San Antonio-based publicly traded partnership
NuStar Energy L.P.
(
NS
) announced mixed second quarter 2012 profits, bruised by poor
performing asphalt and fuels marketing business unit, but partially
offset by high-returns from a number of completed projects.
The owner and operator of crude oil and refined products pipelines
and storage facilities reported earnings per unit (EPU) of 6 cents,
significantly lower than the Zacks Consensus Estimate of 52 cents.
Comparing year over year, reported result declined heavily from the
adjusted profit of $1.34.
However, revenue of $1,901.9 million surpassed our expectation of
$1,408.0 million and was 19.7% higher than the year-earlier level,
as product sales increased 21.8%.
Quarterly Distribution
NuStar announced a quarterly distribution of $1.095 per unit ($4.38
per unit annualized), flat year over year as well as sequentially.
The new distribution is payable on August 10 to unitholders of
record as of August 7, 2012.
Distributable cash flow (DCF) available to limited partners for the
second quarter was $16.9 million or 24 cents per unit (providing
0.22x distribution coverage) compared with $119.4 million or $1.85
per unit in the year-earlier quarter.
Segmental Performance
Transportation:
Quarterly throughput volumes in the Transportation segment were
down 6.3% year over year at 734,182 barrels per day. The decline
was primarily due to lower crude oil and refined products pipeline
throughputs.
However, these factors were more than offset by higher pipeline
revenues, better tariff and additional sales generated by the Eagle
Ford shale projects. As a result, segment operating income
increased 5.6% year over year to $31.9 million. Operating revenue
was up 5.6% at $75.6 million.
Storage:
Throughput volumes in the Storage segment rose 7.8% year over year
to 747,774 barrels per day. Revenues increased approximately 9.5%
to $152.8 million on the back of an 8.9% hike in the storage lease
revenue.
Quarterly operating income reached $54.1 million (up 26.4% year
over year), driven by contributions from the recently completed
offloading facility project and the storage expansion venture at
the St, James, Louisiana terminal in Eagle Ford shale, last year.
Asphalt and Fuels Marketing:
As a result of steeper expenses and muted asphalt demand, the
Asphalt and Fuels Marketing segment recorded weak performance
compared with the year-earlier quarter. The unit reported an
operating loss of $292.6 million, as against a profit of $72.1
million in the second quarter of 2011.
In early July, NuStar announced its decision to sell off its 50%
interest in the asphalt operations to Lindsay Goldberg LLC, in an
attempt to raise fund to pay down debt. The deal will likely be
closed by the end of September.
Per the terms, a subsidiary of Lindsay Goldberg will pay $175
million for the stakes of the asphalt refining assets. Both the
companies have also agreed to form a joint venture, with 50% voting
interest for each, to conduct the operations of the asphalt
business.
2012 Outlook
For the balance of 2012, NuStar expects to see higher EBITDA
(earnings before interest, taxes, depreciation and amortization)
than the 2011 level, owing to the completion of pipeline projects
in the Eagle Ford Shale and expansion project at the St. Eustatius
terminal along with adjustment in FERC (Federal Energy Regulatory
Commission) tariff rate.
The partnership expects Storage unit EBITDA to be higher than the
2011 level by $25 million to $35 million, while that of the
transportation segment will likely improve by $10 million to $20
million over the same period.
However, according to NuStar, poor earnings in asphalt and fuels
marketing operations will pull down the Asphalt and Fuels Marketing
segment's results from last year.
Our Recommendation
NuStar Energy - which was spun off from U.S. refiner
Valero Energy Corp.
(
VLO
) in 2006 - has a Zacks #5 Rank that implies a Strong Sell rating
for the short run. We are also maintaining our long-term
Underperform recommendation on the units.
NUSTAR ENERGY (NS): Free Stock Analysis Report
VALERO ENERGY (VLO): Free Stock Analysis Report
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