At first glance, Plains All American Pipeline‘s (NYSE:PAA) fourth-quarter results looked awful. The oil pipeline MLP‘s earnings sank nearly 10% while its cash flow tumbled more than 20%. A closer look, however, showed that the company’s performance was much better than it might seem. Because of that, and what the pipeline giant sees ahead, its 8.6%-yielding payout is not only on solid ground, but likely headed higher.
While Plains All American’s earnings and cash flow declined compared to the year-ago period, its results came in better than expected. That pushed its full-year numbers well ahead of its guidance. Adjusted EBITDA, for example, came in at $3.237 billion, which was 5% above the forecast it provided during the third quarter and up 21% versus 2018. Distributable cash flow, likewise, came in 5% higher than its guidance, which pushed its full-year total to $2.178 billion, or $2.91 per unit, 22% above 2018’s level. Fueling that expectation-beating result was the still-strong performance of its volatile supply and logistics segment:While supply and logistics earnings tumbled 32% year over year, that’s because 2018’s fourth quarter was an outstanding one for this segment. That masked the fact that its results in 2019’s fourth quarter were $133 million ahead of its forecast. That’s because the company was able to overcome a less favorable difference in the price of crude oil in the Permian Basin compared to other markets thanks to higher margins in its natural gas liquids (NGL) activities. Further, it accelerated between $25 million and $30 million of 2020’s expected earnings into last year’s tally. Meanwhile, the company’s steadier fee-based segments also exceeded expectations during the period. Earnings in the transportation segment rose 6% year over year and came in $7 million above its forecast. Driving that result was higher volumes on the company’s Permian Basin oil pipelines, including strong performance on the Cactus II line that started up in August. Facilities’ earnings declined by about 3% versus last year’s fourth quarter, due mainly to lower activity at some of its rail terminals. However, the segment’s EBITDA was $20 million higher than its outlook, thanks to lower-than-anticipated costs. The company’s better-than-expected showing enabled it to generate enough cash to cover its high-yielding payout by an ultra-comfortable 2.17 times for the year. Further, it helped push its debt-to-EBITDA ratio down to 2.8 times, which is below its 3.0 to 3.5 times target range.
Drilling down into Plains All American’s fourth-quarter earnings
|Metric||Q4 2019||Q4 2018||Change|
|Adjusted EBITDA||$860 million||$949 million||(9.4%)|
|Distributable cash flow (DCF)||$525 million||$679 million||(22.7%)|
|DCF per unit||$0.72||$0.94||(23.4%)|