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San Antonio-based publicly traded partnership, NuStar Energy LP (NS - Analyst Report), announced better-than-expected second-quarter 2013 earnings, mainly due to higher contribution from Pipeline and Fuels marketing businesses.

NuStar’s earnings per unit (EPU) from continuing operations came in at 27 cents. The earnings beat the Zacks Consensus Estimate of 21 cents. The result also came well ahead of the year-ago adjusted profit of 6 cents.

Revenues of $904.2 million were 48.9% below the year-ago level and also failed to beat the Zacks Consensus Estimate of $ 1,008.0 million. Lower contribution from the Storage unit has impacted the result.

Quarterly Distribution

NuStar announced a quarterly distribution of $1.095 per unit ($4.38 per unit annualized), which remains unchanged from the year-ago and previous-quarter distributions. The distribution is payable on Aug 9, 2013, to unitholders of record as on Aug 5, 2013.

Distributable cash flow (DCF) available to limited partners for the second quarter was $55.1 million or 71 cents per unit, compared with $31.5 million or 45 cents per unit in the year-earlier quarter.  

Segmental Performance

Pipeline: Total quarterly throughput volumes in the Pipeline segment was 810,513 barrels per day (BBL/D) representing an increase of 7.9% as compared with the year-ago period.

The throughput volumes in the crude oil pipelines increased 20.2% from the year-ago quarter to 350,850 BBL/D. The improvement is based on the gains from the completion of several organic growth developments in the Eagle Ford shale.   

The increased throughput in the crude oil pipelines boosted the segment’s operating income by 62.3% year over year to $51.2 million. Operating revenues increased 30.0% to $97.0 million.

Storage: Throughput volumes in the Storage segment increased 8.8% year over year to 813,345 B/D.

Quarterly revenues were down 5.0% to $145.1 million compared to the second quarter of the previous year. The drop is primarily due to the fall in demand for storage at some of NuStar’s terminal facilities.

Moreover, quarterly operating income reached $41.7 million (down 22.9% year-over-year), lowered by higher operating expenses.

Fuels marketing: The unit reported a profit of $3.4 million against the year-ago quarter loss of $290.9 million. The significant decline in operating expenses along with reduced depreciation and amortization expenses aided the result.

Balance Sheet

As of Jun 30, 2013, the debt to capitalization ratio was recorded at 50.6% as compared to 52.0% in the year-ago period.

Guidance

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

Moreover, NuStar expects its reliability capital spending for 2013 to be between $35.0 million to $45.0 million while strategic capital spending will be $350.0 million to $400.0 million.

Stocks to Consider

NuStar is a master limited partnership (MLP), which currently carries a Zacks Rank #5 (Strong Sell), implying that it is expected to significantly underperform the broader U.S. equity market over the next one to three months.

Over the last few years, NuStar has consolidated its business through a combination of organic efforts and accretive acquisitions. We believe that the higher operating expenses associated with asset base expansion may lead to reduced returns.

Meanwhile, one can look at oil and gas production pipeline MLPs like Delek Logistics Partners LP (DKL - Snapshot Report), Pioneer Southwest Energy Partners LP and Summit Midstream Partners LP (SMLP - Snapshot Report) as attractive investments. All three firms sport a Zacks Rank #2 (Buy).

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