Why Is Plains All American (PAA) Down 18.8% Since Last Earnings Report?

A month has gone by since the last earnings report for Plains All American Pipeline (PAA). Shares have lost about 18.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Plains All American due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Plains All American Q4 Earnings & Sales Beat Estimates

Plains All American Pipeline, L.P. reported fourth-quarter 2019 adjusted earnings of 63 cents per unit, beating the Zacks Consensus Estimate of 49 cents by 28.6%. However, the bottom line was down 21% from the year-ago quarter.

In the quarter under review, the partnership reported GAAP earnings of 35 cents per unit, down from the year-ago figure of $1.38 by 75%.

Total Revenues

Total revenues in the fourth quarter amounted to $9,154 million, surpassing the Zacks Consensus Estimate of $8,321 million by 10%. Revenues also improved 4.2% from $8,786 million reported in the year-ago quarter.

Segmental Performance

In the Transportation segment, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $451 million increased 6% from the year-ago quarter, primarily driven by higher volumes in its Permian Basin systems, including the Cactus II pipeline, which came into service in August 2019.

In the Facilities segment, adjusted EBITDA of $176 million was down 3% from the year-ago reported figure. The decline was due to lower activity in some of its rail terminals.

The Supply and Logistics segment reported adjusted EBITDA of $232 million, which decreased 32% from the year-ago figure of $342 million. The decline was primarily due to less favorable crude oil differentials in the Permian Basin, partially offset by higher NGL margins.

Highlights of the Release

In the quarter under review, Plains All American’s total costs and expenses were $8,823 million, up 18.1% year over year. The increase was due to higher purchases and related costs, marginally offset by lower general and administrative expenses. As a consequence, the firm’s operating income dropped to $331 million from $1,315 million in the prior-year quarter.

Interest expenses increased 9.6% year over year to $114 million.

The firm continues to make changes in the asset portfolio through non-core asset sales, strategic joint ventures and acquisitions. The company expects to sell $600 million non-core assets in 2020 and fund its capital program without issuing fresh equity.

Financial Update

As of Dec 31, 2019, current assets were $4,612 million compared with $3,533 million in the corresponding period of 2018.

As of Dec 31, 2019, Plains All American had long-term debt of $9,187 million compared with $9,143 million in the comparable period of 2018.

As of the same date, its long-term debt-to-total-book capitalization ratio was 41%, down from 43% at the end of 2018.

Guidance

Plains All American now expects 2020 earnings to be $1.66 per unit. The partnership expects 2020 adjusted EBITDA to be $2,575 million.

Plains All American expects 2020 expansion capital to be $1,400 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

Currently, Plains All American has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Plains All American has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.