Plains All American Pipeline, L.P. (PAA) announced its second-quarter 2011 operating earnings of $1.12 per unit, surpassing the Zacks Consensus Estimate by 33 cents. The results of the partnership were also prominently higher than 57 cents reported in the year-ago quarter.
The year-over-year earnings growth was supported by strong contributions from all three of the partnership’s reporting segments. Worth mentioning among the segments was the excellent performance from Supply and Logistics, revenues of which grew 45.5% from the year-ago quarter.
GAAP earnings per unit in the second quarter 2011 were $1.13 versus 65 cents in the prior-year quarter. The difference between GAAP and operating earnings of 1 cent was due to the one-time, extraordinary impact of the following – net loss on equity compensation expenses amounting to $20 million and gains from other derivative activities of $21 million.
Revenues
Total revenue at Plains All American Pipeline at the end of the second quarter was $8.86 billion versus $6.12 billion in the year-ago period, reflecting a growth of 44.7%.
Reported quarter revenue surpassed the Zacks Consensus Estimate of $6.84 billion.
Quarterly Highlights
The partnership clocked a 44.7% year-over-year revenue growth but at tandem experienced a 44.3% 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 went down by 23 basis points year over year.
The increase in revenue and the relative decline in cost helped operating income grow 55.2% to $298 million from $192 million in the prior-year quarter.
The quarter also saw adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rise to $366 million from $248 million reported in the prior-year quarter, up 47.6%.
Interest charges during the quarter remained flat year over year.
Segment Details
Transportation: Segment profit during the quarter rose 2% year over year to $137 million mainly due to higher pipeline volumes and tariff and trucking revenues, partially offset by increasing operating expenses.
Facilities: Profit during the quarter was $91 million, increasing 26.4% year over year. The growth was driven by increased capacity by virtue of acquisitions and organic capital projects.
Supply & Logistics: The profit in the quarter was $136 million, escalating 240.0% from the prior-year quarter mainly due to higher lease gathering volumes and margins, complemented by favorable crude oil quality differentials.
Financial Update
Cash (used in)/provided by operating activities during the reported quarter was $318 million versus ($107) million during the second quarter of 2010. The cash flow from operations improved from a favorable working capital.
Long-term debt of the partnership as of June 30, 2011, was $4.5 billion versus $4.1 billion as of December 31, 2010.
Cash Distribution
The partnership continued its practice of sharing more benefits with its unitholders through the increase of the cash distribution rate.
The new quarterly distribution rate is 98.25 cents per unit, which reflects a 1.3% growth over the quarterly distribution of 97 cents per unit paid in May 2011 and an increase of 4.2% from the quarterly distribution of 94.25 cents per unit paid in August 2010.
A Quick Look into 2011
After registering a strong performance in the first half of 2011, and assuming solid baseline performance in the remainder of the year, the partnership raised its 2011 fully-adjusted EBITDA guidance to $1.384 million, which reflects a sharp increase of 13% from its initial EBITDA guidance of $1.225 billion.
At the Peer
Sunoco Logistics Partners L.P. (SXL), which competes with Plains All American Pipeline L.P., announced its operating earnings for the second quarter 2011 of $2.40 per unit versus $1.29 per unit in the year-ago quarter. Earnings per unit also handsomely surpassed the Zacks Consensus Estimate of $1.31.
Operating revenue at the partnership in the second quarter 2011 was $2,428 million, up 19.1% year over year and 12.0% 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 27 out of the past 29 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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