Questar Disappoints, Keeps Outlook

Natural gas-focused energy company Questar Corp. ( STR - Analyst Report ) reported lackluster second quarter 2012 results, due to low contributions from the business units coupled with steeper general and administrative expenses.

Earnings per share came in at 22 cents, unchanged from the profit earned in the prior-year quarter. The result, however, missed the Zacks Consensus Estimate by a penny.

Total revenue came in at $188.4 million, failing to match the Zacks Consensus Estimate of $227.0. On a year-over-year basis, revenue dropped 15.5% from the year-ago level of $222.9 million due to weak performance by all segments.

Segment Analysis

Questar Gas: The segment generated $130.2 million in revenue, down 20.6% from the prior year, hurt by soft residential and commercial sales of natural gas. The segment registered a loss of $2.3 million, against the profit of $0.4 million in second quarter 2011.

As of June 30, 2012, Questar Gas served 924,000 customers, up 10,000, or 1.2% year over year.

Wexpro: Consolidated sales were down 3.6% year over year at $8.1 million in the quarter. However, segmental income from continuing operations increased to $25.8 million from $23.7 million in the prior-year quarter, attributable to a higher average investment base.

Wexpro also reported 21.2% growth in the quarterly production of natural gas to 14.3 billion cubic feet (Bcf), up from 11.8 Bcf in second quarter 2011.

Questar Pipeline: Consolidated revenue of $50.1 million declined slightly from the year-ago quarter’s $50.5 million. Income from continuing operations came in at $16.1 million, reflecting a drop of 3.0%. The quarter’s performance was impacted by declining natural gas liquids prices and higher depreciation costs.

Total natural gas transportation volumes in the quarter were 218.4 million decatherms, up from the prior-year level of 187.8 decatherms.

Financials

As of June 30, 2012, Questar had long-term debt (including current portion) of $1,123.8 million, with a debt-to-capitalization ratio of 51.8%.

During the quarter, the company bought back $2.62 million shares for $19.96 per share, netting $52.2 million. Questar intends to conduct more repurchases in the coming months.

2012 Guidance

Management reiterated its 2012 earnings guidance in the range of $1.15 to $1.19 per average diluted share.

Despite a soft second quarter, Questar expects to register strong growth in the coming months with a high investment base at Wexpro, a multi-year pipeline-replacement program and strong customer growth.

Our Recommendation

We maintain our long-term Neutral recommendation on the stock. Questar, which competes with AGL Resources Inc. ( ) and ONEOK Inc. ( OKE - Analyst Report ) , currently holds a Zacks #3 Rank, implying a short-term Hold rating for a period of one to three months.