Buckeye Partners L.P. ( BPL - Analyst Report ) announced fourth quarter operating earnings of 96 cents per unit, outpacing the Zacks Consensus Estimate by 15 cents. The earnings of the partnership also surpassed the year-ago earnings of 64 cents per unit.

The earnings beat stemmed from favorable performances from the partnership’s Bahamas Oil Refinery Company International Limited (“BORCO”) program and benefits accrued from the initiation of crude oil operations at the Albany terminal unit.

In 2012, adjusted earnings were $2.93 per unit compared with the year-ago figure of $3.06. The results were in line with the Zacks Consensus Estimate.

Buckeye Partners recorded GAAP earnings for fourth quarter 2012 of 35 cents per unit compared with 64 cents per unit in the year-ago period. The difference of 61 cents per unit between operating and GAAP earnings, during the quarter, was due to a non-cash impairment charge associated with the termination of the NORCO Pipeline business.

For 2012, GAAP earnings stood at $2.32 per unit versus $1.20 per unit in 2011.

Total Revenue

Total revenue at the end of the fourth quarter was $1.14 billion versus $1.31 billion in the year-ago quarter, reflecting a decline of 12.5%. Revenue during the quarter widely missed the Zacks Consensus Estimate by $128.8 million.

Revenue in 2012 was $4.3 billion, down 8.5% year over year. The figure was also below the Zacks Consensus Estimate of $4.9 billion.

Quarterly Highlights

Uninspiring sales at the Energy Services segment mainly led to the drop in the fourth quarter top line. Revenue from Energy Services plunged 23.6% year over year to $824.2 million from $1,078.9 million. This was partially offset by positive contributions from the pipeline, natural gas storage and overseas businesses.

During the quarter total costs and expenses declined 11.3% year over year owing to a 19.4% drop in cost of product sales and natural gas storage services partially tempered by a 14.6% year over year increase in general and administrative expenses.

The partnership’s adjusted EBITDA was $172.0 million for the fourth quarter of 2012 compared with $121.5 million in the prior-year period, up 41.5%, driven by improved returns due to normal winter conditions which included higher contribution from butane blending which aided both the Terminals and Energy Services divisions as well as gains amassed from short-term spreads by the hub services.

Operating income for the quarter decreased 28.7% year over year to $62.4 million from $87.7 million in the year-ago quarter. The decline in costs failed to mitigate the effect of a lower top line resulting in margin contraction.

Interest and debt expenses at the end of fourth quarter 2012 were $29.8 million, marginally higher than $29.3 million reported in the year-ago quarter.

Financial Update

Total cash and cash equivalents as of Dec 31, 2012, were $6.8 million versus $13.0 million as of Dec 31, 2011.

Buckeye's long-term debt as of Dec 31, 2012, was $2.7 billion compared with $2.4 billion as of Dec 31, 2011.

Buckeye’s capital outlay for 2012 was $331.3 million compared with $305.3 million in the prior-year.

Cash Distribution

The partnership remained true to its distribution rate of $1.0375 per unit payable on Feb 28, 2013, to unit holders of record on Feb 19, 2013.

Other Pipeline Partnership Releases

Plains All American Pipeline, L.P. ( PAA - Analyst Report ) reported adjusted earnings of 98 cents per unit for the fourth quarter 2012 beating the Zacks Consensus Estimate of 69 cents. El Paso Pipeline Partners ( EPB - Snapshot Report ) reported earnings of 63 cents per unit in the fourth quarter, surpassing the Zacks Consensus Estimate of 55 cents.

Our View

Although Buckeye Partners’ earnings surprise does not present a healthy track record, we anticipate its increasing presence in the markets of Midwest, covering upper Illinois, Indiana, Ohio and Pennsylvania will serve as a major growth driver in the near term.

The partnership’s earnings will continue to feed well on the back of its high-return projects like the BORCO facility and Perth Amboy terminals, Yabucoa in the Caribbean and the recently concluded Opelousas Louisiana Terminal.

Buckeye Partners carries a Zacks Rank #3 (Hold). We prefer the Zacks Ranked #2 (Buy) pipeline operator Atlas Pipeline Partners, L.P. ( APL - Snapshot Report ) which is slated to release its fourth quarter 2012 financial results on Feb 18, 2013.

Based in Houston TX, Buckeye Partners, L.P. owns and operates refined petroleum products pipeline systems in the United States.