NuStar GP Holdings, LLC's Earnings Are Unshaken

By Markets Fool.com

Image Source: Getty Images.

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NuStar GP Holdings(NYSE: NSH) and its master limited partnership,NuStar Energy (NYSE: NS), have been the epitome of stability during the downturn. The stabilityis due to the strong foundation of fee-based assets at NuStar Energy, which continues to deliver very predictable cash flows that then flow up to the parent company. That predictability allows NuStar GP to maintain its quarterly distribution at a time when many other midstream companies have had to cut their payout to stay afloat during the deep downturn in the energy sector.

NuStar results: The raw numbers

Metric

Q2 2016 Actuals

Q2 2015 Actuals

Growth (YOY)

Total cash distributions from NuStar Energy

$24 million

$24 million

(0.1%)

Distributable cash flow

$22.9 million

$22.9 million

0.1%

DCF per unit

$0.53

$0.53

0%

YOY = year over year. Data source: NuStar GP Holdings.

What happened with NuStar this quarter?

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NuStar's results this quarter were virtually identical to those in the same period last year:

  • NuStar GP's only source of income is its ownership interest in NuStar Energy, which continues to send it $1.9 million for the general-partner interest, $10.8 million in incentive distribution rights, and roughly $11.2 million for its limited-partner interest. The first two amounts were replicas of the prior year, while the latter was down by a fraction.
  • While there were some minor changes to expenses from the previous year, the net result was a nearly identical amount of distributable cash flow.
  • With cash flow remaining stable, the company was again nearly able to cover fully its quarterly distribution of $0.545 per unit. That said, the company continues to maintain a slight shortfall, which it covers with incremental debt.
  • NuStar Energy, on the other hand, continues to maintain an even stronger distribution coverage ratio, which was 1.09 during the second quarter.

What management had to say

CEO Brad Barron did not have a lot to say about the company's results other than that "NuStar GP Holdings, LLC's second-quarter results benefited from NuStar Energy's higher-than-expected second-quarter net income." However, he expanded upon NuStar Energy's results in its earnings press release, noting:

Strong refined product pipeline throughput volumes, the benefit from 1.1 million barrels of storage leased at our Piney Point, Maryland facility, along with lower than expected operating expenses, contributed to our better than expected second quarter results. What's more significant is that we were able to report these solid results despite throughput revenues only slightly above contract minimums on our South Texas Crude Oil Pipeline System.

Overall, NuStar Energy's bevy of fee-based assets combined to generate $92.8 million in distributable cash flow in the second quarter, which was 0.7% higher than in the prior-year period.Those stable results are critical because NuStar Energy supplies every penny of NuStar GP's income.

Looking forward

According to Barron, the company has "the right assets to withstand this current downturn in the crude markets." Because of that, it remains on track to meet its full-year guidanceand cover its distribution.

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Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends NuStar GP. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.