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Buckeye Partners L.P.’s (BPL - Analyst Report) second quarter 2013 operating earnings shot up 30.9% year over year to 72 cents per unit. Earnings however trailed the Zacks Consensus Estimate of 79 cents per unit by 8.9%.

The robust results reflect the partnership’s strong pipeline and terminal performance as well as healthy returns from its investments in International Operations.

Total Revenue

Buckeye Partners total revenue at the end of the quarter was $1,005.4 million versus $982.6 million in the prior-year quarter, representing a surge of 2.3%. Quarterly revenue nevertheless fell behind the Zacks Consensus Estimate by 14.3%.

Top-line growth continued to be modest and was largely attributed to surge in contribution from the pipeline and international storage businesses partially offset by low returns from the Energy Service and Natural Gas Storage divisions.

Segment Analysis

Revenue from Pipeline and Terminal operations increased 13.9% year over year to $190.6 million in the second quarter. The segment witnessed spiraling throughput volumes in the second quarter driven majorly by gasoline and distillates products.

International Operations were the biggest winner posting revenue of $144.4 million, up a whopping 186.3% from the corresponding year-ago quarter. This was mainly due to the successful execution of the Bahamas Oil Refinery Company International Limited (BORCO) program.

Development & Logistics revenue increased 4.2% year over year to $13.7 million in the second quarter.

However, the upswing was partially offset by a 12.9% and 28.4% respective decline in Buckeye Partners' Energy Services and Natural Gas Storage revenues.

Operational Highlights

In the second quarter, total costs and expenses decreased marginally to $899.7 million from $900.5 million in the year-ago period. This was due to a 1.3% drop in cost of product sales and gas storage.

Buckeye Partners’ adjusted Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) moved up 23.9% year over year to $148.5 million.

Interest and debt expenses during the quarter were $30.2 million versus $27.6 million reported in the year-ago quarter.

Financial Screening

Total cash and cash equivalents as of Jun 30, 2013, were $4.9 million versus $6.8 million as of Dec 31, 2012.

Buckeye Partners' long-term debt as of Jun 30, 2013, was $2.6 billion compared with $2.7 billion as of Dec 31, 2012.

The partnership spent $80.6 million on capital expenditure during the quarter compared with $73.7 million in the prior-year quarter.

Cash Distribution

Buckeye Partners’ current distribution rate at the end of Jun 30, 2013, stands at $1.0625 per unit, which reflects a 2.4% increase from the second quarter 2012 cash distribution of $1.0375 per unit. The distribution will be payable on Aug 20, 2013, to unit holders of record on Aug 12, 2013.

Other Oil and Gas Pipeline Operators

Magellan Midstream Partners LP (MMP - Analyst Report) reported second quarter earnings of 65 cents per unit, beating the Zacks Consensus Estimate of 53 cents.

El Paso Pipeline Partners (EPB - Snapshot Report) posted second quarter earnings of 43 cents per unit, falling behind the Zacks Consensus Estimate by 8.5%.

TC PipeLines LP (TCP - Analyst Report) registered second quarter 2013 earnings of 40 cents per unit, lagging the Zacks Consensus Estimate by 23.1%.

Our View

Although Buckeye Partners missed our top- and bottom-line expectations, the favorable year-over-year comparisons are commendable. Key future drivers include the tariff rate increase of 7% effective from May 1, 2013 and speedy execution of the BORCO project.

On the domestic front, progress of the Perth Amboy terminal and addition of long-term contracts for support of crude oil storage expansion and rail transport in the Chicago complex will augment opportunities for Buckeye Partners.

Nonetheless, weak Energy Service and Natural Gas Storage businesses might continue to pose challenges for Buckeye Partners in the upcoming quarters. Buckeye Partners presently retains a Zacks Rank #3 (Hold).
 

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