Earnings Preview: Plains All American

Plains All American Pipeline, L.P. ( PAA - Analyst Report ) , a publicly traded master limited partnership, is scheduled to report its second-quarter 2012 financial results after the market closes on August 6, 2012.

First-Quarter Snapshot

Plains All American Pipeline reported its first-quarter 2012 operating earnings of $1.58 per unit, up from $1.03 per unit in the year-ago quarter. The robust earnings performance was attributable to favorable growth executed by each segments of the partnership. Quarterly result was ahead of the Zacks Consensus Estimate of $1.40 per unit.

On a GAAP basis, the partnership’s earnings were $1.02 per unit compared with 90 cents per unit in the prior-year quarter. The variance of 56 cents between operating and GAAP earnings was due to certain one-time items. This includes a $59 million loss on derivative activities, $26 million related to equity compensation expenses, an expense of $4 million for acquisitions related expenses and $1 million for certain other items.

Overall revenue at Plains All American Pipeline at the end of the first quarter was $9.2 billion compared with $7.6 billion in the year-ago period, reflecting growth of 21.0%. This was driven by higher average volumes from Transportation and Facilities, which constituted combined growth of 23.5%. Reported revenue surpassed the Zacks Consensus Estimate of $8.2 billion.

Guidance for 2012

Plains All American Pipeline made an upward revision to its organic capital growth program by $150 million to $1 billion. The partnership has also increased the mid-point of its annual adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) estimate by $150 million on the back of a significant performance in the first quarter of 2012.

Zacks Consensus

The Zacks Consensus Estimate for second-quarter 2012 is $1.63 per unit, higher than $1.12 reported in the prior-year quarter. Currently, the Zacks Consensus Estimate for the partnership’s earnings ranges between $1.58 and $1.68 a unit.

For full-year 2012, the Zacks Consensus Estimate stands at $4.98 per unit, lower than its full-year 2011 earnings of $5.24 per unit. The current Zacks Consensus Estimate for full-year 2012 ranges between $4.74 and $5.22 per unit.

Estimate Revisions Trend

Agreement

We have observed no estimate revisions at this point. Estimate for the second quarter remained unchanged in the last 7 days period.

For full-year 2012, out of 2 estimates, there were no estimate revisions in the last 7 days.

Some analysts believe that Plains All American Pipeline’s continuous strategic acquisitions and infrastructure expansion, steady cash distribution hike and strong financial condition may be key factors for its near-term future growth.

Magnitude

In the last 7 days, the Zacks Consensus Estimate for second-quarter earnings remained unchanged.

For full-year 2012, the Zacks Consensus Estimate remained unchanged in the last 7 days.

Surprise History

With respect to earnings surprises, Plains All American Pipeline, L.P. has topped the Zacks Consensus Estimate in the last four quarters in the range of 2.48% to 41.77%. The average surprise over the last four quarters is 20.69%.

Our Recommendation

Plains All American Pipeline continues to boost its operations, both internally and through strategic acquisitions. Under its organic growth program, the partnership constructed and expanded its pipeline systems, crude oil storage, and terminal and natural gas storage facilities. As a part of its acquisition-oriented growth strategy, the partnership recently acquired BP Plc.’s ( BP - Analyst Report ) Canadian assets.

We view Plains All American Pipeline as an organization with strong crude oil pipelines and storage assets portfolio in well-established oil producing regions. Moreover, the partnership’s strategic position enables it to serve major U.S. refinery and distribution markets in a better way. Overall, we believe the partnership’s positional advantage will fuel its future performance.

Currently, we are maintaining a long-term Outperform recommendation on Plains All American Pipeline, L.P. The partnership retains a Zacks #1 Rank, which translates into a short-term Strong Buy rating.

Houston, Texas-based Plains All American Pipeline, L.P. 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.