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Dominion Resources Inc. (D - Snapshot Report) reported second quarter 2012 operating earnings of 59 cents per share, in line with the Zacks Consensus Estimate as well as the year-ago earnings. Dominion’s earnings were at the mid-point of the guidance of 55–65 cents.

Operating earnings for the quarter were $337 million, inching down from $338 million in the year-ago quarter.

Lower operations and maintenance expenses and higher contributions from unregulated retail energy marketing operations were offset by milder-than-normal weather in the regulated electric service territory and lower merchant generation margins.

Including restoration costs of $45 million associated with June summer storms, losses from discontinued operations (Merchant generation plants of $18 million and Kewaunee operations of $18 million) and net gains in nuclear decommissioning trust funds of $2 million, Dominion reported net income of $258 million or 45 cents a share in the quarter. This compares unfavorably with $336 million or 58 cents a share in the second quarter of 2011.

Operational Update

Dominion’s operating revenue of $3.0 billion in the second quarter declined 8.8% from the year-ago quarter. Lower revenue across all segments induced the decline. Revenue also fell short of the Zacks Consensus Estimate of $3.25 billion.

Total operating expenses in the second quarter reached $2.29 billion, down 10.7% year over year. The decline was due to lower electric fuel and other energy related purchases, decline in purchased electric capacity and purchased gas and lower operations and maintenance expenses.

The company’s earnings before interest and tax were $720 million, down 2% year over year.

Segment Update

Dominion Virginia Power segment recorded revenue of $816 million in the second quarter of 2012, down 3.2% year over year.

Operating earnings in the quarter improved 24% year over year to $143 million.

Dominion Energy reported revenue of $591 million, down 12.2% year over year.

Operating earnings came in at $109 million, up 4.8% year over year.

Dominion Generation’s revenue declined 8.3% year over year to $1.69 billion.

Segment operating earnings increased 21.6% over the prior-year quarter to $152 million.

Other Key Highlights

Dominion’s business segments continue to make significant progress on the infrastructure development front.

At the Generation segment, the 585-megawatt Virginia City Hybrid Energy Center is placed into operation. Construction started at the 1,329-megawatt, gas-fired power station in Warren County, Virginia and is scheduled for completion in late 2014.

Dominion intends to file regulatory applications in the fourth quarter of 2012 for its next gas-fired generating facility, in Brunswick County, Virginia and is expected to come online in 2016.  

At Dominion Energy, construction of the Appalachian Gateway project began last summer and is expected be in service in September 2012. The Northeast Expansion Project and the second phase of the Natrium natural gas processing and fractionation plant, serving the Marcellus and Utica shale regions are also expected to be in service by 2012 end.

Financial Update

Dominion exited the quarter with cash and cash equivalents of $162 million, up from $102 million at the end of the prior-year quarter.

Long-term debt at quarter end decreased to $17.0 billion from $17.4 billion at prior-year quarter end.

Cash provided by operating activities in the first half increased to approximately $2.4 billion from $1.3 billion in the year-ago quarter.

Capital expenditure in the first half amounted to $2.0 million, up from $1.6 billion in the year-ago period.

Looking into 2012

Dominion expects to deliver third quarter operating earnings in a range of 90 cents to $1.00 per share. The company guided the range based on expected higher rate adjustment clause earnings, growth in electric service territory and lower operations and maintenance expenses. However, these positives are to be weighed upon by normal weather and lower merchant generation margins.

Dominion affirmed full year 2012 operating earnings in a band of $3.10–$3.35 per share.

At the Peer

American Electric Power Co. Inc. (AEP), which competes with Dominion, reported operating earnings of 77 cents per share, beating the Zacks Consensus Estimate of 72 cents.

The company’s results also exceeded the year-ago quarterly earnings of 73 cents per share. The year-over-year improvement stemmed from higher demand driven by warmer than normal weather, focus on cost control, and improving economies in service territories.

Quarterly revenue of $3.6 billion was flat with both the Zacks Consensus Estimate and the year-ago period.

Zacks Rank

The quantitative Zacks #3 Rank (short-term Hold rating) for Dominion indicates no clear directional pressure on the stock over the near term.

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