TC PipeLines L.P. ( “>TCLP ) , a master limited partnership (“MLP”), announced better-than-expected third-quarter 2010 results, reflecting strong contributions from the Northern Border and Great Lakes systems.
The partnership reported earnings per unit (EPU) of 82 cents, comfortably ahead of the Zacks Consensus Estimate of 55 cents and the year-ago profit of 65 cents.
Distribution Raised
Importantly, TC PipeLines raised its third quarter 2010 cash distribution to 75 cents per unit ($3.00 per unit annualized), representing an increase of approximately 2.7%, both sequentially and year over year. Payable on November 12 to unit-holders of record on October 31, 2010, it is the 46th successive quarterly distribution offered by the partnership.
Pipeline Systems Performance
Great Lakes:The partnership’s equity income from the Great Lakes increased 10.6% year-over-year to $14.6 million in the quarter, reflecting depreciation expense reductions following the settlement with Federal Energy Regulatory Commission (FERC) in May and lower operating expenses. These were partially offset by lower transmission revenues on the back of subdued demand for short-term transportation services.
Northern Border Pipeline: Equity income from Northern Border Pipeline (“NBPL”) doubled year over year (from $10.5 million to $21.0 million, primarily due to improved transmission revenues (as a result of its strong competitive position, reduced supplies from other supply sources, together with warm temperatures), and lower financial charges (on the back of reduction in effective interest rates and average debt outstanding).
Tuscarora & North Baja: Net income from Tuscarora and North Baja were down 9.7% year over year to $9.3 million, pulled down by higher operating expenses of North Baja, together with increased property taxes.
Total Cash Distribution
Total cash distribution received was up 14.4% from the year-earlier level to $45.4 million, mainly due to the increase in cash distributions from Northern Border, somewhat negated by lower cash distributions from Great Lakes. TC PipeLines paid distributions of $34.4 million during the quarter, up 12.1% from the year-earlier level, driven by a rise in the number of common units outstanding.
Liquidity
As of September 30, 2010, TC PipeLines had no outstanding balance on its revolving credit facility, with $250.0 million available for future borrowings.
Our Recommendation
TC PipeLines units currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
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