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Natural gas-focused energy company Questar Corporation (STR - Analyst Report) reported adjusted first quarter 2014 earnings of 48 cents per share, in line with the Zacks Consensus Estimate.

However, the bottom line increased over 17% from the prior-year level of 41 cents. Improvement in the company’s Wexpro and Questar Gas segments aided the results, supported by a decline in operating expenses.

Questar reported first quarter revenues of $456.9 million, down 4.2% from the year-ago quarter. The top line also failed to meet the Zacks Consensus Estimate of $547.0 million. Lower sales volume from the Questar Gas and Questar Pipeline segments prompted the miss.

Segment Analysis

Questar Gas: The segment generated $396.3 million in revenues, down 5.3% from the prior year quarter, owing to a decrease in natural gas sales. However, segment operating income of $69.8 million increased from $64.3 million reported in the first quarter of 2013. Questar’s cost control measures led to the improvement.

As of Mar 31, 2014, Questar Gas served 952,500 customers, up 1.6% from the year-ago quarter.   

Wexpro: Segment revenues increased 19.4% year over year to $12.3 million in the quarter. Segmental income from continuing operations also increased to $48.5 million from $39.8 million in the prior-year quarter. The outperformance can be attributed to the increase in production volume and higher price realizations.  

Quarterly production of natural gas increased 20.1% to 18.5 billion cubic feet (Bcf) from 15.4 Bcf.

Questar Pipeline: The segment reported revenues of $48.0 million compared with $48.3 million in the comparable quarter last year. Income from continuing operations came in at $30.1 million against $30.2 million in first quarter 2013. A decline in transportation volumes and a drop in NGL sales and realization can be blamed for the decrease. It was, however, partially offset by higher transportation revenues.

Total natural gas transportation volumes were $215.9 million decatherms, down from the prior-year level of 233.7 million decatherms.

Expense Summary

The general and administrative expenses for the quarter decreased 6.8% from the prior-year period to $31.5 million, while depreciation, depletion and amortization costs increased 14.0% to $55.3 million. Total operating expense – at $308.6 million – decreased 10.7% from the first quarter of 2013 primarily due to a significant drop in cost of sales.

Financials

As of Mar 31, 2014, Questar had long-term debt (including current portion) of $1,285.6 million, with a debt-to-capitalization ratio of 50.6%.  

Guidance

For 2014, Questar reiterated earnings guidance in the range of $1.18 to $1.28 per share on the back of a robust first quarter.

Zacks Rank & Stocks to Consider

Questar currently holds 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 consider better-ranked players from the industry such as AGL Resources Inc. (GAS - Analyst Report), Delta Natural Gas Company, Inc. and New Jersey Resources Corp. (NJR - Snapshot Report). All these firms currently sport a Zacks Rank #1 (Strong Buy).

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