TC PipeLines Misses on Q3 Earnings

Pipeline operator, TC PipeLines LP (TCP), announced weaker-than-expected third-quarter 2013 earnings. Significant hike in partnership expenses along with reduced equity earnings from Great Lakes impacted the results.

The Calgary, Alberta-based master limited partnership (MLP) reported earnings per unit (EPU) of 58 cents, missing the Zacks Consensus Estimate of 68 cents. Comparing year over year, earnings fell 34.1% from a profit of 88 cents.

Distribution & Cash Flows

TC PipeLines announced third-quarter 2013 cash distribution of 81 cents per unit ($3.24 per unit annualized), an increase of 3.9% from the year-ago period and flat sequentially. The distribution will be paid on Nov 14, 2013, to unitholders of record as of Nov 5, 2013.

The total partnership cash flows during the quarter was up 20.8% to 58.0 million from the year-ago period. The increase came on the back of additional cash distributions from TC PipeLines’ extra 45% interests in Gas Transmission Northwest LLC (GTN) and Bison Pipeline LLC (Bison) each, acquired during the third quarter.

TC PipeLines distributed $52.0 million during the quarter, up 20.9% from the year-ago level, primarily driven by a rise in the quarterly distribution. Hike in outstanding common unit following the May 2013 equity offerings, has also aided the results.

Pipeline Systems’ Performance

Great Lakes: The partnership incurred equity loss of $2.0 million from Great Lakes in this quarter against equity earnings of $6.0 million in the year-ago period. The year-over-year decline reflects the sale of Great Lakes capacity at a reduced rate.

Northern Border Pipeline: Equity income from the Northern Border Pipeline was $17.0 million, down 5.5% year over year on the back of lower flows from Canada.

Partnership Expenses

TC PipeLines reported third-quarter 2013 partnership cost of roughly $9.0 million, reflecting an increase of 50% from the year-ago quarter. Additional interest expenses from term loan taken by TC PipeLines to finance the extra 45% ownership in GTN and Bison increased the cost.

Liquidity

As of Sep 30, 2013, TC PipeLines had $350.0 million outstanding on the $500.0 million revolver portion of its senior credit facility. The partnership has long-term debt (including current portion) of $1,551.0 million, representing a debt-to-capitalization ratio of 45.9%.

Zacks Rating

The partnership 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.

Meanwhile, one can look at energy stocks like Matador Resources Company (MTDR), TransAtlantic Petroleum Ltd. (TAT) and Vermilion Energy Inc. (VET) that offer better prospects. All the stocks sport a Zacks Rank #1 (Strong Buy).

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