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Why new acquisitions and a cold winter drove Spectra’s earnings

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Spectra’s 1Q14 earnings

On May 7, Spectra Energy reported its quarterly earnings. Revenue for the quarter was $1.84 billion, beating the consensus estimate of $1.82 billion. Compared to the previous quarter, this was an increase of approximately 17%, and compared to the previous year, this was an increase of approximately 16%. EBITDA for the quarter was ~1 billion. This represented an increase of 28% on a quarter-over-quarter basis and an increase of 21% on a year-over-year basis. Earnings per share for the quarter were $0.62, missing the consensus estimate of $0.66 by $0.40.

From the above analysis, it’s clear that the quarter-over-quarter performance of SE was better than the company’s year-over-year performance. Below is an analysis on the major factors contributing to the quarterly growth. Segment-wise Performance in 1Q2014

Spectra Energy’s segment performance in 1Q2014

Spectra Energy Partners

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Spectra Energy Partners (SEP) reported first quarter 2014 EBITDA of $429 million. This was an increase of almost 17% from the previous quarter. The increase in EBITDA was accredited to the Express-Platte Pipeline System acquisition in March 2013 (the Express-Platte system was previously owned by Kinder Morgan Energy Partners and its affiliates) for $1.25 billion. Spectra currently has an 84% ownership interest in the 1,700 mile Express-Platte Pipeline. The pipeline delivers crude oil to refineries run by Exxon Mobil (XOM) and Phillips 66 (PSX). Note that SE, XOM, and PSX are all a part of the Energy Select Sector SPDR ETF (XLE) while SEP is part of the Alerian MLP ETF (AMLP).

Quarterly results were also affected by an expansion on one of the pipelines in this segment—the Texas Eastern Pipeline. The expansion, extending out to New Jersey and New York, was responsible for the transportation of higher volumes of natural gas. Lastly, the revenues in this segment were also driven by the cold winter season, experienced early in the first quarter, resulting in higher natural gas transportation.

Distribution

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This segment reported an EBITDA of $226 million, which was an increase of 45% compared to the previous quarter. Cold winter months were again the primary reasons for higher volumes of natural gas distribution. The result was also affected by a favorable decision from the Ontario Energy Board (or OEB) regarding the treatment of certain past revenues realized from the optimization of upstream transportation contracts as utility earnings.

Western Canada Transmission & Processing

EBITDA for this segment in this quarter was $237 million—a 10% increase over the previous quarter. The increase was driven by one of the major operations under this segment—the Empress NGL operations, which provide NGL extraction, fractionation, transportation, storage, and marketing services to western Canadian producers and NGL customers in Canada and Northern United States. Higher earnings were attributed to the high propane prices experienced by this segment.

Field Services

This segment reported EBITDA of $130 million. This was 80% higher than the previous quarter. The increase in EBITDA was mainly driven by higher commodity prices, higher volumes, and margins as a result of expansions plus favorable results from gas and NGL marketing by DCP Midstream (DPM) in the first quarter 2014. Drivers of Quarterly Growth

Distribution

Several factors contributed to higher quarterly growth, which resulted in a distributable cash flow of $631 million—a 113% increase over the previous quarter. Dividends paid for this quarter amounted to $ 225 million, resulting in a dividend coverage of 2.80x and amounting to $0.335 per share—10% higher than the prior quarter’s dividend. On an annualized basis, the dividend amounts to $1.34. SE Annual Dividend Paid

So a cold winter, higher commodity prices, and new growth projects accelerated growth in the first quarter of 2014 for Spectra Energy.

Continue to the following part of this series to find out about SE’s growth plans in 2014 and its major growth projects.

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