Plains All American Pipeline, L.P. (PAA) announced its fourth-quarter 2010 operating earnings of 99 cents per unit, breezing past the Zacks Consensus Estimate of 86 cents. The results of the partnership were also higher than 80 cents reported in the year-ago quarter.
Plains’ 2010 operating earnings were $3.03 per unit compared with $3.14 per unit reported in 2009. However, the results of the partnership were 16 cents higher than the Zacks Consensus Estimate, as provided by 14 covering analysts.
Total revenue at Plains All American Pipeline at the end of the fourth quarter was $7,231.0 million versus $6,078.0 million in the year-ago period, reflecting a growth of 18.9%.
Reported quarter revenue surpassed the Zacks Consensus Estimate of $6,566 million.
Plains’ total revenue for 2010 was $25,893.0 million versus $18,520.0 million reported in the prior fiscal year, reflecting a growth of 39.8%.
Fiscal year 2010 revenue also comfortably eclipsed the Zacks Consensus expectation of $23,393 million.
Segment Details
Transportation: Segment profit rose 6.1% year over year mainly due to higher pipeline volumes, partially offset by increasing operating expenses.
In 2010, this segment reported a growth of 9.4% over the prior year. The year-over-year growth was driven by higher tariffs and volumes, and favorable foreign exchange rates, partially offset by higher operating and general and administrative expenses.
Facilities: Profit surged 34% in the reported quarter and 31% in the fiscal year, both year over year. The quarterly as well as annual growth was driven by increased capacity by virtue of acquisitions and organic capital projects.
Supply & Logistics: The profit from this segment increased 30.0% from the prior-year quarter mainly due to higher lease gathering volumes and margins and favorable crude oil quality differentials.
In 2010, this segment reported a decline of 3.0% from the prior year. The decline resulted from lower LPG profitability, less favorable crude oil quality differentials and higher operating and general and administrative expenses.
Other Quarterly Highlights
Total cost and expenses during the quarter increased 18.9% over the year-earlier quarter but, as a percentage of total revenue, increased by only 10 basis points.
The growth in revenue during the quarter more than offset the relative increase in costs, which resulted in the 23.1% growth witnessed in operating income.
Key Annual Highlights
During 2010, the partnership clocked a 39.8% year-over-year revenue growth but at tandem experienced a 41.6% rise in total cost and expenses. Costs escalated on the back of higher input costs.
Incremental costs, at a trajectory higher than revenue growth, impacted the operating results of the partnership. Operating income of the partnership in 2010 declined by 1.5% from 2009 levels.
In 2010, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose to $1.11 billion from $1.02 billion reported in the prior-year.
Interest charges during the year increased by 10% to $248.0 million from $224.0 million in 2009 owing to higher debt levels.
Financial Update
Cash used in operating activities during the year was $259 million versus $365 million in 2009.
Long-term debt of the partnership as of December 31, 2010, was $4.6 billion versus $4.1 billion as of December 31, 2009.
Cash Distribution
The new quarterly distribution rate of the partnership is 95.75 cents per unit ($3.83 per unit on an annualized basis). The current distribution rate reflects a quarterly growth of 0.8% and year-over-year growth of 3.2%.
A Quick Look into 2011
The partnership has allocated $550 million for organic capital programs in 2011, up 55% from 2010 levels.
At the Peer
Sunoco Logistics Partners L.P. (SXL), which competes with Plains All American Pipeline L.P., announced its operating earnings for the fourth quarter 2010 of $1.42 per share versus $1.30 per share in the year-ago quarter. Earnings at Sunoco Logistics were in line with market expectations.
The 2010 operating earnings of the partnership were $9.34 per share compared with $6.48 per share reported in 2009.
Our View
Plains All American recorded a sound fiscal year with revenues bounding across all segments. We will be eagerly watching to see whether the partnership can surpass the levels achieved in 2010 in the year to come.
During the past year the partnership increased its operations by acquiring crude oil gathering and transportation assets from Nexen Holdings U.S.A. Inc. The acquisition was synergistic to the partnership’s strategy of strengthening its presence in long-lived, growing producing regions.
Plains All American Pipeline currently retains a Zacks #3 Rank (short-term Hold rating).
Houston, Texas based Plains All American Pipeline owns assets strategically located in well-established oil producing regions, catering to major U.S. refinery and distribution markets. Other than organic growth opportunities, the partnership also relies on acquisitions to spur growth.
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