San Antonio-based publicly traded partnership NuStar Energy L.P. ( NS - Analyst Report ) announced weak third quarter profits, hamstrung by lower margins in its asphalt and fuels marketing business.

The owner and operator of crude oil and refined products pipelines and storage facilities reported earnings per unit (EPU) – excluding special items – of 19 cents, well below the Zacks Consensus Estimate of 50 cents and the year-ago profit of 92 cents.

However, revenue of $1,744.8 million surpassed our expectation of $1,430.0 million on the back of strong service sales but was 4.4% below the year-earlier level.

Quarterly Distribution

NuStar announced a quarterly distribution of $1.095 per unit ($4.38 per unit annualized), which remains unchanged from the year-earlier as well as previous-quarter distributions. The distribution is payable on November 14 to unitholders of record as on November 9, 2012.

Distributable cash flow (DCF) available to limited partners for the third quarter was $54.6 million or 75 cents per unit (providing 0.68x distribution coverage), compared with $80.3 million or $1.24 per unit in the year-earlier quarter.

Segmental Performance

Transportation: Quarterly throughput volumes in the Transportation segment were up 5.7% year over year to 890,101 barrels per day. The improvement can be attributed to higher crude oil pipelines throughput that benefited from the completion of the new pipeline system to transport Eagle Ford shale crude to Corpus Christi.

The increased throughput, together with higher pipeline tariffs pushed the segment operating income up by 11.4% year over year to $42.6 million. Operating revenue increased 14.5% to $93.7 million.

Storage: Throughput volumes in the Storage segment rose 8.2% year over year to 780,560 barrels per day. Revenues increased approximately 5.0% to $148.9 million on the back of a 4.6% hike in the storage lease revenue (that makes up 84% of the total revenues).

Quarterly operating income reached $50.4 million (up 3.4% year-over-year), driven by higher rates on new and existing contracts and contributions from NuStar’s recent project completions.

Asphalt and Fuels Marketing: As a result of weak asphalt margins and muted demand, the Asphalt and Fuels Marketing segment recorded weak performance compared with the year-earlier quarter. The unit reported operating loss of $15.7 million, as against the profit of $25.4 million achieved during the third quarter of 2011.

Late last month, NuStar closed the previously announced sale of 50% interest in its asphalt operations to privately held investment firm Lindsay Goldberg LLC.

Rating & Recommendation

NuStar – which was spun off from the U.S. refiner Valero Energy Corp. ( VLO - Analyst Report ) in 2006 – currently retains a Zacks #3 Rank (short-term Hold rating). We are also maintaining our long-term Neutral recommendation on the unit.