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TC Energy (TRP) Q1 Earnings Beat, EBITDA & DCF Jump Y/Y

Nilanjan Choudhury

TC Energy Corporation TRP reported first-quarter 2019 comparable earnings of 80 cents per share, surpassing the Zacks Consensus Estimate of 76 cents and the year-ago figure of 78 cents. The outperformance primarily stemmed from strength in the company’s projects in Canadian Natural Gas Pipelines, U.S. Natural Gas Pipelines and Liquids segments. Contribution from growth projects that came online during the quarter was also responsible for the strong bottom line.

Also, the company reported comparable EBITDA of C$2.4 billion during the quarter, up from C$2.1 billion in the year-ago period.

Comparable distributable cash flow (DCF) in the first quarter was C$1.6 billion (C$1.76 per share) compared with C$1.4 billion (C$1.63 per share) in the corresponding period of 2018.

However, TC Energy’s revenues of $2.6 billion were down more than 3% year over year due to weakness in the Power and Storage unit.

TC Energy Corporation Price, Consensus and EPS Surprise


TC Energy Corporation Price, Consensus and EPS Surprise | TC Energy Corporation Quote

Segmental Information

Canadian Natural Gas Pipelines: This segment recorded comparable EBITDA of C$556 million, reflecting an increase of 12.6% from the year-ago quarter. Depreciation recovery and higher rates from Canadian Mainline and NGTL systems, as well as strong customer demand across the network positively impacted the results.

U.S. Natural Gas Pipelines: Comparable EBITDA generated from this segment amounted to C$972 million, up 20.9% from a year ago. The upside can be attributed to higher contributions from Columbia Gas and Columbia Gulf growth projects on the back of record transportation volumes.

Mexico Natural Gas Pipelines: The segment’s comparable EBITDA in the quarter under review came in at C$146 million, lower than C$160 million recorded in the corresponding quarter of the last year. The decrease could be attributed to a fall in equity earnings from TC Energy’s investment in the Sur de Texas pipeline and decline in revenues from its systems amid changes in the timing of revenue recognition.

Liquids Pipelines: This unit generated comparable EBITDA of C$563 million in the fourth quarter, improving from the year-ago level of C$431 million. The increase was driven by rising volumes in the Keystone Pipeline System. Moreover, higher earnings from liquids marketing activities played a positive role.

Power and Storage: During the first quarter, the segment reported comparable EBITDA of C$151 million, down 14.2% year over year. The decrease can be attributed to sale of TC Energy’s interests in Cartier wind-power facilities and cost overruns associated with the natural gas-fired power plant in Ontario, Canada

Capital Expenditure and Balance Sheet

During the three months ended Mar 31, 2019, TC Energy’s capital investments totaled just over C$2 billion. As of the same date, the company had cash and cash equivalents of C$872 million, and a long-term debt of C$35.9 billion. Its debt-to-capitalization ratio was 53.4%.

Key Updates

TC Energy’s current portfolio includes around C$30 billion of accretive growth projects, of which roughly C$7-billion worth projects are expecting completion by year-end. TC Energy expects these growth projects to boost earnings and cash flow. This, in turn, will enable the company to generate annual dividend growth of 8-10% through 2021. As it is, TC Energy continues to advance the Keystone XL and Bruce Power life extension projects.

The company expects Coolidge generating station divestment to close by mid-2019, which will bring around $465 million. However, TC Energy has deferred the commercial start of the Napanee gas-fired plant into the second half of 2019 from the earlier target of second quarter. The postponement follows an equipment failure during the commissioning activities.

During the quarter under review, TC Energy brought approximately C$5.3 billion of projects online, which included the Mountaineer XPress, Gulf XPress and expansions of certain NGTL pipeline systems. The company is progressing with its recently announced its C$6.2-billion Coastal GasLink pipeline project, while it received Presidential Permit for the Keystone XL program in the first quarter. Finally, TC Energy completed commissioning on White Spruce pipeline during the period.

Zacks Rank & Key Picks

TC Energy holds a Zacks Rank #3 (Hold).

Meanwhile, investors interested in the energy space could look at some better options like ProPetro Holding Corp. PUMP, Continental Resources, Inc. CLR and Apache Corporation APA that sport a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The 2019 Zacks Consensus Estimate for Midland, TX-based ProPetro is $2.53, representing some 26.5% earnings per share growth over 2018. Next year’s average forecast is $2.80 pointing to another 10.5% growth.

Over 30 days, the Oklahoma City-based Continental Resources has seen the Zacks Consensus Estimate for 2019 and 2020 increase 23.1% and 17.9%, to $2.72 and $3.49 per share, respectively.

Apache has a 100% track of outperforming estimates over the last four quarters at an average rate of 31.1%.

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