TC PipeLines Underperforms in 4Q - Analyst Blog

Pipeline operator TC PipeLines L.P. (TCP) announced weaker-than-expected fourth-quarter 2012 results. The disappointment resulted from lower transportation rates in the Great Lakes along with low income from other pipeline systems.

The Calgary, Alberta-based master limited partnership (MLP) reported earnings per unit (EPU) of 56 cents, missing the Zacks Consensus Estimate by 7 cents. Comparing year over year, earnings fell 20.0% from the year-ago profit of 70 cents.

Distribution & Cash Flows

TC PipeLines announced fourth-quarter 2012 cash distribution of 78 cents per unit ($3.12 per unit annualized), representing a 1.3% increase over the year-earlier quarter. The distribution will be paid on Feb 14, to unitholders of record as of Jan 29, 2013.

Total partnership cash flows during the quarter were down 5.6% from the year-earlier level at $54.0 million. The decrease was mainly on account of lower cash distributions from TC PipeLines' interests in Gas Transmission Northwest LLC (“GTN”) and the Great Lakes.

TC PipeLines distributed $43.0 million during the quarter, up 2.4% from the year-earlier level, driven by a rise in the quarterly distribution relative to the fourth quarter of 2011.

Pipeline Systems' Performance

Great Lakes: The partnership's equity income from the Great Lakes plunged 63.6% year over year to $4 million in the quarter. The decline reflects less transmission revenues stemming from a drop in short-term rates.

Northern Border Pipeline: Equity income from Northern Border Pipeline was $18.0 million, down 5.3% year over year.

GTN and Bison: TC PipeLines' equity income from the GTN and Bison pipeline systems came in at $4.0 million and $3.0 million, respectively. While the Bison pipeline income was flat year over year, GTN pipeline income decreased 20.0%.

Liquidity

As of Dec 31, 2012, TC PipeLines had $312.0 million outstanding on the $500.0 million revolver portion of its senior credit facility. The partnership had long-term debt (including current portion) of $688.0 million, representing debt-to-capitalization ratio of 34.6%.

During the quarter, TC PipeLines incurred a maintenance capital expenditure of $9.0 million.

Zacks Rating

The partnership – with stakes in over 5,550 miles of federally regulated U.S. interstate natural gas pipelines that cater to domestic and Eastern Canadian markets – currently retains a Zacks Rank #3 (Hold). This implies that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Over the last few years, the partnership has consolidated its business through a combination of organic efforts and accretive acquisitions. We believe that with investments in low-risk energy infrastructure assets, TC PipeLines will be able to provide stable cash distributions, going forward.

However, MLPs (like TC PipeLines) typically depend on equity and debt markets for financial growth. Market turmoil from issues such as the recent subprime crisis, which hindered access to the debt/equity markets, will impact the MLP growth prospects.

Meanwhile, there are certain other MLP'S in the energy sector that are expected to perform well in the coming one to three months. These include Golar LNG Partners LP (GMLP) with a Zacks Rank #1 (Strong Buy) and Access Midstream Partners, L.P. (ACMP) and Atlas Pipeline Partners, L.P. (APL). Both Access Midstream and Atlas Pipeline have a Zacks Rank #2 (Buy).