TC Energy's Profit Miss Highlights Transition Challenges Amid Growth Hopes

The first-quarter results from TC Energy (TRP) revealed a mix of operational resilience and financial headwinds, as the company reported a narrower-than-expected profit and revenue decline. While its natural gas pipeline divisions set records and advanced strategic projects, challenges in the power segment and a dividend cut underscored the complexities of navigating energy market shifts. Here’s what investors need to know.

The Earnings Gap: Missed Estimates, But What Drives the Numbers?

TC Energy’s Q1 2025 comparable earnings of CAD 0.95 per share fell just shy of the CAD 0.97 analyst consensus, while revenue of CAD 3.58 billion missed the CAD 3.63 billion estimate. The year-over-year revenue drop of 14.5%—compared to CAD 4.24 billion in Q1 2024—reflects two key factors:
1. Exclusion of the Liquids Pipelines Segment: The 2024 figure included contributions from this now-discontinued business, skewing the comparison.
2. Power Segment Struggles: The Power and Energy Solutions division saw adjusted core profit plunge 30% to CAD 224 million, driven by reduced demand and planned outages at Bruce Power.

Operational Strength in Pipelines

Despite the top-line miss, TC Energy’s core natural gas infrastructure divisions delivered record volumes:
- Canadian Pipelines: Deliveries rose 8% to 27.6 Bcf/d, with NGTL hitting a record 17.8 Bcf on Feb. 18.
- U.S. Pipelines: Flows increased 5% to 31.0 Bcf/d, while GTN set a new high of 3.2 Bcf.
- Mexico: Flows grew 6%, with a record 4.1 Bcf on March 31.

These gains reflect strong demand for natural gas in power generation and industrial use, bolstered by TC Energy’s regulated contracts. The company now derives 97% of its EBITDA from rate-regulated assets or long-term agreements—a stability metric that could reassure income investors despite the dividend cut.

Projects: The Engine of Future Growth

TC Energy’s long-term prospects hinge on its project pipeline, which includes:
1. Southeast Gateway Pipeline (Mexico):
- Completed 13% under budget, awaiting regulatory approval to begin service.
- Expected to supply 10 of Mexico’s 14 planned gas-fired power plants, supporting its energy transition.

1. Northwoods Project (U.S. Midwest):
2. A $0.9 billion expansion to boost ANR system capacity by 0.4 Bcf/d, targeting data centers and power generation.

3. Anticipated in-service by late 2029, with a projected 5–7x return on capital (build multiple).

4. Bruce Power Unit 5 MCR:

5. A $1.1 billion overhaul to extend the reactor’s lifespan, supported by a long-term contract with Ontario’s IESO.

These projects, totaling $8.5 billion in 2025, are critical to offsetting near-term headwinds and positioning TC Energy for growth as global natural gas demand expands.

Dividend Cut: Prudent or Concerning?

The decision to reduce the quarterly dividend by 11% to CAD 0.85 per share—marking an annualized rate of CAD 3.40—reflects management’s focus on capital discipline. While income investors may balk, the move aligns with TC Energy’s goal to maintain a 3–5% dividend growth target over the long term, supported by its robust project returns. With $6.1–6.6 billion in 2025 capital expenditures, prioritizing projects over dividends could prove strategic.

Risks and Regulatory Hurdles

TC Energy’s outlook hinges on timely regulatory approvals and macroeconomic stability. Delays in Mexico’s CNE rate approval for Southeast Gateway or U.S. FERC decisions on rate filings (e.g., ANR’s Section 4 case) could disrupt cash flows. Additionally, global LNG export dynamics and coal-to-gas conversion timelines remain uncertain, though TC Energy’s diversified project base mitigates some risks.

Conclusion: A Company in Transition, but Anchored by Infrastructure

TC Energy’s Q1 miss is not a death knell but a reflection of its evolving portfolio. While the power segment’s struggles and dividend cut warrant caution, the company’s natural gas infrastructure dominance, robust project pipeline, and 97% contract coverage provide a sturdy foundation. With Comparable EBITDA guidance of CAD 10.7–10.9 billion for 2025 and a disciplined capital strategy, TC Energy appears positioned to grow through the energy transition—though investors should monitor execution risks closely. For now, its blend of regulated stability and high-return projects makes it a compelling, if volatile, play on North American energy infrastructure.