NuStar Energy (NS) Beats Q2 Earnings on Higher Throughput

NuStar Energy L.P. NS, the San Antonio-based publicly traded partnership, reported better-than-expected second-quarter results, owing to improved performance from the pipeline and storage business units.  

The partnership's second-quarter results were out before the opening bell on Jul 25, 2014. NuStar closed at $65.35 per unit on that day, up about 2% from the previous day, owing to the favorable results.

NuStar's earnings per unit EPU – from continuing operations – came in at 58 cents, beating the Zacks Consensus Estimate of 48 cents. The bottom line also increased from the year-ago quarter figure of 30 cents per unit.   

However, quarterly revenues of $749.8 million failed to meet the Zacks Consensus Estimate of $813.0 million and were also below the year-ago level of $902.0 million, mainly due to lower quarterly sales from the Fuels Marketing segment.  

Quarterly Distribution

NuStar announced quarterly distribution of $1.095 per unit ($4.38 per unit annualized), which remained unchanged from the previous quarter's distribution. The distribution is payable on Aug 11, 2014, to unitholders of record as on Aug 6, 2014.  

Distributable cash flow (DCF) available to limited partners for the second quarter was $93.6 million or $1.20 per unit (providing 1.10x distribution coverage), compared with $56.8 million or 73 cents per unit in the year-earlier quarter. This is the first time since the third quarter of 2011 that the partnership has managed to cover its quarterly distribution.

Segmental Performance

Pipeline: Total quarterly throughput volumes in the Pipeline segment were 948,513 barrels per day (Bbl/d), up 17.0% from the year-ago period.

The throughput volumes in the crude oil pipelines increased 21.7% from the year-ago quarter to 427,122 Bbl/d. Moreover, throughput revenues rose 21.5% to $117.8 million. The segment's operating income increased 17.6% year over year to $60.2 million on an increase in throughput volumes.   

Storage: Throughput volumes in the Storage segment rose nearly 10% year over year to 894,194 Bbl/d.

Quarterly revenues were up 1.6% to about $145.0 million from the second quarter of the previous year. The segment reported profit of $50.0 million, marking an improvement from $44.4 million in the year-ago quarter, owing to higher throughput and lower operating expenses.  

Fuels Marketing: The unit reported an income of $4.8 million, against the year-ago quarter profit of $3.4 million. Lower revenues from product sales led to the deterioration.

Operating Expense

The partnership recorded total operating costs of $115.5 million, up 3.8% year over year.

Balance Sheet

As of Jun 30, 2014, the partnership had total debt of $2,726.6 million, representing a debt-to-capitalization ratio of 60.1%.

Guidance

NuStar expects its third-quarter 2014 EPU to be higher than the year-ago quarter's profit. Moreover, the partnership continues to believe that 2014 operating profits from its pipeline business unit will register a $40.0 to $60.0 million increase from the 2013 level. The partnership's fuels marketing segment is expected to have profits in the $20.0 to $30.0 million range. Moreover, given these projected figures, NuStar expects to cover distributions for the full year as well.

NuStar now plans to invest $330 million to $350 million in growth projects in 2014, lower than the previous estimate as it has transferred part of its growth project spending to 2015. The key focus of the investment remains on the pipeline segment.

Stocks to Consider

NuStar currently carries a Zacks Rank #2 (Buy), implying that it is expected to outperform the broader U.S. equity market over the next one to three months.

One can also consider other players from the same industry like Magellan Midstream Partners LP MMP, Valero Energy Partners LP VLP and Enterprise Products Partners LP EPD. While Magellan Midstream and Valero Energy Partners sport a Zacks Rank #1 (Strong Buy), Boardwalk Pipeline Partners holds a Zacks Rank #2.