Sempra Beats EPS, Sales Trail

Sempra Energy ( SRE - Analyst Report ) reported its second-quarter 2012 results with pro forma earnings per share of 98 cents, beating the Zacks Consensus Estimate of 80 cents per share and the year-ago figure of 94 cents.

The company reported GAAP earnings per share of 25 cents versus $2.09 in the year-ago quarter. The variance of 73 cents between GAAP and pro forma earnings per share was due to a non-cash charge related to a write-down on the company's investment in the Rockies Express Pipeline.

Operating Statistics

Total revenue of Sempra Energy in the second quarter of 2012 was $2.1 billion, down 13.7% year over year and also below the Zacks Consensus Estimate of $215 million.

In the reported quarter, Sempra Utilities' top line decreased to $1.83 billion from $1.92 billion in the year-ago quarter. Energy-related businesses generated revenues of $251 million compared with $500 million in the year-ago quarter.

Segment Update

San Diego Gas & Electric: Quarterly earnings for San Diego Gas & Electric (SDG&E) were $95 million compared with $71 million in the year-ago quarter, primarily due to higher earnings related to the Sunrise Powerlink transmission line project.

Southern California Gas Company (SoCalGas): The segment generated earnings of $53 million, down $6 million year over year.

Sempra South American Utilities: The segment recorded earnings of $38 million, down from $314 million in the second quarter of 2011. The decline was attributable to a write-up in value of the company's South American utility investments.

Sempra Mexico: The segment recorded earnings of $43 million compared with $35 million last year.

Sempra Renewables: The segment recorded earnings of $24 million, up from $4 million in the second quarter of 2011. The increase was primarily due to an increase in solar and wind assets.

Sempra Natural Gas: The segment recorded a loss of $14 million versus a profit of $47 million in second-quarter 2011. Including a charge of $179 million related to the Rockies Express Pipeline, the segment reported a loss of $193 million.

Parent & Other: Segment earnings were $2 million versus a loss of $27 million in the year-ago quarter.

Financial Update

As of June 30, 2012, cash and cash equivalents were $221 million versus $392 million at the end of June 30, 2011. Long-term debt increased to approximately $10.3 billion at the end of the reported period from $9.6 billion at the end of the second quarter of 2011.

Guidance

Sempra Energy reaffirmed its fiscal 2012 pro forma earnings guidance range of $4 to $4.30 per share. However, including the pipeline charge of 73 cents and a tax benefit of 19 cents per share, the company’s GAAP earnings per share were in the range of $3.46 to $3.76 per share.

Our Take

Sempra’s Earnings surpassed our expectation by 18 cents. Going forward, the company continues to make progress with its major infrastructure projects. In June this year, the company’s Sunrise Powerlink project came online. The project is expected to help in meeting the power demand and improve reliability of the regional electric grid.

Moreover, the company’s diversified basket of businesses insulates its operations to a significant degree from regulatory rate risks. However, the above positives are offset due to a lack of any near-term positive triggers, along with near-term trepidation in natural gas prices and pending regulatory cases.

The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Sempra Energy is a southern California-based energy services holding company involved in the sale, distribution, storage, and transportation of electricity and natural gas. The company’s businesses are broadly divided into Sempra Utilities, Sempra International and Sempra U.S. Gas & Power.

Some of the company’s main competitors are UGI Corp. ( UGI - Snapshot Report ) and MDU Resources Group Inc. ( MDU - Snapshot Report ) .