This past quarter's results at Spectra Energy (SE) seemed more like a formality than anything else. With its pending merger with Enbridge (ENB 0.03%) expected to close relatively soon, management didn't even bother with some of the traditional elements of a quarterly earnings release. Clearly, management's focus is on the weeks to come.
Here's a quick rundown of Spectra's most recent results and what investors need to know as we get closer to the merger.
Spectra Energy earnings: The raw numbers
|Results*||Q4 2016||Q3 2016||Q4 2015|
|Earnings per share||$0.16||$0.28||($0.13)|
|Distributable cash flow||$170||$202||$194|
|Distribution coverage ratio||0.59x||0.71x||0.76x|
One thing to always keep in mind when looking at Spectra's earnings is that the company's results are very seasonal, with the bulk of its earnings and distributable cash flow coming in the winter months. That's why its distribution coverage ratio for the quarter looks so nightmarish. If we look at its full-year results, it shows that its reported distribution coverage ratio was a much more healthy 1.0 times.
With the exception of its Western Canada business segment, segment EBITDA improved thanks to new assets coming on line to offset any weakness from lower commodity prices or from lower volumes. In Western Canada, there were some one-time charges related to flooding in its British Columbia operations. It's also worth keeping in mind that late in 2015, Spectra Energy Partners (SEP) transferred ownership of two long-haul natural gas liquids pipelines to DCP Midstream (DCP 0.07%), which has led to slower growth at Spectra Energy Partners and better performance in Spectra's field services segment.
What happened with Spectra Energy this quarter?
The company was in a bit of a holding pattern this past quarter as it waited out its merger with Enbridge. In fact, it didn't even hold a conference call to review its results because the pending merger date is expected so soon.
Perhaps the biggest event for the quarter came at one of its subsidiaries, DCP Midstream, which announced that the general partner and limited partnership were reorganizing. The deal is that the general partner -- the entity that Spectra co-owned with Phillips 66 -- will transfer all assets and $424 million in cash to the limited partnership in exchange for 31.1 million units in the limited partner. For Spectra, this means a higher equity interest in DCP and should allow for greater growth of its field services unit.
For 2016, Spectra put approximately $2 billion of assets into service and has another $9 billion in capital projects currently under construction.
What management had to say
According to Greg Ebel, who will step down as the CEO of Spectra Energy upon completion of the Enbridge/Spectra merger and will assume the role of chairman of the board of the new combined company:
During these past 10 years, we've expanded our footprint, diversified our asset portfolio, reduced our risk profile and provided a dependable, attractive dividend, creating tremendous shareholder value in that process. We have proven to be a stable, disciplined and reliable investment. It has been an honor to serve as CEO for the past eight years, and I am proud of our company and the great people who have contributed to its success. As incoming chairman of the new Enbridge, I look forward to the company taking our next big step. I fully expect we will deliver even greater benefits to our investors, customers, communities and employees.
Like last quarter, this was a reasonably respectable quarter. There are some positives such as the realignment of DCP Midstream, which should lead to better results over the long term for Spectra. It's also a little discouraging that all of these new assets aren't quite leading to significant cash flow growth.
Ultimately, though, these things don't matter as much anymore because the deal with Enbridge is expected to close sometime this quarter. When that happens, all of these various business segments will be combined into new entities within Enbridge. When that's done, it will be worth checking in on these results to see how the combined companies perform.