TC Pipelines Flowing Strong
TC PipeLines, L.P.'s (TCLP) second-quarter earnings, while on the lower side relative to our estimates, were above year-earlier levels. The year-over-year increase resulted from higher transmission revenue, lower financial charges and increased equity income from Great Lakes, partially offset by a fall in equity income from Northern Border.
Importantly, TCLP raised its quarterly distribution by 7.6% year-over-year to the annualized rate of $2.82 per unit. We continue to like the partnership for the potential addition of quality assets to the partnership's portfolio over the next few quarters from its general partner. Our Buy recommendation and price objective remains unchanged.
Total cash distributions received increased approximately 3% from the year-earlier level to $50.4 million, driven by higher contribution from Great Lakes and Northern Border. Cash distributions received from Great Lakes were $24.1 million, up more than 2% year-over-year, while that from Northern Border came at $26.3 million, an increase of approximately 3% over the year-earlier period. The partnership's cash distributions in any given quarter are based on the financial results from Northern Border in the previous quarter.
The fall in transmission revenue can be attributed to a decrease in overall volumes mainly due to competition from the western segment of the Rockies Express Pipeline. Tuscarora's contribution to net income was up more than 59% to $4.3 million, driven by the compressor station expansion project in Likely, California, which became operational on April 1.
ATC Tech Making Concessions
On July 29, ATC Technology Corp. (ATAC) reported results for the second quarter of 2008. In the quarter, earnings from continuing operations were $0.42 per diluted share compared to $0.53 per diluted share for the second quarter in 2007. The company expects 2008 earnings of $1.80-2.00 per share, with sales of $535-555 million.
The company's logistics segment is well set for future growth, which makes us optimistic. However, pricing concessions to a few customers such as Ford (F), Chrysler, Honda (HMC) and AT&T (T) exist, although they are modest and partially offset by cost reductions. Hence, we recommend a Hold, and set a six-month target price of $25.00.
This Logistics segment represents about 70-75% of ATC Technology's business. New business wins in the logistics segment, coupled with continued strength in wireless and mobile devices distribution, are driving revenue growth. Additionally, services for T-Mobile (DT) and Nokia (NOK), and increased replacement demand for advanced handsets are contributing to sales.
Subscribers and revenues in the wireless market as a whole are expected to grow 3-5% per year in the next 1-2 years, with 57% driven by replacement demand.
