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Plains All American Pipeline, L.P. (PAA - Analyst Report) announced third-quarter 2011 operating earnings of $1.42 per unit, breezing past the Zacks Consensus Estimate of $1.13. The results of the partnership were also higher than 70 cents reported in the year-ago quarter.

GAAP earnings per unit in the quarter was $1.47 versus 28 cents in the third quarter of 2010.

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 20 cent gain from derivative activities, equity compensation expenses of 4 cents and an 11 cent loss on foreign currency revaluation.

Revenues

Total revenue at Plains All American Pipeline at the end of the third quarter was $8.8 billion versus $6.4 billion in the year-ago period, reflecting a growth of 37.8%. All the three segments performed well, primarily attributable to the 38.3% growth in the Supply & Logistics segment.

The reported quarter revenue surpassed the Zacks Consensus Estimate of $7.96 billion.

Segment Details

Transportation: Segment profit rose 9% year over year primarily on increased tariff revenues, partially offset by higher field operating costs.

Facilities: Profit surged 28% year over year in the reported quarter. The growth was driven by increased capacity by virtue of acquisitions and organic capital projects.

Supply & Logistics: The profit from this segment soared 235.0% from the prior-year quarter mainly on higher lease gathering volumes and margins as well as favorable crude oil quality differentials.

Quarterly Highlights

Total cost and expenses during the quarter increased 35.4% over the year-earlier quarter, but decreased by 170 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 shot up 138% from the year-ago period to $357 million.

Interest charges of the partnership decreased marginally by 3.1% to $62.0 million from $64.0 million in third quarter 2010.

Financial Update

Cash used in operating activities during the quarter was $780 million versus $180 million in the same period of 2010.

Long-term debt of the partnership as of September 30, 2011, was $4.5 billion versus $4.1 billion as of December 31, 2010. The debt to capital ratio at the end of the quarter was 45%.

Cash Distribution

The partnership continues to increase distribution for its unit holders. The current quarterly distribution rate of the partnership is 99.5 cents per unit, reflecting a growth of 1.3% growth over the quarterly distribution of 98.25 cents per unit paid in August 2011 and 4.7% from the quarterly distribution of 95 cents per unit paid in November 2010.

Guidance

The partnership expects earnings per unit to range from $1.23 to $1.49 for the fourth quarter and $4.81 to $5.08 for the full year.

At the Peer

Sunoco Logistics Partners L.P.(SXL - Analyst Report), which competes with Plains All American Pipeline L.P., announced its operating earnings for the third quarter 2011 of $2.34 per unit versus $1.64 per unit in the year-ago quarter. Earnings at Sunoco Logistics surpassed the Zacks Consensus Estimate.

Revenues of $2.85 billion shot up 51.4% from $1.88 billion in the third quarter of 2010 and also beat our projection by 35.2%.

Our View

Plains All American recorded a sound quarter with revenues bounding across all segments. We believe the partnership will be able to reach its earnings target for the quarter and fiscal year, as the performance of the partnership continues to remain strong.

Plains All American Pipeline currently retains a Zacks #1 Rank, which translates into a short-term Strong Buy 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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