Southern Union Misses on EPS

Southern Union Company (SUG) reported fourth-quarter 2010 adjusted earnings of 53 cents per share, falling behind the 56 cents mark of both the Zacks Consensus Estimate and year-ago adjusted earnings. On a reported basis, Southern Union reported EPS of 45 cents compared with 41 cents in the prior-year quarter.

For fiscal 2010, Southern Union reported adjusted earnings of $1.79 per share versus the Zacks Consensus Estimate and fiscal 2009 earnings of $1.82. On a reported basis, the company clocked earnings of $1.73 compared with $1.37 in the prior-year period.

Operating Statistics

Revenue of Southern Union in the quarter totaled $670.3 million, up 11% from $603.7 million in the prior-year period. Results also surpassed the Zacks Consensus Estimate of $587 million.

The improvement was driven by strong performance at all the segments including Transportation and Storage; Gathering and Processing; and Distribution, with revenues rising 0.5%, 25.2%, and 6.9%, respectively, year over year. The company reported net earnings of $55.9 million compared with $51 million in the prior-year quarter.

For fiscal 2010, Southern Union clocked revenue of $2.5 billion beating past the Zacks Consensus Estimate of $2.4 billion and fiscal 2009 revenue of $2.2 billion. The company reported net earnings of $216.2 million, compared with $170.9 million in the prior year. 

Fiscal 2010 Segment Update

Transportation and Storage: In the reported period, earnings were $446.1 million, compared with $414.4 million in the prior-year period. The increase was primarily attributable to higher revenues from the LNG infrastructure enhancement construction project placed in service in March 2010. This was offset partially by lower revenues from interruptible parking and short-term firm transportation services. 

Gathering and Processing: In the reported period, earnings were $25.9 million, compared with $64.1 million in the prior-year period. The decrease is primarily due to lower realized natural gas and natural gas liquids prices year over year. Total daily processed volumes were 430,683 MMBtu (Million Metric British Thermal Units) in 2010 compared with 401,715 MMBtu in 2009.  For the year, equity volumes daily, which the company primarily receives through its percentage of proceeds contracts with producers, averaged 35,000 MMBtu of natural gas liquids equivalents and 20,000 MMBtu of natural gas. 

Distribution: In the reported period, earnings were $63.7 million compared to $59.2 million in the prior year period. The increase was largely due to higher gas rates at Missouri that came into effect on February 28, 2010. This was partially offset by higher operating, maintenance and general expenses.

Financial Update

Cash from operations were $424.7 million in 2010, down from $579.2 million in 2009. Long-term debt at fiscal 2010-end increased to $3.5 billion from $3.4 billion at fiscal 2009 end.

Guidance

Southern Unionaffirmed its fiscal 2011 EPS guidance range of $1.87–$2.07 (GAAP basis) and adjusted EPS range of $1.75–$1.95.

Houston-based Southern Union is engaged primarily in the transportation, storage, gathering, processing and distribution of natural gas. We maintain our Neutral recommendation on Southern Union. The quantitative Zacks #3 Rank (Hold) for the company indicates downward directional pressure on the shares over the near term. We maintain our long-term Neutral recommendation on Southern Union. This is in line with its peers AGL Resources Inc. (AGL) and Atmos Energy Corporation (ATO - Snapshot Report).

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