FGP Ferrellgas Partners LP

Buckeye Partners L.P. (BPL) announced third-quarter 2011 operating earnings of 64 per limited partner unit that fell short of our expectation by 20 cents. The results of the partnership were higher than the year-ago earnings of 60 cents per unit.

Buckeye Partners recorded GAAP loss for the third quarter of 2011 of $1.18 per unit compared with a earnings of 60 cents per unit in the year-ago period.

The difference of $1.82 per unit between operating and GAAP earnings, during the third quarter, was due to a non-cash charge recorded by Buckeye for the impairment of $169.6 million of goodwill associated with the acquisition of Lodi Gas Storage, L.L.C. ("Lodi").

Total Revenue

Total revenue of the partnership at the end of the third quarter was $1.12 billion versus $0.73 billion in the year-ago quarter, reflecting a growth of 52.0%.

Revenue during the quarter was slightly higher than the Zacks Consensus Estimate of $1.06 billion.

Quarterly Highlights

Higher revenues owed primarily to a solid performance at Energy Services. Revenue from Energy Services increased a substantial 57.8% year over year to $0.89 billion, constituting 80.1% of the total revenue versus 77.1% in the year-ago quarter. International Operations constituted 4.3% of the total revenue in the reported quarter.

During the quarter the partnership saw costs and expenses spiral 82.2%. Excluding goodwill impairment expenses, cost and expenses rose 56.4%. Input costs shot up 57.4% and operating expenses increased 40.9% year over year.

Interest and debt expenses at the end of third quarter 2011 were $33.2 million, higher than $22.1 million reported in the year-ago quarter.

Financial Update

Total cash and cash equivalents as of September 30, 2011, were $16.2 million versus $13.7 million as of December 31, 2010.

Buckeye's long-term debt as of September 30, 2011 was $2.31 billion compared with $1.52 billion of long-term debt as of December 31, 2010.

Buckeye spent $90.9 million on capital expenditure during the quarter compared with $21.7 million in the prior-year quarter. The rise in capital expenditure was mainly due to the partnership’s expansion in international operations, besides spends on its Pipeline & Terminals segment.

Cash Distribution

The partnership once again raised its cash distribution rate. The current distribution rate of the partnership stands at $1.025 per unit, which reflects a 5.1% increase from the third quarter 2010 cash distribution per unit of 0.975 cents. The distribution will be payable on November 30, 2011 to unitholders of record on November 14, 2011.

At the Peer

Ferrellgas Partners, L.P.(FGP), which competes with Buckeye Partners, reported net loss per unit of 53 cents in the fourth quarter of fiscal 2011, wider than the Zacks Consensus Estimate of a loss of 41 cents. The quarter’s loss was 5 cents less than the prior-year quarter loss of 58 cent.

Ferrellgas Partners' total revenue of $449.7 million in the quarter was 27.1% higher than $353.8 million reported in the comparable year-ago period. The favorable outcome in the quarter was driven by propane and other gas liquids sales which increased 35.1% to $421.7 million while other revenue decreased 32.9% to $27.9 million. The top line also beat the Zacks Consensus Estimate of $441 million.

Zacks Rank

Buckeye Partners currently retains a Zacks #4 Rank, which translates into a short-term Sell rating.

Our View

The partnership has recently acquired two propane storage caverns in Huntington, Indiana and Tuscola, Illinois from BP North America Inc. and its affiliates. This purchase allows the partnership access in the wholesale storage and throughput of liquefied petroleum gas market.

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.

Based in Houston, Texas, Buckeye Partners, L.P. primarily operates refined petroleum products pipeline systems in the United States.

 
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