Timber cuts into Brookfield Infrastructure earnings

A ‘depressed’ timber market, unlikely to recover until late 2010, contributed to lower-than-expected earnings for the New York Stock Exchange-listed investment partnership, but lower dividends from Brazilian transmission assets were responsible for most of the decline.

Weak demand for timber and lower dividends from transmission assets contributed to lower-than-expected first quarter 2009 operating income of $8.8 million for Brookfield Infrastructure Partners (BIP).

Brookfield reported operating income of $1.8 million for its timber operations, versus $2 million expected by analysts at Wachovia. Operating income from its other main activity, transmission assets, was $11.5 million, versus $13.6 million expected by analysts.

Early in the second quarter, we are seeing few signs that the environment is improving

Sam Pollock

Approximately $4.5 million of corporate-level adjustments took away from the operating income, yielding $8.8 million – about $10 million less than during the same quarter last year.

Brookfield management blamed the weaker operating results on a depressed timber market. Sam Pollock, chief executive officer of BIP, said during the firm’s conference call that lumber prices were 50 percent below 1985 levels and “early in the second quarter, we are seeing few signs that the environment is improving”.

Timber: soft demand

As a result, BIP, which owns interests in timberlands in Canada and US’ Oregon and Washington states, is reducing harvests and will keep them at lower levels until prices increase at least 20 percent.

“[We] do not expect until latter half of 2010,” Pollock said.

The decrease in transmission earnings was driven by lower dividends generated from TBE, a set of five Brazilian electricity transmission businesses in which Brookfield owns minority stakes. Those dividends were $5.3 million less than during the same quarter in 2008.

Brookfield management remained upbeat about the prospects for their recently-awarded greenfield development of an electric transmission business in Texas. That project is estimated to cost $500 million, versus preliminary estimates of $400 million given in January, when it was awarded.

Financial close is expected in early 2011 and the project is expected to become operational approximately 18 months later.

“We believe this is indicative of the type of opportunities we will be able to pursue in the transmission sector,” Pollock said, adding that it will be a “low risk” project eligible to recover construction and development costs in future transmission rates.

Speaking at the Terrappinn Infrastructure Investment World Americas conference in New York on Wednesday, John Stinebaugh, BIP’s chief financial officer and head of utilities, said Texas was “forward looking” in its attempts to encourage more investment in transmission assets.

Over $100 billion of investment is needed to facilitate electricity transmission in the US, he said.