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Buckeye Partners L.P.’s (BPL - Analyst Report) third quarter 2013 operating earnings of 72 cents per unit were 17.2% lower than the year-ago number. Earnings also trailed the Zacks Consensus Estimate of 82 cents per unit by 12.2%.

The year-over-year decline in earnings was primarily due to an increase in total costs and expenses. Total outstanding units also rose year over year thereby diluting earnings per unit.

Total Revenue

Buckeye Partners’ total revenue at the end of the quarter was $1,088.8 million, up 12.7% year over year to $965.9 million. Quarterly revenue also surpassed the Zacks Consensus Estimate of $1,041.0 million by 4.6%.

Top-line growth continued to be modest and was largely attributed to higher contribution from Pipeline & Terminal, Energy Services and International Operations, partially offset by low returns from the Development & Logistics Energy Service and Natural Gas Storage divisions.

Segment Analysis

Revenue from Pipeline and Terminal operations increased 1.9% year over year to $198.3 million in the third quarter. The planned capital expenditure increased the segment’s service capabilities and helped it to deliver another strong performance.

International Operations came out with another impressive performance, posting revenue of $154.6 million, up a whopping 199.0% 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 39.3% year over year to $16.4 million in the third quarter.

However, the upswing was partially offset by a 26.3% decline in Buckeye Partners' Natural Gas Storage revenues.

Operational Highlights

In the third quarter, total costs and expenses increased by 14.1% to $977.4 million from $852.1 million in the year-ago period. This was due to a 16.6% increase in cost of product sales and natural gas storage services.

Buckeye Partners’ adjusted Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) moved up marginally by 0.8% year over year to $153.8 million.

Interest and debt expenses during the quarter were $34.3 million versus $28.7 million reported in the year-ago quarter.

Financial Screening

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

Buckeye Partners' long-term debt as of Sep 30, 2013, was $2.67 billion compared with $2.73 billion as of Dec 31, 2012.

The partnership spent $109.1 million on capital expenditure during the quarter compared with $85.0 million in the prior-year quarter. Nearly 79.6% of the capital expenditure in the reported quarter was directed towards developing its Pipeline and Terminals segment.

Cash Distribution

Buckeye Partners’ current distribution rate at the end of Sep 30, 2013, stands at $1.075 per unit, which reflects a 3.6% increase from the third quarter 2012 cash distribution of $1.0375 per unit and 1.2% from $1.0625 per unit paid during the second quarter of 2013.

Other Earnings Releases

Magellan Midstream Partners LP (MMP - Analyst Report) reported third quarter earnings of 54 cents per unit, lagging the Zacks Consensus Estimate of 58 cents by 6.9%.

El Paso Pipeline Partners (EPB - Snapshot Report) posted third quarter earnings of 40 cents per unit, falling behind the Zacks Consensus Estimate of 47 cents by 14.9%.

Our View

Buckeye’s recent decision to purchase 20 liquid petroleum product terminals from Hess Corporation (HES - Analyst Report) for $850 million is likely to benefit the partnership’s terminal business. The partnership expects this acquisition to be immediately accretive to earnings on closure by the end of 2013.

The expansion work at the BORCO facility has helped the company to register strong top-line results. In addition, Buckeye’s systematic capital investment will allow it to generate organic growth and make strategic purchases going forward.

Having said that, the partnership will need to control its operating costs for the top-line benefits to percolate down to the bottom line.

Buckeye Partners presently retains a Zacks Rank #3 (Hold).
 

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