Plains All American Pipeline, L.P. (PAA) announced its first-quarter 2011 operating earnings of $1.03 per unit, handsomely surpassing the Zacks Consensus Estimate of 82 cents. The results of the partnership were also prominently higher than 77 cents reported in the year-ago quarter.
The year-over-year earnings growth was due to strong contribution from Plain’s fee based business and excellent performance from Supply and Logistics.
GAAP earnings per unit in the first quarter 2011 were 90 cents versus 80 cents in the prior-year quarter. The difference between GAAP and operating earnings was due to one-time, extraordinary impact of the following – net loss on early redemption of notes, acquisition related expenses, equity compensation expenses and insurance deductible related to property damage incident – together leading to a loss of $42 million. The gains from other derivative activities and non-controlling interest portion of selected items impacting comparability nevertheless led to a one-time gain of $22 million.
Total revenue at Plains All American Pipeline at the end of the first quarter was $7.69 billion versus $6.12 billion in the year-ago period, reflecting a growth of 25.6%.
Reported quarter revenue surpassed the Zacks Consensus Estimate of $6.6 billion.
Segment Details
Transportation: Segment profit during the quarter was $143 million, rising 6.7% year over year mainly due to higher pipeline volumes, partially offset by increasing operating expenses.
Facilities: Profit during the quarter was $87 million, surging 42.6% year over year from the prior year quarter. The growth was driven by increased capacity by virtue of acquisitions and organic capital projects.
Supply & Logistics: The profit in the quarter was $117 million, which increased 48.1% from the prior-year quarter mainly due to higher lease gathering volumes and margins, complemented by favorable crude oil quality differentials.
Quarterly Highlights
The partnership clocked a 25.6% year-over-year revenue growth but at tandem experienced a 25.3% rise in total cost and expenses. Costs escalated on the back of higher input costs.
Despite an increase in cost in the reported quarter, as a percentage of revenue, cost and expenses during the quarter went down by 26 basis points year over year.
The increase in revenue and the relative decline in cost helped the operating income grow 35.1% to $285 million from $211 million in the prior-year quarter.
The quarter also saw adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rise to $348 million from $272 million reported in the prior-year quarter, up 27.9%.
Interest charges during the quarter increased by 12% to $65.0 million from $58.0 million reported in the year-ago quarter.
Financial Update
Cash used in operating activities during the reported quarter was $654 million versus $391 million during the first quarter of 2010.
Long-term debt of the partnership as of March 31, 2011, was $4.4 billion versus $4.1 billion as of December 31, 2010.
During the quarter the partnership issued 6.4 million of its common units representing limited partner interests. The proceeds of the issue were used to lower outstanding borrowings under its credit facilities and for general partnership purposes.
Cash Distribution
The new quarterly distribution rate of the partnership is 97 cents per unit ($3.88 per unit on an annualized basis). The current distribution rate reflects a quarterly growth of 1.3% and year-over-year growth of 3.7%.
A Quick Look into 2011
After registering a strong performance in the first quarter of 2011, and assuming solid baseline performance in the remainder of the year, the partnership raised its 2011 fully-adjusted EBITDA guidance by $75 million to a mid-point of $1.3 billion.
The partnership forecasts capital expenditure for 2011 of $600 million for expansion projects with an additional $90 million for maintenance capital projects. The strong balance sheet of the partnership will enable the pursuit of organic growth projects as well as seek acquisition oriented growth.
At the Peer
Sunoco Logistics Partners L.P.(SXL), which competes with Plains All American Pipeline L.P., announced its operating earnings for the first quarter 2011 of $1.08 per unit versus $1.06 per unit in the year-ago quarter. Earnings per unit however failed to meet the Zacks Consensus Estimate of $1.31.
Operating revenue at the partnership in the first quarter 2011 was $2,260 million, up 33.9% year over year and 5.8% ahead of the Zacks Consensus Estimate.
Our View
Plains All American Pipeline maintained its strong performance from the last quarter, with its revenues increasing across the board. We appreciate the practice of the partnership to reward its unitholders with incremental cash distributions. The partnership increased the quarterly distribution to limited partners in 26 out of the past 28 quarters.
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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