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TransCanada (NYSE: TRP) picked up where it left off last quarter when it returned to growth mode after hitting a speed bump in the third quarter due to asset sales. Powering the results was the continued strong performance of its legacy assets as well as a contribution from the roughly 7 billion Canadian dollars' ($5.5 billion) worth of expansion projects it has placed into service over the past year. Meanwhile, with another CA$11 billion ($8.6 billion) of projects on pace for completion by year-end, 2018 should be an exceptional year for the Canadian energy infrastructure giant.
Drilling down into the numbers
| Metric | Q1 2018 | Q1 2017 | Year-Over-Year Change |
|---|---|---|---|
| Comparable earnings before interest, taxes, depreciation, and amortization (EBITDA) | $2.1 billion | $2.0 billion | 4.8% |
| Comparable distributable cash flow (DCF) | $1.4 billion | $1.3 billion | 8% |
| DCF per share | $1.64 | $1.55 | 5.8% |
Data source: TransCanada Corporation. All figures in Canadian dollars. Current exchange rate: 1 Canadian dollar = $0.78.
One number worth noting is that distributable cash flow increased on a per-share basis this quarter. That number had been declining in recent quarters because the company sold new shares to help pay for its expansion initiatives. However, with those projects starting to enter service, they're fueling growth in its liquids pipeline business as well as the U.S. and Mexico gas pipeline segments:
Data source: TransCanada. Chart by the author.
The liquids business benefited from the addition of the Grand Rapids and Northern Courier pipelines, which entered service in the second half of last year. TransCanada also transported higher volumes of oil on its legacy Keystone pipeline in the U.S.
Meanwhile, earnings in TransCanada's U.S. gas pipeline segment rose thanks to recently completed projects on the Columbia Gas and Columbia Gulf systems that it acquired in 2016 as well as higher sales on its ANR system and improving commodity prices in its midstream business. In Mexico, the company benefited from higher revenue from its operations in the country. Those positives more than offset some weakness in the company's Canadian natural gas pipeline business as well as the sharp drop in energy earnings due to asset sales.
Image source: Getty Images.
What's coming down the pipeline?
TransCanada currently has CA$21 billion ($16.3 billion) of expansion projects still underway, including CA$11 billion ($8.6 billion) that it expects to finish this year. The company has already invested CA$7 billion ($5.5 billion) of this capital in 2018, putting it well on its way to finishing these expansions so that it can enjoy the associated earnings and cash flows. While the company has had some speed bumps along the way, including incurring an additional $500 million of costs to build its Mountaineer XPress and WB XPress projects in the U.S. due to regulatory delays and increased contractor costs because of high regional demands, it remains on track with its expansion plan overall. That's important because "this program is expected to generate significant additional growth in earnings and cash flow and support annual dividend growth at the upper end of an eight to 10% range through 2020 and an additional eight to 10% in 2021," according to CEO Russ Girling.