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Buckeye Partners L.P. (BPL - Free Report) announced fourth quarter and fiscal 2011 results before the bell. During the quarter operating earnings of 64 per limited partner unit fell short of our expectation by 20 cents. The results of the partnership were however much higher than the year-ago earnings of 19 cents per unit. The reported quarter did not experience the modification expense incurred in the fourth quarter of 2010 related to Buckeye's merger with Buckeye GP Holdings L.P. ("BGH").

Also, the results were driven by the acquisition of BORCO in the first quarter and a unit offering in the second quarter of 2011. However, these were partially offset by a decline in adjusted earnings before interest depreciation and amortization (EBITDA) in the Energy Services business due to the Northeast refinery closures and mild temperatures in Northeast U.S. during the final quarter of 2011.

In fiscal year 2011, operating earnings were $1.39 per limited partner unit compared with the year-ago figure of $1.65. The results were way below the Zacks Consensus Estimate of $3.28.

Buckeye Partners recorded GAAP earnings for fiscal 2011 of $1.20 per unit compared with earnings of $1.65 per unit in the year-ago period. The difference of $19 cents per unit between operating and GAAP earnings, during the year, was due to transition expenses related to acquisition and integration activities in 2011.

Total Revenue

Total revenue at the end of the fourth quarter was $1.31 billion versus $1.01 billion in the year-ago quarter, reflecting a growth of 29.1%. Revenue during the quarter was higher than the Zacks Consensus Estimate of $1.02 billion.

Revenue in fiscal 2011 was $4.76 billion, up 51% year over year. The figure was also above our expectation of $4 billion.

Quarterly Highlights

Higher revenues owed primarily to a solid performance at Energy Services. Revenue from Energy Services increased a substantial 27.7% year over year to $1.1 billion in the quarter, constituting 82.1% of the total revenue versus 83% in the year-ago period. International Operations constituted 3.6% of the total revenue in the reported quarter.

During the quarter total costs and expenses rose 27.7% year over year. Total operating expenses increased 33.5% year over year.

The partnership’s adjusted EBITDA was $121.5 million for the fourth quarter of 2011 compared with $100.0 million for the fourth quarter of 2010, up 21.5%, driven by contributions from assets acquired by Buckeye during 2011. However, this was partly offset by the impact of refinery shutdowns at Buckeye's Energy Services segment and milder temperatures.

Interest and debt expenses at the end of fourth quarter 2011 were $29.3 million, higher than $24.1 million reported in the year-ago quarter.

Financial Update

Total cash and cash equivalents as of December 31, 2011, were $13 million versus $13.7 million as of December 31, 2010.

Buckeye's long-term debt as of December 31, 2011, was $2.39 billion compared with $1.52 billion of long-term debt as of December 31, 2010.

Buckeye spent $114 million on capital expenditure during the quarter compared with $28.4 million in the prior-year quarter.

Cash Distribution

The partnership once again raised its cash distribution rate. The current distribution rate of the partnership stands at $1.0375 per unit, which reflects a 5.1% increase from the fourth quarter 2010 cash distribution per unit of 0.9875 cents. The distribution will be payable on February 29, 2012, to unit holders of record on February 21, 2012.


On its earnings call, the partnership announced that it has signed a definitive agreement with Chevron Corporation (CVX - Free Report) to acquire a marine terminal facility for liquid petroleum products in New York Harbor for $260 million in cash. The facility has over four million barrels of tankage, four docks, and significant undeveloped land available for potential expansion. The partnership expects the transaction to close in the latter half of the second quarter of 2012.  The partnership plans to finance the deal with the net proceed from the sale of 4,262,575 limited partnership units that will generate gross proceeds of $250 million.

At the Peer

One of its close peers, The Williams Companies, Inc. (WMB - Free Report) is expected to release its fourth quarter and fiscal 2011 results on February 22, 2012. The Zacks Consensus Estimates for fourth quarter and fiscal year 2011 are currently at 42 cents per share and $1.54 per share, respectively.

Our View

Buckeye is continuously focusing on acquisitions. These acquisitions have helped the partnership to access the wholesale storage and throughput of the liquefied petroleum gas market. It invested approximately $2 billion in acquisitions in fiscal 2011. The acquisition of the marine terminal facility for liquid petroleum products in New York Harbor will allow Buckeye's inland pipeline and terminal networks to have a direct connection to a Buckeye owned and operated marine facility with water access to petroleum products imported from international and Gulf Coast suppliers.

We expect the partnership to do well in the future, provided it can maintain the performance level of its legacy assets and seamlessly add the acquired assets to its existing operations.

Also, we believe that Buckeye Partners’ attractive portfolio of refined petroleum product transportation assets provide an above-average level of safety to its earnings and cash flows. However, we prefer to remain on the sidelines due to the threats of pipeline disruptions, weather, fluctuations in commodity prices and adverse regulatory controls. The partnership presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

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