NuStar Energy L.P. (NS), a master limited partnership (MLP), announced better-than-expected fourth quarter results on the strength of higher margins in its asphalt business. The partnership reported earnings per unit (EPU) of 50 cents, topping both the Zacks Consensus Estimate and the prior-year figure by 4 cents. However, revenues of $982.8 million were down 4.9% from the fourth quarter 2008 level, hurt by lower product sales.

NuStar’s quarterly earnings outperformance becomes even more impressive in the context of the recent downward revisions to its fourth-quarter estimates. Earnings estimates were trending down over the last few days, with the quarterly Zacks Consensus Estimate going down by a penny in the last 7 days alone. Overall, one of the 14 analysts covering the stock pulled back on projections during that time, with no upward revisions. Over the past month, analysts reduced their estimates for the reported quarter by 3 cents. However, NuStar has a history of reporting positive earnings surprises, with the current one being the 4th in the past fourth quarters. The average surprise during this time period is 13.6%, implying NuStar has surpassed the Zacks Consensus Estimate by 13.6% over the last four quarters.

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 third quarter distribution. The distribution will be paid on Feb 12 to unit-holders of record on Feb 5, 2010. Distributable cash flow (DCF) available to limited partners for the fourth quarter was $57 million or 99 cents per unit, compared to $28.8 million or 53 cents per unit in the year-earlier quarter.

Transportation Segment

Quarterly throughput volumes in the Transportation segment were down 7.7% year over year to 924,086 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, partially offset by increase in crude oil pipelines throughput.

Segmental revenues were down 3.5% to $80.9 million. Despite the lower volumes and revenue, NuStar had higher operating income in this segment, which increased 1.1% to $39.5 million, reflecting tariff rise (7.6% increase effective July 1, 2009) and lower operating expenses for the quarter.

Storage Segment

Throughput volumes in the Storage segment fell 4.9% year over year to 667,655 barrels per day. However, revenues increased approximately 8.2% to $127.2 million, driven by a 13.7% increase in the storage lease revenue. Quarterly operating income reached $40.2 million (6.0% year over year increase) due to the completion of expansion projects and lease contract renewals at higher rates, more than offsetting the lower throughput volumes.

Asphalt and Fuels Marketing

As a result of significantly higher asphalt margins ($5.34 compared to -$1.66 last year), the Asphalt and Fuels Marketing division recorded a much narrower loss compared to the year-earlier quarter. Segment operating loss, at $4.7 million, was $23.2 million lower than that incurred during the fourth quarter of 2008.

First Quarter Guidance

Looking ahead to the first quarter, NuStar guided towards stable results for its fee-based storage and transportation segments. The Transportation segment is likely to benefit from slightly higher volumes and tariff rate, while higher renewal rates and new projects should bode well for the Storage segment. In its asphalt operations, NuStar expects first quarter earnings to follow the typical seasonal pattern of decline, as sales and margins peter out. According to the partnership, EBITDA during the March quarter is likely to be in the range of $80 to $100 million.

Operating expenses are expected to be around $120 to $125 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 and income tax expense in the range of $5 to $6 million.

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