Pipeline operator TC PipeLines L.P. (TCP) announced dull first-quarter 2012 results, hurt by low equity income from Great Lakes and Northern Border pipeline systems along with steeper operating charges.

The Calgary, Alberta-based master limited partnership (“MLP”) – with stakes in over 5,550 miles of federally regulated U.S. interstate natural gas pipelines that cater to domestic and Eastern Canadian markets – reported earnings per unit (EPU) of 71 cents, below the Zacks Consensus Estimate of 76 cents and the year-ago profit of 90 cents.

Distribution & Cash flows

TC PipeLines announced its first quarter 2012 cash distribution of 77 cents per unit ($3.08 per unit annualized), representing a 2.7% increase over the year-earlier quarter and equal to the fourth quarter 2011 distribution.

This the 52nd consecutive quarterly distribution announced by the company. It will be paid on May 15 to unit holders of record as of May 4, 2012.

Total partnership cash flows during the quarter was up 4.2% from the year-earlier level at $50.0 million, mainly on the receipt of cash distributions from TC PipeLines’ interests in the Gas Transmission Northwest LLC (GTN) and Bison Pipeline LLC – that were purchased from the parent TransCanada Corp. (TRP) in May last year. These were somewhat negated by the decrease in cash distributions from Great Lakes.

TC PipeLines paid distributions of $42.0 million during the quarter, up 20% from the year-earlier level, driven by an increase in the number of common units outstanding and a rise in the quarterly distribution that started in the third quarter of 2011.

Pipeline Systems Performance

Great Lakes: The partnership’s equity income from the Great Lakes decreased 50% year over year to $9 million in the quarter, reflecting less transmission revenues stemming from un-contracted long haul capacity and unseasonal weather.

Northern Border Pipeline: Equity income from Northern Border Pipeline (“NBPL”) was down 4.7% year over year from $21.0 million at $20.0 million, primarily due to the low gas price environment and weak basis spreads across North America.

GTN and Bison: TC PipeLines’ equity income from the GTN and Bison pipeline systems came in at $6.0 million and $3.0 million, respectively.

Liquidity

As of March 31, 2012, TC PipeLines had $328.0 million outstanding on the $500.0 million revolver portion of its senior credit facility. The partnership had long-term debt (including current portion) of $707 million, representing debt-to-capitalization ratio of 34.7%.

During the quarter, TC PipeLines incurred maintenance capital expenditure of $3.0 million and expend $1.0 million on growth projects.

Rating & 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.

Considering TC PipeLines’ strong infrastructural growth, extended contracts for pipelines and lucrative acquisitions, we expect the partnership to perform satisfactorily in the coming months. We also like TC PipeLines’ steady cash-flow generating pipeline assets, which provide stability and financial capacity to deliver cash distributions in a disciplined manner.

However, we remain concerned on account of lower spending by consumers and businesses on transportation fuels, which adversely impact TC PipeLines’ cash flows. Additionally, we remain wary of cost overruns on expansion projects (which lead to lower returns).

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