Weak Results at Buckeye Continue

Zacks

Buckeye Partners L.P.’s (BPL) operating earnings of 55 cents per unit in the second quarter 2012 fell short of the Zacks Consensus Estimate by 11 cents per unit. Earnings were 12.7% lower than 63 cents earned in the year-ago quarter.

Soft performance at Energy Services largely induced the underperformance. Nevertheless, the company experienced improving business conditions at its domestic pipelines and terminals as well as in its international operations.

Total Revenue

Total revenue at the end of the second quarter 2012 was $0.98 billion versus $1.18 billion in the prior-year quarter, reflecting a decline of 8.8%. Revenue substantially missed the Zacks Consensus Estimate of $1.172 billion.

Low product sales, partially offset by increase in transportation and other activities from its crude oil and petroleum products led to the overall decline.

Segment Analysis

The overall revenue decline resulted from Energy Services revenue dipping 13.6% year over year and International Operations' revenue declining 4.8% year over year. However, a 12.2% increase in Pipelines & Terminals revenue, 16.9% improvement in Natural Gas Storage revenue and 24.3% increase in Development & Logistics revenue helped offset the decline.

Operational Highlights

During the quarter, total costs and expenses decreased 9.1% year over year to $900.8 million. Operating expenses escalated 12.9% to $101.5 million and general & administrative expenses increased by 4.0% to $16.9 million.

The partnership’s adjusted EBITDA marginally improved 1.9% to $119.9 million from $117.6 million in the second quarter of 2011.

Interest and debt expenses inched down to $27.6 million from $28.6 million reported in the year-ago quarter.

Financial Screening

Total cash and cash equivalents as of June 30, 2012, were $0.6 million versus $12.9 million as of December 31, 2011.

Buckeye's long-term debt as of June 30, 2012, was $2.28 billion compared with $2.39 billion of long-term debt as of December 31, 2011.

Buckeye spent $73.7 million on capital expenditures during the quarter, compared with $62.4 million in the prior-year quarter.

Cash Distribution

The partnership approved a cash distribution of $1.0375 per unit payable on August 31, 2012 to unitholders of record on August 15, 2012. This distribution also represents a 2.5% year-over-year increase.

Acquisition and Developments

In late July, Buckeye completed the acquisition of a marine terminal facility for liquid petroleum products in New York Harbor from Chevron U.S.A. Inc., a unit of Chevron Inc. (CVX), in a cash deal worth $260 million.

The acquisition augments Buckeye's total liquid petroleum storage capacity by nearly 6% to over 68 million barrels. Also, undeveloped land in the facility will cushion future expansion.

This purchase will enable a strong connection between waterborne imports with end-destination markets through its internal pipeline and terminal imports. This also includes inland linkages with BORCO operations.

Buckeye placed in service the 1.1 million barrels of storage capacity on July 1, representing the initial phase of the BORCO expansion.

Peer Comparison

One of its close peers, The Williams Companies, Inc. (WMB) reported soft second quarter 2012 results, owing to challenging natural gas market conditions along with higher acquisition related costs.

Operating earnings came in at 22 cents per share, in line with the Zacks Consensus Estimate and plunging 24.1% year over year.

The company generated revenues of $1.8 billion, missing our forecast of $2.0 billion and also declining 7.0% year over year.

Zacks Rank.

We retain our Neutral recommendation on Buckeye. The partnership presently retains a short-term Zacks #3 Rank (Hold) indicating no clear directional pressure in the near term

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