A Closer Look at TransCanada’s Earnings

What happened at TransCanada this quarter? A look beyond the top and bottom lines.

| More on:
The Motley Fool

TransCanada (TSX: TRP, NYSE: TRP) is the first of the Canadian pipeline behemoths to report earnings. It did so this morning and posted mixed results. Earnings were up year-over-year, but missed analyst expectations on earnings per share and revenue.

General rundown
Revenue came in at $2.0 billion, up from the $1.85 billion it posted a year ago, but short of the $2.14 billion analysts were expecting. Earnings per share came in at $0.51 per share, again up from $0.43 per share last year, but just shy of the $0.52 that analysts were expecting.

Naturally, there is much more to an earnings release than whether or not analysts were disappointed, but it often explains how the market reacts and is worth noting. Now, let’s take a closer look at what went down at TransCanada in the second quarter.

Q2: Digging deeper
Two out of TransCanada’s three business segments posted year over year improvements. Here is how the EBITDA picture looked this past quarter, unit by unit:

Unit

Q2 2013

Q2 2012

% Change

Natural Gas   Pipelines $644 $666 (3.3%)
Oil Pipelines $186 $176 5.7%
Energy $330 $170 94%

Source: TransCanada. Dollar figures in millions

Clearly, the big story here is the company’s energy unit. TransCanada’s Western Power segment benefitted from higher realized power prices and higher volumes of power purchase agreements, due to fewer outage days. Western Power EBITDA was $123 million, compared to $27 million last year, though 2012’s number was impacted by a one-time charge.

On top of that, for the first time in 20 years, the Bruce Power nuclear facility is operating all eight units. The facility has a capacity of 6,200 megawatts  and provides more than 32% of Ontario’s power. TransCanada’s stake in the project resulted in $59 million in EBITDA this quarter, compared to $31 million a year ago.

TransCanada’s natural gas unit dropped slightly year-over-year, but the company is finally posting an uptick in EBITDA for its Mainline pipeline, arguably TransCanada’s most important asset. The National Energy Board increased the Mainline’s approved return on equity from 8.08% last year to 11.50% this year, resulting in a $16 million increase in second quarter EBITDA. That improvement was offset by poor performance delivered by the company’s natural gas pipelines in the U.S. and Mexico. EBITDA there dropped $48 million, year over year.

The oil pipelines unit performed more or less the same year over year. The two important stories that should drive growth in this segment – the Keystone XL project and the Mainline conversion – are still developing.

The Keystone XL debacle is well-documented. There are no real updates to that story, other than the company expects to have the system completely up and running two years after the Presidential Permit is received from the U.S. government. Whenever that might be.

The Mainline conversion project, dubbed the Energy East Pipeline, is through the open season stage and into a review of those results. Ideally, the company will have commitments from shippers to send 850,000 barrels per day of crude oil from western Canada to markets in eastern Canada.

Foolish bottom line
TransCanada’s dividend remains at $0.46 per share, and investors are in hurry up and wait mode as an oasis of $13 billion in projects shimmers on the horizon. There is relief for now, as earnings are finally headed back in the right direction, but the future of two very important oil pipeline projects still remains to be seen.

Be sure to check back in with the Motley Fool when TransCanada’s peers Enbridge (TSX: ENB) and Pembina Pipeline (TSX: PPL) report. Enbridge will report August 1, while Pembina reports August 9. Both companies beat analyst expectations last quarter  and are chasing repeat performances.

Yield is important – no, yield is crucial – to our portfolios. TransCanada and others might keep us guessing on dividend increases, but the Motley Fool has assembled a free list of 13 other high-yielding stocks that are much more reliable. Click here to check out the list today.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Aimee Duffy does not own shares of any companies mentioned.  The Motley Fool doesn’t own shares in any of the companies mentioned.   

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

A shopper makes purchases from an online store.
Investing

Best Stock to Buy Right Now: Shopify vs Lightspeed Commerce?

Let’s examine Shopity and LSPD to determine a better growth stock to buy right now.

Read more »

concept of real estate evaluation
Dividend Stocks

Why the Market Should Stop Hating on This Reliable REIT

You can get a lot of dividend income with an investment in Northwest Healthcare Properties REIT (TSX:NWH.UN).

Read more »

Lights glow in a cityscape at night.
Investing

What Are the Best REITs to Buy Now?

CT REIT (TSX:CRT.UN) remains one of my favourite REITs to consider picking up this year.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Max Your TFSA Impact: 4 Dividend Stocks to Buy and Hold Forever

Adding these TSX dividend stocks to your TFSA can maximize your portfolio's income potential and compound your returns over time.

Read more »

man touches brain to show a good idea
Dividend Stocks

This 6% Yield Has Survived Every Market Crash Since 1995

This top TSX stock boasts a yield of over 6% and a dividend track record that has weathered every market…

Read more »

Rocket lift off through the clouds
Tech Stocks

1 AI Stock Up 11% to Own in a TFSA for Long-Term Growth

Never mind chasing flashy AI start-ups with soaring valuations. Check out this profitable Canadian tech powerhouse that has stood the…

Read more »

A worker wears a hard hat outside a mining operation.
Metals and Mining Stocks

Ivanhoe Mines: Buy, Sell, or Hold in July 2025?

Here's what to consider before trading Ivanhoe Mines stock this month. Watch out for July 30th!

Read more »

ETF stands for Exchange Traded Fund
Investing

Earn a 4.3% Yield From Berkshire Hathaway Stock With This Monthly Income ETF

This ETF uses options and leverage to generate income from Berkshire Hathaway

Read more »