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Buckeye Partners takes aim at earnings drags in multiple businesses

Executives at Buckeye Partners LP are working to minimize a number of challenges that drove costs higher and earnings lower across multiple segments, they said during an Aug. 4 earnings call.

Total costs and expenses were up during the three months ended June 30 for the partnership's domestic pipelines and terminals, global marine terminals and merchant services segments compared to the same period of 2016. Operating income at each of these segments also fell.

The year-over-year increase in operating expenses for the domestic pipelines and terminals segment was largely related to some pipeline integrity and terminal maintenance projects, executives said. Buckeye picked up the pace on some of its infrastructure integrity programs, but company officials said they expect to return to more normal spending during the rest of 2017.

Buckeye does not expect the spending uptick for the second quarter to affect the company's overall projected maintenance spending for the year. That range remains $115 million to $135 million.

The pipelines and terminals segment saw a 3% decline in gasoline volumes, primarily because of less gasoline blending activities in New York Harbor, the partnership said.

The global marine terminals segment also suffered from less business. Having lost a significant customer in the Caribbean in April, the segment saw average utilization drop to 91% from 99% during the same period of 2016.

Khalid Muslih, executive vice president at Buckeye's general partner and president of the global marine terminals segment, declined to go into detail but said Buckeye is progressing on making up for the lost customer.

"We've already either recontracted or reached agreement in excess of 50% of that [lost] capacity, so I do believe we are well positioned to be able to maintain high utilization rates across our assets," Muslih said. "Of course, it will take us some time to work through this situation with regards to this one particular anchor customer. ... We will focus on eliminating any financial exposures that we may have, [and] more importantly, further diversifying our customer base."

The merchant services business also brought in substantially less during the second quarter, reporting adjusted EBITDA of $2 million, compared with $6.2 million during the same quarter of 2016. Elevated inventory and increased competition cut in to the business' earnings, Buckeye executives said.

Keith St. Clair, executive vice president and CFO of Buckeye Partners, emphasized that the merchant services business still brings value to the partnership. "Importantly, this segment continues to deliver positive results to Buckeye and serves as a catalyst for driving increased utilization across the Buckeye system," St. Clair said. "This segment has contributed almost $24 million through our other segments results to the first half of 2017."

Earlier Aug. 4, Buckeye Partners reported $112.7 million, or 80 cents per unit, of net income attributable to the partnership's unit holders in the second quarter, down from $140.5 million, or $1.07 per unit, in the year-ago quarter. The S&P Capital IQ consensus normalized EPS estimate for the second quarter was $1.