TransCanada Quarterly Profit Falls on End of Coal Deals

Updated on
  • Results include after-tax charge on coal agreement writedown
  • Comparable profit gain driven by higher returns at Bruce Power

TransCanada Corp., a company in the midst of its biggest acquisition ever, reported a decline in first-quarter profit as it wrote down the value of coal power purchase agreements it’s exiting in Alberta.

Net income fell to C$252 million ($201 million), or 36 per share, from C$387 million, or 55 cents, a year earlier, the Calgary-based company said Friday in a statement. Excluding one-time items including the C$176 million after-tax charge tied to the coal agreements, the 70-per share adjusted profit beat the 67-cent forecast by the average of 9 analysts’ estimates compiled by Bloomberg.

Investors are focused on the company’s takeover of Columbia Pipeline Group Inc. The deal, announced in March, would see TransCanada acquire Columbia for $10.2 billion to grow its U.S. gas pipeline business. TransCanada said it plans to sell power plants in the country’s Northeast and a stake in its Mexico unit to help finance the purchase. The company is also reducing its exposure to the power market in Alberta, where it’s planning to exit coal-power purchase agreements after a policy change and amid low provincial spot prices.

Nuclear Returns

“The addition of Columbia to our resilient base business is a transformational change and creates an industry-leading portfolio of near-term growth projects that further supports and may augment our expected eight to 10 percent annual dividend growth through 2020,” Russ Girling, TransCanada’s chief executive officer, said in the statement.

TransCanada benefited in the quarter from higher returns at its Bruce Power nuclear facility in Ontario, the world’s largest, which were partially offset by lower returns from its Keystone oil pipeline system and its other power businesses in Canada and the U.S.

“We view the modestly stronger-than-expected results as a slight positive for the stock,” Robert Kwan, an analyst at RBC Dominion Securities based in Vancouver, wrote in a note. “However, we do not expect the results to have an overly material impact on the share price.”

Spot Alberta power prices averaged C$18.10 per megawatt hour in the first quarter, down 38 percent from the same period a year earlier, according to data compiled by Bloomberg. Rising electricity supplies from new generators and a weaker economy from the oil market crash have lowered prices in Alberta. The provincial government last year announced a new climate policy that includes a higher carbon price and plans to phase out coal power plants sooner.

TransCanada reported the results before the start of trading on North American markets. The stock, which has eight buy and four hold recommendations from analysts, closed at C$51.99 Thursday in Toronto.

(TransCanada has planned a conference call to discuss the results at 3 p.m. EST, available at EVTS <GO>.)