Brookfield Infrastructure's Earnings Proved Largely Immune to the Pandemic

Brookfield Infrastructure Partners' (BIP 0.36%) (BIPC 1.21%) focus on operating essential infrastructure helped insulate it from much of the impact of the COVID-19 pandemic during the first quarter. While the coronavirus did affect volumes at its port and toll road operations, and the economic dislocations caused some foreign exchange fluctuations, Brookfield generated solid results due to the overall stability of its business model. And all the market turbulence provided the company with the opportunity to buy shares of publicly traded infrastructure companies at a discount, which could pave the way for large-scale transactions later on. 

A closer look at Brookfield Infrastructure's first-quarter results

Data source: Brookfield Infrastructure. YOY = year over year.

Brookfield Infrastructure's FFO grew on an absolute basis, primarily driven by organic growth of 6% and $1.6 billion of new investments it made over the past year. These factors helped to more than offset the income lost from asset sales and the pandemic's effects on its port and toll operations (about $10 million) and a decline in the Brazilian real versus the dollar (about $17 million). FFO per share, on the other hand, declined because Brookfield issued stock last year to bolster its liquidity to capture future investment opportunities.

Outside of transportation, Brookfield's segments performed well during the period:

Data source: Brookfield Infrastructure. Chart by the author.

FFO in the utilities segment rose 6.6% year over year, powered by 8% organic growth due to higher rates from inflation indexing and $310 million of expansion projects completed over the past year. These positives more than offset the sale of the company's Colombian regulated electricity distribution operation and a lower Brazilian real.  

Transportation FFO declined by 13.7% year over year. While the segment benefited from the recent acquisition of its North American railroad operation and strong pricing across its rail and road networks, several other headwinds hurt results. These included the sale of its European port business and an interest in its Chilean toll road operation, a lower Brazilian real, and reduced trade volumes at its container operations in North America and Australia because of the pandemic.

Energy segment FFO increased by 7.5%, fueled by 12% organic growth and the acquisition of its Western Canadian midstream business. Those positives helped offset weaker results at its gas storage operations due to timing and weather.

And FFO in its data infrastructure operations zoomed 50% thanks to the acquisition of data transmission and distribution businesses in New Zealand and the U.K. as well as a data storage business in South America.

Image source: Getty Images.

What Brookfield Infrastructure sees ahead

Brookfield continues to make progress on its strategic plan to recycle capital out of mature businesses and reinvest the proceeds into higher-returning opportunities. It's currently working on investing $500 million into a portfolio of telecom towers in India, which it expects will close in the coming weeks. But the company did walk away from a data infrastructure opportunity in the U.S. after a rival infrastructure company pushed the bidding beyond Brookfield's comfort level.

With that deal falling through, Brookfield quickly pivoted to other opportunities. During the stock market crash in March, it invested $220 million into a handful of public infrastructure businesses that traded at a substantial discount to their market value. The company hopes that some of these investments will lead to a large-scale transaction. If not, the company will sell its stakes when share prices recover.

In addition to those public market opportunities, Brookfield remains on the hunt for large-scale, value-based transactions, which it believes will emerge over the next 12 months. The company said it's "optimistically patient" that a needle-moving deal in the transport, energy, or utilities sector will emerge as a result of the pandemic. The company noted that it has $4.3 billion of liquidity, which, when combined with its strong balance sheet and ability to use the recently created shares of Brookfield Infrastructure Corporation, gives it ample financial flexibility to capture opportunities that could emerge over the coming months.

Weathering the storm exceptionally well

Brookfield Infrastructure Partners' business model, which is built on operating essential infrastructure secured by long-term contracts, proved to be highly resilient during the first quarter. Because of that, the company was able to take advantage of the market dislocation to invest capital into shares of publicly traded infrastructure companies that could pave the way for future transactions. That leads the company to believe it will emerge from these turbulent times in an even better position to create long-term value for its investors.