NuStar GP Holdings, LLC Earnings are Steady its MLPs Results Remain Stable

NuStar GP Holdings, LLC along with its affiliated MLP NuStar Energy L.P. reported second quarter results before the market opened on Friday. Given that NuStar GP's only asset is its 2% general partner interest, a 12.9% limited partner interest, and incentive distribution rights in NuStar Energy, its second-quarter results were solely fueled by the operations of the MLP. Because of that we'll take a closer look at NuStar Energy's results before moving to NuStar GP.

A look at NuStar Energy's resultsPipeline and storage MLP NuStar Energy reported second-quarter EBITDA of $143 million, which was just $2.9 million ahead of last year's second quarter. Meanwhile, distributable cash flow slipped to $92.2 million, or $1.18 per unit. That was slightly lower than the year-ago quarter when the company reported distributable cash flow of $93.6 million, or $1.20 per unit.

This rather stable cash flow enable NuStar Energy to declare a distribution of $1.095 per unit, which is the same rate the company has been paying since late 2011. However, it's a rate the company can easily maintain as the MLPs distribution coverage ratio in the quarter was a solid 1.08 times. Given that anything above 1.0 times suggests stability, this bodes well for the company's ability to continue to maintain, or even grow, its current distribution rate.

Digging a little deeper, the company's results were affected by an unprecedented amount of rainfall in South Texas as well as operational issues at third party gas processing plants. However, record throughput volumes at its Corpus Christi North Beach facility helped it to overcome much of this impact. That being said, the company does see some weaknesses ahead as it projects reduced volumes on its pipelines for the remainder of the year, which is forcing the company to readjust its guidance for its pipeline segment. It now expects year-over-year EBITDA to grow by $25 million-$45 million, which is down from the $35 million-$55 million in growth it projected last quarter. However, higher storage throughputs and favorable renewals is expected to boost its storage segment's EBITDA over last year by $20 million-$40 million, which is higher than its previous projection of $10 million-$30 million. So, in a sense the company is basically reiterating its growth projections, but with a slightly different bias.

Here's how those results fueled NuStar GP's quarterNuStar GP's take from its ownership stake in NuStar Energy resulted in it pulling in nearly $2 million from its general partner interest, $10.8 million from its general partner incentive distribution, and $11.2 million as a result of its limited partner interest in the common units. That adds up to just under $24 million, however, after accounting for more than $900,000 in general and administrative expenses and roughly $200,000 in net interest expenses and tax benefits the company was able to produce distributable cash flow of $22.9 million in the quarter, or $0.54 per share. That's nearly a carbon copy of the year-ago quarter.

NuStar GP continues to send all of its distributable cash flow, and a little extra, back to investors as it declared a $0.545 per unit distribution, which is the same rate it has paid since 2012. While that means the company borrowed some money to pay the difference, it is doing so because of its confidence in the stability of NuStar Energy cash flow. Further, given that NuStar Energy is expected to deliver earnings growth this year, NuStar GP's cash flow should rise as well.

Investor takeawayOn the back of another solid quarter from its affiliated MLP, NuStar GP delivered its own stable quarter. While the company is paying out more cash than it is currently bringing in, that's not a concern because that cash flow is backed by the solid operations of its MLP, which is projecting to grow its earnings this year. That boost will benefit both companies and should eventually enable NuStar GP to grow into 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.

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