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Energy services holding company AGL Resources Inc. (GAS - Analyst Report) reported lower-than-expected second-quarter 2014 earnings, primarily due to higher operating expenses.

AGL Resources – the largest domestic natural gas-only distribution entity with about 4.5 million customers across seven states following the Dec 2011 acquisition of Naperville, IL-based Nicor Inc. – announced earnings per share of 40 cents (excluding wholesale services and discontinued operations).  The bottom line missed the Zacks Consensus Estimate by a penny.

However, earnings increased 8.1% from the year-ago adjusted profit of 37 cents per share. Higher operating performances especially from the Distribution Operations segment, owing to lower temperatures than last year, favored the results.
 

Total operating revenues, at $902 million, were up from the year-ago level of $816 million.  

Segmental Performance

Distribution Operations: The segment, comprising seven utilities, reported earnings before interest and taxes (EBIT) of $120 million, up from $109 million in the second quarter of 2013. Colder weather during the quarter as compared to the last year led to the improvement.

Retail Operations: Comprising SouthStar Energy Services, Nicor Services, Nicor Solutions and Nicor Advanced Energy, this segment achieved an EBIT of $18 million against $12 million in the year-earlier period. The quarter’s performance benefited from lower-than-normal temperature.

Wholesale Services: The unit, which includes Sequent Energy Management, reported a profit of $23 million, up from $11 million recorded in the prior-year quarter. Strong commercial activity, especially in the Northeast and Midwest regions, aided the segment’s performance.

Midstream Operations: This segment, mainly comprising natural gas storage facilities, reported a loss of $7 million.

Operating Expenses

The company’s total operating cost was recorded at $750 million, reflecting an increase of 6.5% from $704 million in the year-ago quarter.

Guidance    

Management retained its 2014 earnings guidance – excluding wholesale services – at $2.80–$2.90 per share.

Zacks Rank

AGL Resources currently carries a Zacks Rank #2 (Buy), implying that it is expected to outperform the broader U.S equity market over the next one to three months.

One can also consider players in the same industry like The Laclede Group Inc. (LG - Snapshot Report), WGL Holdings Inc. (WGL - Snapshot Report) and Piedmont Natural Gas Co. Inc. (PNY - Snapshot Report). The Laclede Group and WGL Holdings carry a Zacks Rank #1 (Strong Buy), while Piedmont Natural Gas holds a Zacks Rank #2 (Buy).
 

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