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Plains All American Pipeline, L.P. (PAA - Analyst Report) announced third-quarter 2013 operating earnings of 50 cents per unit, beating the Zacks Consensus Estimate of 44 cents by 13.6%.  However, earnings were lower than 73 cents reported in the year-ago quarter.

GAAP earnings per unit in the quarter were 38 cents versus earnings of 27 cents in the third quarter of 2012.

The difference between GAAP and operating earnings during the reported quarter was due to the impact of a few one-time items. These include a 17 cent loss from derivative activities, and a combined 5 cent gain coming from foreign currency revaluation, favorable tax treatment and other items.

Revenues

Total revenues at Plains All American Pipeline at the end of the third quarter were $10.7 billion versus $9.4 billion in the year-ago period, reflecting growth of 13.8%. All the three segments performed well with the major upside coming from the 14.8% growth in the Supply & Logistics segment.

Reported quarter revenues surpassed the Zacks Consensus Estimate of $9.93 billion by 7.7%.

Segment Details

Transportation: Segment revenue rose 3.8% year over year primarily due to higher pipeline volumes stemming from crude oil production increases in its service territories.

Facilities: Revenue surged 6.9% year over year in the reported quarter. The growth was driven by increased in crude oil rail activities

Supply & Logistics:  Revenue from this segment soared 14.8% from the prior-year quarter.

Operational Update

Total cost and expenses during the quarter increased 15.3% over the year-earlier quarter, but contracted 10 basis points as a percentage of total revenue.

The growth in revenue during the quarter along with the relative decline in costs boosted the operating income which increased 19.8% from the year-ago period to $296 million.

Interest charges of the partnership decreased marginally by 2.7% to $72.0 million from $74.0 million in third quarter 2012.

Financial Update

Cash used in operating activities during the quarter was $257 million versus $533 million in the same period of 2012.
 
Long-term debt of the partnership as of Sep 30, 2013, was $7.01 billion versus $6.32 billion as of Dec 31, 2012. The long-term debt-to-capital ratio at the end of the quarter was 48%.

Guidance

The partnership expects net income in the fourth quarter to range from $185 million to $247 million and earnings per unit in the vicinity of 57 cents to 75 cents..

Plains All American Pipeline expects net income in 2013 to range from $949 million to $1,011 million and earnings per unit between $2.92 to $3.09.

Net revenue in the fourth quarter and 2013 is expected to range from $924 million to $959 million and $3,850 million to $3,885 million, respectively.

Plains All American Pipeline expects to invest $1,600 million to $1,725 million in 2013, of which $165 million to $185 million will be earmarked for maintenance capital expenditure.

Other Releases

Magellan Midstream Partners L.P.’s (MMP - Analyst Report) third quarter 2013 operating earnings per unit of 58 cents trailed the Zacks Consensus Estimate by 4 cents.

El Paso Pipeline Partners, L.P. (EPB - Snapshot Report) announced third-quarter 2013 operating earnings of 40 cents per unit, lagging the Zacks Consensus Estimate by 7 cents.

Energy Transfer Equity, L.P. (ETE - Snapshot Report) reported third-quarter 2013 earnings per unit of 35 cents, lagging the Zacks Consensus Estimate by 17 cents.

Our View

Plains All American recorded a sound quarter with revenues exceeding expectation in all segments. This is definitely impressive as quite a few operators in this sector have failed to beat expectations.

The partnership attained its cash distribution growth target of 9% to 10% for 2013. The quarterly distribution of 60 cents reflects a 10.6% increase over the quarterly distribution paid in Nov 2012.

The partnership is continuously investing in its existing projects. Projects already completed or on the anvil have put the partnership in good stead for future growth.  

Commodity price fluctuations and weather patterns in areas of operation play an important role in demand creation. Given the degree of uncertainty, the company holds a Zacks Rank #3 (Hold).
 

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