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TC PipeLines L.P. (TCLP - Analyst Report), a master limited partnership (MLP), announced weak fourth quarter results (see earnings call transcript here), reflecting lower equity income from Northern Border system and higher unit count. This more than offset solid earnings from the Great Lakes system and contributions from the recently acquired North Baja Pipeline. The partnership reported earnings per unit (EPU) of 56 cents, lower than the Zacks Consensus Estimate of 65 cents and last year’s earnings of 67 cents.

Distribution Maintained
TC PipeLines maintained its quarterly distribution of 73 cents per unit ($2.92 per unit annualized), representing a 3.5% increase over the year-earlier quarter and equal to the third quarter distribution. Paid on February 12 to unit-holders of record on January 31, 2010, it is the 43rd successive quarterly distribution offered by the partnership.
Great Lakes
The partnership’s equity income from the Great Lakes increased 4.7% year-over-year to $13.5 million in the quarter, reflecting lower operating expenses. This was partially offset by decreased short-term firm transportation revenues (due to a reduction in throughput volumes).
Northern Border Pipeline
Equity income from Northern Border Pipeline (NBPL) dropped 48.8% year-over-year to $8.8 million, reflecting lower transmission revenues (on the back of reduced contracted capacity), partially cancelled by lower operating expenses and financial charges.
Tuscarora & North Baja
Net income from Tuscarora and North Baja were up significantly (by 163.9%) year-over-year to $9.5 million, driven by contributions from the North Baja Pipeline acquisition.
Total Cash Distributions
Total cash distributions received was up 27.7% from the year-earlier level to $40.1 million, mainly due to North Baja contributions, in addition to a decrease in general partner distributions resulting from the restructuring of incentive distribution rights (IDRs) on July 1, 2009. TC PipeLines paid distributions of $30.7 million during the quarter, up 10.4% from the year-earlier level.
Liquidity
As of September 30, 2009, TC PipeLines had approximately $9.0 million as outstanding balance, with $241.0 million available for future borrowings.
Earnings Revisions & Surprise Trend
With respect to earnings surprises, the stock has fluctuated substantially over the last four quarters, with two positive and two negative surprises. However, the average remained negative at 3.6%, reflecting the partnership’s poor performance during this period. This implies that TC PipeLines has missed the Zacks Consensus Estimate by 3.6% over the last four quarters, pulled down by reduced throughput volumes, a somewhat mild early winter, a gas oversupply situation and high storage levels.
Looking ahead, the current Zacks Consensus Estimate for the first quarter of 2010 is 77 cents, which has seen no estimate revisions in either direction over the last 30 days. We believe that the challenging operating scenario for pipeline operators, weak near- to medium-term outlook for petroleum products expenditure and bearish natural gas fundamentals currently cloud TC PipeLines’ value.
As such, our short-term recommendation on the stock is Sell (Zacks Rank #4), meaning that TC PipeLines is expected to underperform relative to the overall market during the next 1−3 months. Therefore, the company should most likely be sold or avoided over this time period.

Disclosure: None