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NuStar Energy L.P. (NYSE:NS), a master limited partnership (MLP), announced significantly weaker-than-expected first quarter results, pulled down by low sales and throughput volumes on the back of seasonal weakness as well as higher operating expenses. The partnership reported earnings per unit (EPU) of 19 cents, way below the Zacks Consensus Estimate of 46 cents and the prior-year figure of 47 cents. However, revenues of $945.5 million were up 49.1% from the first quarter 2009 level, helped by higher top-line results in each of the three business segments.

Distribution Maintained

NuStar announced quarterly distribution of $1.065 per unit ($4.26 per unit annualized), representing a 0.7% increase over the year-earlier quarter and equal to the fourth quarter 2009 distribution. The distribution will be paid on May 14 to unit-holders of record on May 7, 2010. Distributable cash flow (DCF) available to limited partners for the first quarter was $22.8 million or 38 cents per unit, compared to $69.4 million or $1.28 per unit in the year-earlier quarter.

Transportation Segment

Quarterly throughput volumes in the Transportation segment were down 11.5% year over year to 890,577 barrels per day. The decline can be primarily attributed to the sale of low-performance pipeline assets and a fall in the refined products pipelines throughput.

Segmental revenues were up 1.2% to $75.3 million, reflecting tariff rise (7.6% increase effective July 1, 2009). However, lower volumes and higher operating expenses dragged down operating income in this segment, which decreased 7.6% to $33.8 million.

Storage Segment

Throughput volumes in the Storage segment rose 7.6% year over year to 641,457 barrels per day. However, revenues increased approximately 7.5% to $126.6 million, driven by an 11.3% increase in the storage lease revenue. Quarterly operating income reached $42.9 million (8.1% year over year fall) due to higher operating expenses, more than offsetting the higher throughput volumes.

Asphalt and Fuels Marketing

As a result of seasonal tapering off of asphalt demand, the Asphalt and Fuels Marketing division recorded a much wider loss compared to the year-earlier quarter. Segment operating loss, at $7.9 million, was $3.4 million higher than that incurred during the first quarter of 2009.

Second Quarter Guidance

Looking ahead to the second quarter, NuStar guided towards ramped up sales and throughput volumes, as the asphalt, as the summer-driving and agricultural seasons start up. Management expects stable results for its fee-based storage and transportation segments. The Transportation segment is likely to benefit from slightly higher volumes (on the back of an improving economy and consequently, a recovery in refined product demand), while higher renewal rates and recently completed internal growth projects should bode well for the Storage segment.

In its asphalt operations, NuStar expects second-quarter earnings to follow the typical seasonal pattern of an uptrend, as sales and margins improve. The segment is slated to benefit from higher stimulus spending, an improving economy, and historic lows supply-side inventories.

According to the partnership, EBITDA during the June quarter is likely to be in the range of $130 to $150 million. Operating expenses are expected to be around $125 to $130 million, G&A expenses in the range of $27 to $28 million, DD&A expenses in the $38 to $39 million range, interest expense of $18 to $19 million.

Source: NuStar Misses Big on Seasonal Weakness