terminals segment transports refined petroleum products and provides bulk storage and terminal throughput services in the continental United States.

BUCKEYE PARTNRS (BPL): Free Stock Analysis Report
CHEVRON CORP (CVX): Free Stock Analysis Report

WILLIAMS COS (WMB): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: BPL , CVX , WMB



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