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Plains All American Pipeline, L.P. (PAA - Analyst Report) announced fourth-quarter 2012 pro forma earnings of $1.01 per unit, beating the Zacks Consensus Estimate by 32 cents. Quarterly earnings were 23.2% higher than the year-ago figure primarily on strong results from the fee-based Transportation and Facilities segments.

On a GAAP basis, the partnership reported earnings of 69 cents per unit versus 68 cents per unit a year ago. The difference of 32 cents between pro forma and GAAP earnings was due to the impact of certain one-time items.

These include a charge of 17 cents related to inventory valuation adjustments from derivative activities, an asset impairment charge of 12 cents, and another charge of 3 cents for equity compensation expenses, loss on foreign currency revaluation and acquisition-related costs.

The partnership’s full-year 2012 earnings were $3.35 per unit, surpassing the Zacks Consensus Estimate by 39.6%. The full-year result was 27.9% higher than the last year’s earnings.

Yearly GAAP earnings were $2.40 per unit compared with $2.44 a year-ago. The variance between GAAP and pro forma earnings was due to a charge of 22 cents related to inventory valuation adjustments from derivative activities, asset impairments charge of 49 cents, and another charge of 24 cents for loss on foreign currency revaluation, equity compensation expenses and acquisition-related costs.

Revenues

Total revenue at the end of fourth quarter was $9.4 billion, missing the Zacks Consensus Estimate by $0.9 billion. However, quarterly revenue increased 5.6% year over year on higher revenue generated from all three segments.

Plains All American Pipeline’s full-year 2012 total revenue was $37.8 billion, up 10.3% year over year. However, full-year revenue fell short of the Zacks Consensus Estimate by roughly $1 billion.

Segment Details

Transportation: Quarterly profit from this segment increased 23.8% year over year due to higher pipeline tariffs and volumes, newly completed organic growth projects and the benefits of the acquisition of natural gas liquids (NGL) assets from a subsidiary of BP plc (BP - Analyst Report).

Facilities: The partnership’s fourth-quarter 2012 profit rose 31.8% year over year owing to the addition of capacity from the acquisition of the BP NGL and numerous organic growth projects.

Supply and Logistics: Quarterly segmental profit increased 3.5% year over year due to proper implementation of the partnership’s business model in good crude oil market conditions and higher NGL sales volumes.

Operational Update

In the quarter under review, costs and expenses increased 6% year over year to $9 billion. This was primarily due to 4.6%, 38% and 117.2% year-over-year increases in purchases and related costs, field operating costs, and depreciation and amortization expenses, respectively.

In this quarter, positive effect from the revenue surge offset the rise in total costs, thereby improving operating income by 12% year over year to $402 million.

Interest expenses totaled $74 million, up 17.5% year over year primarily attributable to the rising debt level.

Financial Update

Cash provided by operating activities in the twelve months ending Dec 31, 2012, was $1.2 billion versus $2.4 billion in the year-ago comparable period.

Long-term debt as of Dec 31, 2012, was $6.3 billion versus $4.5 billion as of Dec 31, 2011.

In 2012, the partnership invested a total of $3.5 billion for its several organic as well as inorganic growth projects.
 
Cash Distribution

The new quarterly distribution rate of Plains All American Pipeline is 56.25 cents per unit and $2.25 per unit on an annualized basis. This distribution rate reflects quarterly growth of 3.7% and a year-over-year rise of 9.8%.

The partnership expects to benefit from strong industry fundamentals in 2013 and share more with unitholders by increasing the distribution rate by 9% - 10% in 2013.

Guidance

In 2013, Plains All American Pipeline intends to invest $1.1 billion for its several projects.

The partnership expects its full-year 2013 adjusted earnings before interest, tax, depreciation and amortization (EBITDA) to be $2 billion.

Other Energy-pipeline Company Releases

Enterprise Products Partners L.P. (EPD - Analyst Report) reported fourth-quarter 2012 adjusted earnings per limited partner unit of 71 cents, beating the Zacks Consensus Estimate of 66 cents.

El Paso Pipeline Partners, L.P. (EPB - Snapshot Report) announced fourth-quarter 2012 operating earnings of 63 cents per unit, surpassing the Zacks Consensus Estimate by 8 cents.

Our View

The positive effect of the acquisition of the BP assets is evident in Plains All American’s quarterly results. This acquisition boosted the partnership’s midstream business through additional pipelines, storage capacity, fractionation plants and supply contracts. Overall, these factors will enable the partnership to improve its forthcoming performance.

Plains All American recorded a sound full-year 2012 with revenues bounding across all segments. We believe the partnership is uniquely poised to deliver attractive results riding on its strong business model.

However, we are skeptical about stringent regulations, commodity price volatility, and uncertainty in global capital and credit markets.

Plains All American Pipeline currently has a Zacks Rank #3 (Hold).

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.

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