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Energy services holding company, AGL Resources Inc (GAS - Analyst Report), reported weak fourth-quarter 2013 earnings, owing to significant increase in operating cost.

The company announced earnings per share of 68 cents, failed to meet the Zacks Consensus Estimate of 91 cents. Moreover, the figure also decreased 25.3% from the year-ago adjusted profit.

Total operating revenue of $1,329.0 million surpassed the Zacks Consensus Estimate of $1,192.0 million and was also up from the year-ago level of $1,218.0 million. Increase in demand owing to an extreme drop in temperature during the quarter supported the results.

For its fiscal year ended Dec 31, 2013, AGL Resources reported per share adjusted profits of $2.61 failed to beat the Zacks Consensus Estimate of $2.80 but improved from the 2012 adjusted earnings of $2.51 per share. Operating revenues of $4,617.0 million were 17.7% above the prior-year level and also surpassed the Zacks Consensus Estimate of $4,480.0 million.

Segmental Performance

Distribution Operations: This segment, comprising seven utilities, witnessed earnings before interest and taxes (EBIT) of $169.0 million, higher than $158.0 million obtained in the fourth quarter of 2012. Hike in demand owing to an extreme fall in temperature in the quarter aided the results.

Retail Operations: Consisting of SouthStar Energy Services, Nicor Services, Nicor Solutions and Nicor Advanced Energy, this segment achieved an EBIT of $47.0 million against a profit of $37.0 million in the year-earlier period. The results were supported by lower than normal temperature during the fourth quarter 2013.

Wholesale Services: This segment, which includes Sequent Energy Management, reported a loss of $28.0 million against a profit of $10.0 million recorded in the prior-year quarter. Losses from mark-to-market activities owing to hedge positions hampered the results.

Midstream Operations: This segment, mainly comprising natural gas storage facilities, reported loss of $11.0 million as compared to a profit of $4.0 million obtained during the fourth quarter of 2012. Impairment loss incurred by the company for the closure of Sawgrass storage development affected the results negatively.

Cargo Shipping: This segment generated EBIT of $9.0 million in the reported quarter, in line with the year-ago reported earnings.

Increased Operating Cost

AGL Resources’ fourth-quarter 2013 operating expenses came at $1,146.0 million, reflecting a significant increase of 12.9% as compared to the year-ago quarter.

Dividend Increase

AGL Resources declared a quarterly dividend of 49 cents per share, reflecting a year-over-year hike of roughly 4.3%. The new dividend will be paid on Mar 1, 2014 to the shareholders of record as of Feb 14, 2014.

Guidance

Excluding wholesale services, management guided earnings of $2.70 to $2.80 per share for 2014.

 Zacks Rank

AGL Resources currently retains a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.  

Meanwhile, one can look at better-ranked players in the utility gas distribution sector like Atmos Energy Corporation (ATO - Snapshot Report), National Fuel Gas Company (NFG - Snapshot Report) and Questar Corporation (STR - Analyst Report). All the stocks hold a Zacks Rank #2 (Buy).

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