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TC PipeLines Posts Weak Q2 Earnings

Zacks Equity Research

Pipeline operator, TC PipeLines LP (TCP), announced weaker-than-expected second-quarter earnings. The results were impacted by a significant increase in general and administrative expenses along with decreased equity earnings from Great Lakes.

The Calgary, Alberta-based master limited partnership (MLP) reported earnings per unit (EPU) of 40 cents, missing the Zacks Consensus Estimate of 52 cents. Comparing year over year, earnings fell 33.3% from a profit of 60 cents.

Distribution & Cash Flows

TC PipeLines announced second-quarter 2013 cash distribution of 81 cents per unit ($3.24 per unit annualized), which has increased 3.8% from both the previous quarter as well as the year-ago period. This will be paid on Aug 14, 2013 to unitholders of record as of Aug 5, 2013.

The total partnership cash flows during the quarter was down 19.2% to $42.0 million as compared to the year-ago period. The decrease was mainly on account of lower cash distributions from TC PipeLines’ interests in the Northern Border and the Great Lakes.

TC PipeLines distributed $43.0 million during the quarter, up 2.4% from the year-ago level, driven by a rise in the quarterly distribution relative to the second quarter of 2012.

Great Lakes’ Performance

The partnership had no equity earnings from Great Lakes in this quarter in comparison with $8.0 million in the year-ago period. The decline is due to the sale of the capacity of the Great Lakes at a lower rate compared to the second quarter of the previous year.

General and administrative Expenses

TC PipeLines reported general and administrative expenses of $4.0 million, representing 100% increase from $2.0 million in the year-ago period.


As of Jun 30, 2013, TC PipeLines had no balance outstanding on the $500.0 million revolver portion of its senior credit facility. The partnership has long-term debt (including current portion) of $376.0 million, representing a debt-to-capitalization ratio of 18.6%.

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.

With investments in low-risk energy infrastructure assets, TC PipeLines has been able to provide stable cash distributions.

Moreover, TC PipeLines’ acquisition of additional 45% interests in each of the two major U.S. gas pipelines – Gas Transmission Northwest LLC and Bison Pipeline LLC from parent TransCanada Corp. – is expected to help TC Pipelines to earn significant distributable cash flows in the near future.

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

Meanwhile, there are certain oil and gas production pipeline MLPs in the energy sector that are expected to perform well in the coming one to three months. These include Delek Logistics Partners LP (DKL), Pioneer Southwest Energy Partners LP (PSE) and Summit Midstream Partners LP (SMLP). All three stocks currently sport a Zacks Rank #2 (Buy).

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