Brookfield Infrastructure Partners' Strategic Plan Paid Dividends in Q2

Brookfield Infrastructure Partners (BIP 0.36%) spent much of the past year and a half repositioning its portfolio to accelerate growth. That strategy started paying off during the second quarter as earnings jumped by 15%. This faster-paced growth should continue for the next several quarters given that the company is well underway with phase two of its acceleration plan.

Brookfield Infrastructure Partners results: The raw numbers

Data source: Brookfield Infrastructure Partners.

What happened with Brookfield Infrastructure Partners this quarter? 

Brookfield benefited from recently completed deals:

• Its utilities segment generated $143 million of FFO, which was about 3% higher than in the year-ago period. The main driver was the impact of $275 million of expansion projects the company placed into service in the last year, which helped boost this segment's earnings by a 10% organic rate. This growth more than offset headwinds from foreign currency fluctuations and the impact of debt financing at its Brazilian gas pipeline.
• Transportation segment FFO was $135 million, which was roughly 2% above the year-ago level. The company benefited from volume growth at its ports and toll roads as well as a 4% increase in tariff rates. These factors more than offset the effect from the sale of a 33% interest in its Chilean toll road operation earlier this year.
• Energy segment FFO skyrocketed 78% to $96 million. Fueling that growth was the $1.2 billion the company invested in acquiring stakes in a North American residential infrastructure business, Canadian midstream operation, and natural gas pipeline in India. The company also benefited from higher volumes on its U.S. gas transmission business due in part to recently completed expansion projects.
• FFO in the data infrastructure segment soared 58% to $30 million. Driving this growth was recent data center investments, inflation-driven price increases on its legacy contracts, and new towers added for its French telecom business.

Image source: Getty Images.

What management had to say 

CEO Sam Pollock commented on the company's results and strategic initiatives:

We are pleased with our performance this quarter. The meaningful increase in our results reflects the impact of the most recent phase of our asset rotation strategy. We have invested or committed to invest a further $1.3 billion into four high-quality businesses predominantly in North America and India. These businesses have strong going-in cash-on-cash yields that should set the stage for further growth in our results heading into 2020.

Brookfield Infrastructure Partners delivered excellent second-quarter results. The company benefited not only from the recent close of several acquisitions but also from its investments in expanding its legacy operations. Those growth projects helped drive a 10% organic increase in FFO, which marked the second straight quarter where the company exceeded its long-term growth target range of 6% to 9%.

Looking forward 

Brookfield is well underway with the next phase of its asset rotation program. In addition to selling the stake in its Chilean toll road operations, the company completed the sale of its European bulk port operations at the end of June for $140 million. Those deals gave it the cash to make more acquisitions.

The company has signed four transactions in recent months. First, it's investing about $200 million for a stake in an integrated telecommunications company in New Zealand. This business provides utility-like broadband and wireless services to 2.5 million customers in that country.

It's also investing roughly $500 million to acquire regional railroad operator Genesee & Wyoming. The company operates 120 short-line railroads, primarily in North America. While the deal initially included Genesee & Wyoming's Australian joint venture, Brookfield and its partners agreed to sell that operation to the other owner. Both of those transactions should close by year-end. 

Brookfield is also investing about $150 million to acquire two pipelines that transport low-cost U.S. natural gas into Mexico. The company anticipates that this deal will close by the end of this year.

Finally, the company expects to invest around $400 million to acquire a portfolio of communications towers in India.

These acquisitions should keep Brookfield's growth engine well fueled, giving it strong momentum to continue expanding FFO at an accelerated rate over the coming year.