RRMS Beats on Earnings & Revs

Zacks

Rose Rock Midstream, L.P. (RRMS) reported third-quarter 2013 earnings per unit of 45 cents, beating the Zacks Consensus Estimate of 39 cents by 15.4%.

Quarterly earnings surged 18.4%, primarily on the heels of an increase in revenues and a rise in marketing volumes due to the acquisition of Barcas Field Services. The positives were partially offset by lower margins at the pipeline transportation operations and an increase in interest expenses.

Revenue

The partnership’s total revenues were $181.8 million, surpassing the Zacks Consensus Estimate of $171 million by 6.3%. On a year-over-year basis, revenues jumped 38.2% on the back of strong contribution from the partnership’s Product (up 38% year over year) and Service (up 41% year over year) segments.

Operational Update

In the quarter under review, Rose Rock Midstream’s total expenses spiked 40% year over year to $174.1 million. This was primarily due to higher costs of products sold and operating as well as depreciation expenses.

The partnership’s earnings from equity method investment were $3.5 million, up 2.2% sequentially.

An increase in total expenses was more than offset by a rise in revenues and addition of the partnership’s earnings from equity method investment. Consequently, operating margin in the reported quarter increased to 6.2% from 5.3% in the year-ago quarter.

Rose Rock Midstream’s interest expenses jumped more than 300% primarily due to a rise in long-term debt.

Quarterly adjusted earnings before interest, tax, depreciation and amortization (:EBITDA) was $15.7 million, 65% higher than the year-ago figure.

Financial Update

As of Sep 30, 2013, the partnership’s current assets were $294.3 million versus $250.6 million as of Dec 31, 2012.

Long-term debt as of Sep 30, 2013 was $85 million compared with $4.6 million at the end of 2012.

During the third quarter of 2013, the partnership invested $1.1 million under the maintenance capital expenditure program.

During the three-month period ended Sep 30, 2013, the partnership’s net cash provided by (used in) operating activities was ($1.2) million compared with $15.4 million.

Cash Distribution Update

On Oct 24, 2013, the board of directors of Rose Rock Midstream increased its quarterly cash distribution by 2.3% to 45 cents per unit. The new rate is effective from the third quarter 2013. On an annualized basis, the new distribution rate will be $1.80 per unit.

Acquisition Update    

The partnership intends to acquire an additional 33.3% interest in SemCrude Pipeline, L.L.C., a unit of SemGroup Corp. (SEMG).

In addition, Rose Rock Midstream also announced that it will acquire a crude oil pipeline, stretching from Platteville, CO to Tampa, CO, from Noble Energy, Inc. (NBL) for $8.3 million.

The partnership expects bullish demand for midstream services to prevail and increase in the near term due to higher upstream activities. This factor propels Rose Rock Midstream to expand its operations through inorganic route, thereby serving more customers.

Zacks Rank

Rose Rock Midstream currently has a Zacks Rank #3 (Hold). Another stock from the industry that is presently performing well is Magellan Midstream Partners LP (MMP) with a Zacks Rank #2 (Buy).

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