Must-know: Analysis of Plains All American's first quarter earnings

Part 2
Must-know: Analysis of Plains All American's first quarter earnings (Part 2 of 8)

PAA’s 1Q14 earnings analysis: Why reported segment profits beat estimates

Plains All American Pipeline (PAA) released its 1Q14 earnings analysis on May 7, 2014. The company recorded total revenues of $11.7 billion for 1Q14, up 9.9% from the $10.6 billion recorded in 4Q13. The company recorded an improved bottom-line. It recorded a net income of $385 million in 1Q14 versus a net income of $318 million in 4Q13, or an increase of 21.1%. Net income per common was $0.73 in 1Q14—an improvement from the net income of $0.58 recorded in the last quarter of 2013.

Gross margin has improved slightly during the first quarter of 2014 to 8.7% over the 8.5% recorded in the last quarter of 2013. Field operating costs and general and administrative costs increased by 7.7% and 6% in 1Q14 over 4Q13, respectively. Interest expense remained almost unchanged at $79 million in 1Q14.

Quarterly throughputEnlarge Graph

The improvement in the performance of PAA in 1Q14 was the result of marginally better results in the natural gas liquid (or NGL) fractionation and natural gas processing activities. The increase in revenue and net profit was partially offset by a colder-than-normal winter in the United States which adversely affected the natural gas storage operations, optimization activities, and the relative fall in the crude oil price which led to lower drilling activities during 1Q14.

Quarterly Segment ProfitEnlarge Graph

Adjusted segment profit of PAA for the Transportation and Facilities segments decreased by 3.7% and 8.8% in 1Q14 compared to the 4Q13. Adjusted profit for the Supply and Logistics segment improved by 19.1% during the same period. In 1Q14, PAA recorded solid performance from crude oil and NGL activities in the Transportation and Supply and Logistics segments. This performance was diluted by unanticipated cost in the natural gas storage activities to maintain deliverability requirements. A shortfall in crude oil rail volumes also adversely impacted results.

Segment performance compared to prior estimates

Actual vs EstimatesEnlarge Graph

Adjusted segment profit for the Transportation segment was $213 million. It outperformed PAA’s previous guidance by approximately 4%. Transportation segment volumes of 3.84 million barrels per day were slightly below its guidance. Lower operating costs triggered by the timing of some of the integrity management projects were the primary cause of the reduction in costs.

Adjusted segment profit for the Facilities segment was $159 million, or 4.6% higher than the guidance. The segment recorded volume of 121 million of oil equivalent per month, which was three million barrels below estimates. The impact of weather on crude oil rail activities was the primary reason for the decline in volume. Adjusted segment profit per barrel was $0.44 and was about $0.01 below the guidance mid-point.

Adjusted segment profit for Supply and Logistics segment was $194 million, which was ~25% higher than the previous guidance mid-point. Volumes of approximately 1.17 million barrels per day marginally underperformed its guidance due to reduced lease gathering as a result of cold weather during 1Q14. Adjusted segment profit was $1.85 per barrel or 27.5% higher than the mid-point of PAA’s guidance.

EBITDA - Actual vs ConsensusEnlarge Graph

Distribution per unit declared on April 7, 2014, was $0.63 per unit, or $2.52 per unit annualized. This amounted to a distribution yield of ~4.4% for a stock price of $57.18 as of May 16, 2014. Distribution coverage for the first quarter of 2014 was 1.2x. The latest distribution represents an increase of approximately 2.4% over the previous quarterly distribution of $0.615 per unit ($2.46 per unit annualized) paid in February 2014. It is also an increase of approximately 9.6% over the quarterly distribution of $0.575 per unit ($2.30 per unit annualized) paid a year-ago. The distribution is the 19th consecutive quarterly increase of distribution by PAA.

Quarterly DCFEnlarge Graph

The stock price of PAA has gone down by 2.6% from $58.69 since the day of its latest earnings on May 7, 2014 to $57.18 on May 16, 2014. In the past year, the company’s stock price has gone up by ~3%.

Plains All American Pipeline (PAA) is a master limited partnership operating in the midstream energy space. The general partner of PAA is owned by Plains GP Holdings L.P. (PAGP). PAA is a component of the Alerian MLP ETF (AMLP), the Global X MLP ETF (MLPA), and the Global X MLP & Energy Infrastructure ETF (MLPX).

 

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