NuStar GP Holdings, LLC Earnings: Terminal Gain Juices Results

NuStar GP Holdings, LLC reported very solid first-quarter results before the market opened Wednesday morning. Those results were boosted by a gain NuStar Energy L.P. recorded as a result of it buying the remaining 50% interest in a terminal asset. However, that gain wasn't the only thing that fueled NuStar's strong quarter.

A closer look at the numbers that matterAll of NuStar's net income comes from its ownership interest in NuStar Energy as it holds a 2% general partner interest and a 12.9% limited partner interest as well as incentive distribution rights. During the first quarter NuStar pulled in $27.5 million in equity earnings, which included its general and limited partner interests and incentive distributions. Those equity earnings were nearly double the $14.4 million in equity earnings NuStar earned in the first-quarter of last year due to NuStar Energy's strong results as the company benefited from higher than anticipated throughput volumes in the Eagle Ford shale as well as the terminal gain.

Overall, this resulted in NuStar's net income jumping to $26.8 million, or $0.62 per unit. That was nearly double the $13.6 million, or $0.32 per unit, the company earned in the second quarter of last year. However, those results were boosted by the aforementioned terminal gain and without the gain, net income would have been $18.4 million, or $0.43 per share, which was still well above last year's results.

After adjustments for general and administrative costs, taxes, and interest expenses NuStar was able to generate $22.9 million, or $0.53 per unit, of distributable cash flow during the first quarter. That was actually slightly below the $23.2 million, of $0.54 per unit, the company generated in the first quarter of 2013, however, that was due to a very large tax benefit of $0.3 million that it received in last year's first quarter. Despite the slippage NuStar still declared a quarterly distribution of $0.545 per unit, which has remained steady for more than two years.

Looking aheadOne of the reasons why NuStar remains comfortable keeping its distribution ahead of its distributable cash flow is because it sees strong results ahead for NuStar Energy. Three things are expected to drive these strong results. First, the company expects its Eagle Ford Shale pipeline to continue to see increased throughputs, which should contribute stronger results. On top of that, the recent terminal acquisition is expected to generate $20 million in incremental EBITDA for NuStar Energy. Finally, full-year EBITDA results in the company's storage segment is expected to be $10 million-$30 million higher in 2015 than the segment delivered in 2014. Add everything up and these gains are expected to push NuStar Energy's distributable cash flow higher, which will lead to stronger earnings and distributable cash flow for NuStar as well.

Investor takeawayNuStar enjoyed a very solid quarter thanks to the strong performance of NuStar Energy. That strong performance is expected to continue in 2015 as the recent terminal acquisition, when combined with organic growth, is expected to lead to higher earnings for NuStar Energy. That growth will be passed on to NuStar, which is why it remains confident it can continue to pay out its robust 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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