Buckeye Posts Mixed 3Q (BPL) (WMB)

Zacks

Buckeye Partners L.P. (BPL) clocked operating earnings of 87 cents per unit in the third quarter of 2012 beating the Zacks Consensus Estimate of 73 cents per unit. Earnings were also higher than the year-ago figure of 64 cents.

Earnings in the third quarter 2012 outperformed on account of Buckeye’s favorable business conditions and effective execution of its growth plans. In addition, expansion in pipeline and terminal units including the Perth Amboy facility contributed to the bottom-line increase.

Total Revenue

Total revenue at the end of the third quarter 2012 slid 13.5% to approximately $966.0 million from $1,116.9 million in the prior-year quarter. Reported revenue widely missed the Zacks Consensus Estimate of $1,149 million.

Lower Energy Service sales during the third quarter resulted in the overall decline in the partnership’s top-line.

Segment Analysis

The top-line shortfall was mainly attributed to a sharp 23% decline in revenue at Energy Services in tandem with a 10% fall in revenues at the Development and Logistics business. However, a 20% increase in Pipelines & Terminals revenue partially offset the decline.

Operational Highlights

During the quarter, total costs and expenses decreased 29% year over year to $852.6 million from $1,194.2 million in the prior-year period. A 20.8% fall in cost of product sales and natural gas storage was responsible for the overall decline.

The partnership’s adjusted EBITDA increased substantially by 20.6% to $152.6 million from $126.5 million in the third quarter of 2011.

Interest and debt expenses declined to $28.7 million from $33.2 million reported in the year-ago quarter.

Financial Screening

Total cash and cash equivalents as of September 30, 2012, were close to $3.0 million versus approximately $13.0 million as of December 31, 2011.

Buckeye's long-term debt as of September 30, 2012, was $2.7 billion compared with $2.4 billion of long-term debt as of December 31, 2011.

Buckeye’s capital spending during the quarter stood at $85.0 million, compared with $90.9 million in the prior-year quarter.

Cash Distribution

The partnership declared a cash distribution of $1.0375 per unit payable on November 30, 2012 to unit holders of record on November 12, 2012. This distribution also represents a 1.2% year-over-year increase from $1.025 per unit announced in the third quarter 2011.

Developments

The partnership’s large-scale Bahamas Oil Refining Company International Limited (BORCO) facility came online on July 1, 2012 and have supplemented the company’s earnings in the third quarter 2012. Buckeye’s Perth Amboy unit purchased in late July 2012 also added to the partnership’s earnings.

Peer Comparison

One of its close peers, The Williams Companies, Inc. (WMB) reported dull third quarter 2012 results due to lower natural gas liquids margin and higher cost associated with acquisitions.

Operating earnings came in at 25 cents per share, trailing the Zacks Consensus Estimate of 27 cents and plummeting 16.7% year over year from 30 cents.

The company generated revenues of $1,752 million, less than our estimate of $2,081 million and also diminishing 11.2% year over year.

Our View

Buckeye’s execution success in its growth-related programs will certainly strengthen the partnership’s position in the U.S. market. We believe the high-quality BORCO facility will accentuate its International operations. Domestically, its Perth Amboy terminal will also continue to contribute positively to earnings.

However, unplanned outages and exposure to fuel as well as diesel price sensitivities could negatively influence the partnership’s short-term top-line growth. Buckeye Partners presently has a short-term Zacks #3 Rank (Hold rating)

Based in Houston, Texas, Buckeye Partners L.P. is a publicly traded partnership that owns and operates one of the largest independent refined petroleum products pipeline systems in the United States in terms of volumes delivered.

BUCKEYE PARTNRS (BPL): Free Stock Analysis Report

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