Plains All American Pipeline LP plunged the most in almost seven years after it raised concerns it wouldn’t boost distributions in 2016 amid disappointing second-quarter earnings and a cut to its outlook.
“We’re waffling quite candidly on if there’s going to be any distribution growth or if it’s going to be modest,” CEO Greg Armstrong said Wednesday on a conference call with analysts. He cited expectations of a challenging business environment as the company looks out through next year.
The company said it would pay a quarterly partnership distribution of 69.5 cents per unit next week. Plains All American has raised its distribution to investors every quarter since April 2009, according to data compiled by Bloomberg.
UBS cut its recommendation on Plains GP Holdings to neutral from buy, saying in a research note Wednesday the “current commodity environment” makes it prudent to heed the company’s warnings.
Plains All American fell 11 percent to $35.95 in New York, the biggest drop since Nov. 20, 2008. Plains GP Holdings LP, which owns an interest in the general partner and incentive distribution rights of Plains All American Pipeline, slid 23 percent to $18.73, the most since public trading began in 2013.
“When you have skinnier results you have skinnier bonuses if any bonuses,” Armstrong said. “We’re not looking to start cutting heads just so we can make a distribution target in the near term and then we realized we sacrificed a long-term business plan.”
The company reported Tuesday second-quarter adjusted earnings per share of 27 cents, below the 28-cent average of 21 analysts’ estimates compiled by Bloomberg. Second-quarter revenue was $6.66 billion, versus the estimate of $7.52 billion.
“We’re more focused on building out over the long term, so we wouldn’t want to cut costs and forgo opportunities that would cause an interim benefit but a long-term detriment,” Armstrong said. “We’re not trying to defend a distribution growth level that we could achieve in the short term through cost cuts that don’t make sense long-term.”
Plains doesn’t see the pipeline that leaked crude oil in Santa Barbara County, California, in May back in service this year. It will cost about $257 million to clean up the spill, the company said in a slide presentation.
Clarksons Platou Securities Inc. analyst Matthew Phillips in Houston said in a research note late Tuesday that the firm continues to view Plains All American as a core master limited partnership holding due to its size, growth, track record, liquidity and asset base.
“With a more uncertain outlook for the U.S. crude oil logistics space, there is a higher risk premium associated with these assets but we believe our assumptions reflect this,” Phillips wrote.