NuStar Beats on Q3 Earnings, Rev Lags

Zacks

San Antonio-based publicly traded partnership, NuStar Energy LP (NS), announced better-than-expected third-quarter 2013 earnings, mainly due to higher contribution from the Pipeline business unit along with significantly lower operating expenses.

NuStar’s earnings per unit (EPU) from continuing operations came in at 28 cents, beating the Zacks Consensus Estimate of 27 cents. The result significantly surpassed the year-ago adjusted profit of 19 cents.

Revenues of $780.0 million were 51.1% below the year-ago level and also failed to beat the Zacks Consensus Estimate of $937.0 million. Lower contribution from the Storage and Fuels marketing units has impacted the results.

Quarterly Distribution

Last month, NuStar announced quarterly distribution of $1.095 per unit ($4.38 per unit annualized), which remains unchanged from the previous quarter’s distributions. The distribution is payable on Nov 14, 2013, to unitholders of record as on Nov 11, 2013.

Distributable cash flow (:DCF) available to limited partners for the third quarter was $67.2 million or 86 cents per unit against $63.0 million or 87 cents per unit in the year-earlier quarter.

Segmental Performance

Pipeline: Total quarterly throughput volumes in the Pipeline segment was 884,050 barrels per day (BBL/D) representing a marginal increase of 0.7% from the year-ago period.

The throughput volumes in the crude oil pipelines increased 7.1% from the year-ago quarter to 382,539 BBL/D. Higher volumes at Eagle Ford pipeline aided the result.

Lower operating costs along with increased throughput in the crude oil pipelines boosted the segment’s operating income by 38.6% year over year to $58.0 million. Throughput revenues increased 20.5% to $111.5 million.    

Storage: Throughput volumes in the Storage segment increased 6.6% year over year to 832,412 BBL/D.

However, quarterly revenues were down 5.7% to $140.5 million from the third quarter of the previous year. The drop is primarily due to the fall in demand along with decreased renewal rates for storage at some of NuStar’s terminal facilities.

Moreover, quarterly operating income came in at $38.2 million (down 24.2% year-over-year), hampered by significant higher depreciation and amortization expense.

Fuels marketing: The unit reported a loss of $9.1 million, wider than the year-ago quarter loss of $6.5 million. Bunker fuel’s consistent low demand along with higher competition in the Caribbean market affected the result.

Operating Expense

The partnership recorded total operating cost at $120.5 million, down 15.2% year over year.

Balance Sheet

As of Sep 30, 2013, the debt to capitalization ratio was 51.0% as compared to 43.2% in the year-ago period.

Guidance

NuStar projects its fourth-quarter 2013 EPU in the range of 20 cents to 30 cents per unit.

The partnership maintains its previous expectation of reliability capital spending for 2013 in the range of $35.0–$45.0 million, while the same figure is anticipated for 2014. However, NuStar lowered its strategic capital spending to the band of $300.0 million to $325.0 million for 2013 as it deferred some project expenses toward 2014. For 2014, strategic capital spending is anticipated in the range of $350–$375 million.

Stocks to Consider

NuStar is a master limited partnership, which currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at energy firms like Matador Resources Company (MTDR), Pacific Drilling SA (PACD) and SM Energy Company (SM) that offer value. All the stocks sport a Zacks Rank #1 (Strong Buy).
 

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