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ONEOK Inc. (OKE - Analyst Report) is slated to release its second-quarter 2012 earnings results after the market close on October 30, 2012.

Second Quarter Performance

The company reported second-quarter profit of 29 cents per share, ahead of 25 cents per share in the year-ago quarter. The quarterly results lagged the Zacks Consensus Estimate of 34 cents per share.

The year-over-year growth was attributable to higher margins at ONEOK Partners, which stemmed from better natural gas gathering and processing and natural gas liquids business.

Net revenues in the quarter dropped 26.6% to $2.53 billion from $3.45 billion reported in the year-ago quarter. The top line also missed the Zacks Consensus Estimate of $3.47 billion.

In the second quarter 2012, cost of sales and fuel was down 32.3% year over year. As a result, gross income rose 5.8% to $548.9 million in the reported quarter from the year-ago level of $518.9 million.

Total operating expenses increased 4.5% year over year, mainly due to higher operations and maintenance expenses of the company.

Guidance 2012

Post second quarter earnings results, ONEOK Inc. lowered its net income guidance for 2012 to a range of $345 million to $375 million from the prior range of $360 million to $410 million. The company cut its full year expectation assuming low earnings from its Energy Services and Natural Gas Distribution segments offset marginally by higher expected earnings from ONEOK Partners.

ONEOK’s capital expenditure for 2012 is expected to be $2.3 billion, comprising approximately $2.0 billion for ONEOK Partners and $304 million on a stand-alone basis.

Zacks Consensus

The Zacks Consensus Estimate for the third quarter 2012 is 32 cents per share, up an estimated 13.45% from 28 cents reported in the year-ago quarter. The current Zacks Consensus Estimate ranges between 30 cents per share and 36 cents per share.

The full year 2012 Zacks Consensus Estimate is $1.68, up 0.6% from $1.67 reported in the previous year. The current Zacks Consensus Estimate ranges between $1.55 per share and $1.80 per share.

Estimate Revisions Trend

Agreement

The past 30 days have seen 2 of 9 estimates declining for the third quarter, while none moved in the opposite direction. There were no changes in the quarterly estimates in the last 7 days.

For full year 2012, of the 9 available estimates, there have been 2 downward revisions in estimates, while none moved in the opposite direction, in the last 30 days. There were no changes in the estimates in the prior 7 days.

Magnitude

The Zacks Consensus Estimate for the third quarter and for the full year remained unchanged in the last 7 days. However, estimates for the third quarter as well as for the full year moved down by a penny each in the last 30 days.
 
Surprise History


With respect to earnings surprise, the company’s performance failed to measure up to expectations in the trailing four quarters. The results of the company surpassed our expectation in one of the last four quarters, while earnings fell short of expectation in two quarters while finishing at par in the remaining quarter.

The earnings surprise in the last four quarters ranged from (21.54%) to 1.89%. The average surprise over the last four quarters remained a negative 11.45%.

Our Recommendation

The positive catalysts for the company are its steady progress in growth projects, deployment of $1 billion in additional projects and strong contribution from the ONEOK Partners segment.

However, we believe the continued slack performance of its Energy Services segment, volatile credit markets, strict utility regulations, dependence on weather patterns and unpredictable commodity prices are negatively impacting the overall performance of the company.

Evaluating the pros and cons, we decided to maintain our long-term Neutral recommendation on ONEOK shares, supported by a short-term Zacks #3 Rank (Hold). The company’s primary competitors include Dynegy Inc. (DYN - Snapshot Report) and OGE Energy Corp. (OGE - Analyst Report).

Based in Tulsa, Oklahoma, ONEOK Inc. is a diversified energy company, operating as a natural gas distributor primarily in the United States. With a market capitalization of $9.67 billion, the company has 4,795 full time employees.

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