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Pipeline operator, TC PipeLines LP (TCP - Analyst Report) announced weaker-than-expected first-quarter 2013 results. The disappointment resulted from lower transportation rates in the Great Lakes along with low income from other pipeline systems.

The Calgary, Alberta-based master limited partnership (MLP) reported earnings per unit (EPU) of 52 cents, missing the Zacks Consensus Estimate by 13 cents. Comparing year over year, earnings fell 26.8% from a profit of 71 cents.

Distribution & Cash Flows

TC PipeLines announced its first-quarter 2013 cash distribution of 78 cents per unit ($3.12 per unit annualized), unchanged sequentially but representing a 1.3% increase from the year-ago quarter. This will be paid on May 15, 2013 to unitholders of record as of May 6, 2013.

Total partnership cash flows during the quarter was down 14.0% from the year-ago level of $50.0 million. The decrease was mainly on account of lower cash distributions from TC PipeLines’ interests in the Northern Border and the Great Lakes.

TC PipeLines distributed $43.0 million during the quarter, up 2.4% from the year-ago level, driven by a rise in the quarterly distribution relative to the first quarter of 2012.

Pipeline Systems’ Performance

Great Lakes: The partnership’s equity income from the Great Lakes plunged 77.8% year over year to $2 million in the quarter. The decline is due to the sale of the capacity of the Great Lakes at a lower short term rate compared to the first quarter of the previous year.

Northern Border Pipeline: Equity income from Northern Border Pipeline was $16.0 million, down 20.0% year over year. The decline was primarily due to the reduction in tariff rate.

GTN and Bison: TC PipeLines’ equity income from the GTN and the Bison pipeline systems came in at $5.0 million and $3.0 million, respectively. While the Bison pipeline income was flat year over year, GTN pipeline income decreased 16.7%.

Liquidity

As of Mar 31, 2013, TC PipeLines had $309.0 million outstanding on the $500.0 million revolver portion of its senior credit facility. The partnership had long-term debt (including current portion) of $685.0 million, representing a debt-to-capitalization ratio of 34.7%.

Zacks Rating

The partnership currently retains a Zacks Rank #3 (Hold). This implies that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Over the last few years, the partnership consolidated its business through a combination of organic efforts and accretive acquisitions. We believe that with investments in low-risk energy infrastructure assets, TC PipeLines will be able to provide stable cash distributions, going forward.

However, MLPs (like TC PipeLines) typically depend on equity and debt markets for financial growth. Market turmoil from issues such as the recent subprime crisis, which hindered access to the debt/equity markets, will impact the MLP growth prospects.

Meanwhile, there are certain oil and gas production pipeline MLP’S in the energy sector that are expected to perform well in the coming one to three months. These include Delek Logistics Partners LP (DKL - Snapshot Report), Energy Transfer Partners LP (ETP - Analyst Report) and Atlas Pipeline Partners LP (APL - Snapshot Report). All three stocks currently sport a Zacks Rank #2 (Buy).

 

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