Enbridge's (ENB +0.93%) to-do list isn't long right now, but the things that are on that list are challenging tasks that are going to require all of management's attention over the next several months. Not only is the company trying to get its ducks in a row for the 9.5 billion Canadian dollar expansion of its crown jewel asset, the Mainline pipeline, but it's also trying to execute a major corporate consolidation. With all this on its plate, it's understandable if earnings get a little overlooked.
Let's take a look at the company's most recent report to see what kind of progress it has made on its signature project, its plans for its consolidation, and any hints as to what to expect once that consolidation is complete.
Image source: Getty Images.
Enbridge's results: By the numbers
| Metric | Q2 2018 | Q1 2018 | Q2 2017 |
|---|---|---|---|
| Revenue | CA$10.7 billion | CA$12.7 billion | CA$11.1 billion |
| Earnings attributable to common shareholders | CA$1.07 billion | CA$445 million | CA$919 million |
| Diluted EPS | CA$0.63 | CA$0.26 | CA$0.56 |
| Distributable cash flow* | CA$1.85 billion | CA$2.31 billion | CA$1.63 billion |
Data source: Enbridge earnings release. EPS = earnings per share. *Enbridge's prior earnings releases labeled this as available cash flow from operations. CA$1 = $0.77 as of 8/6/18.
There are several components of Enbridge's business that are highly seasonal, such as its natural gas distribution business that serves residential customers in Ontario. So rather than focusing on a single quarter's performance, it's better to look at Enbridge's results on a year-over-year basis. Overall, the company delivered growth across all of its segments. The one stain on its results was the year-over-year decline in its liquids pipeline segment, but that was largely due to some non-cash, unrealized losses related to the valuation of derivatives like oil futures contracts. These charges don't show up in its cash statements, though, which explains why there was considerable growth in distributable cash flow this past quarter.
Data source: Enbridge earnings release. Chart by author.
What happened this quarter
- Enbridge brought two new pipelines into service in the quarter, which brings its total of major capital projects in service to CA$2.9 billion for the year. Most of its 2018 capital projects are slated to come into service in the second half of the year -- including subsidiary Spectra Energy Partners' NEXUS pipeline and its own Valley Crossing natural gas pipeline.
- The Minnesota Public Utilities Commission approved the issuance of the Certificate of Need and Route Permit for the company's Line 3 replacement project through Minnesota. This helps to clear one of the last regulatory hurdles for its largest capital project.
- In addition to the asset sales in the prior quarter, management announced a deal to sell its natural gas gathering and processing unit in Western Canada for CA$4.31 billion. So far in 2018, management has agreed to CA$7.5 billion in asset sales.
What management had to say
In the company's press release, CEO Al Monaco discussed some of the strategic moves management has made recently to fund some of its largest capital projects, as well as how those moves also set the company up for its consolidation transaction:
We're equally pleased with the progress we've made on our strategic priorities since we announced the post-acquisition long-range strategic plan last November. In the past three months alone we've entered into agreements to sell or monetize [CA]$7.5 billion in non-core assets at strong valuations, which more than doubles our original plan target of [CA]$3 billion. In addition, we've made significant progress on accelerating de-leveraging of our balance sheet and we've announced the intention to simplify our corporate structure. Proposals have been delivered to the Boards of our Sponsored Vehicles to purchase all of the outstanding public ownership in each. These proposed transactions would bring in all of the core assets under one publicly traded vehicle, Enbridge Inc., with greater diversification, increased trading liquidity, an enhanced credit profile and greater transparency of cash flows.
You can read a full transcript of Enbridge's conference call here.
Working through some major changes before anything new
As far as announcing new projects and growth plans, Enbridge has been quiet ever since it made the acquisition of Spectra Energy. Instead, its focus has been on three initiatives: lowering the company's cost of capital, reducing leverage, and sorting out the regulatory issues with its Line 3 expansion. Pretty much everything else has been put on hold until these three things are addressed.
Now that there is light at the end of the tunnel for Line 3 and the company seems to be sorting out the issues with acquiring all outstanding stakes in its subsidiary partnerships, it's time for management to start showing the path forward from here. Management noted on its strategic update in July that it has CA$20 billion to CA$35 billion in projects under consideration, but it hasn't made any significant announcements on those projects in some time. Some of those will have to get the green light soon because Enbridge's current slate of projects will be nearly complete in less than 18 months.
For investors, there is still a lot up in the air at Enbridge right now. With the rollup of its subsidiaries still awaiting reviews from various conflict committees, we're not 100% sure what the combined company will look like. Once we get an answer, it will be much easier to make an informed decision on the company's prospects as an investment.
