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Natural gas-focused energy company Questar Corp. (STR - Analyst Report) reported mixed third-quarter 2012 results, owing to better gas and liquids production, partially offset by steeper operating and maintenance expenses.

Earnings per share came in at 19 cents, down 5.0% from the profit of 20 cents earned in the prior-year quarter. The result, however, surpassed the Zacks Consensus Estimate by a penny.

Total revenue came in at $141.8 million, failing to match the Zacks Consensus Estimate of $157.0 million. On a year-over-year basis, revenue dropped 3.3% from the year-ago level of $146.7 million due to weak performance by certain segments.

Segment Analysis

Questar Gas: The segment generated $82.5 million in revenue, down 8.1% from the prior year, hurt by soft residential and commercial sales of natural gas. The segment registered a loss of $10.7 million, against a loss of $7.9 million in third quarter 2011.

As of September 30, 2012, Questar Gas served 925,400 customers, up 13,000, or 1.4% year over year.

Wexpro: Consolidated sales upped 42.0% year over year to at $9.8 million in the quarter. Segmental income from continuing operations also increased to $41.0 million from $37.7 million in the prior-year quarter, attributable to a higher average investment base.

Quarterly production of natural gas also jumped 15.9% to 14.6 billion cubic feet (Bcf), up from 12.6 Bcf in third quarter 2011.

Questar Pipeline: Consolidated revenue of $49.5 million declined slightly from the $50.0 million in the comparable quarter last year. Income from continuing operations came in at $32.6 million, reflecting a drop of 3.8% year over year. The quarter’s performance was impacted by less revenue in transportation and natural gas liquids along with a rise in interest rates.

Total natural gas transportation volumes in the quarter were 219.6 million decatherms, up from the prior-year level of 188.5 decatherms.

Financials

As of September 30, 2012, Questar had long-term debt (including current portion) of $1,098.1 million, with a debt-to-capitalization ratio of 51.4%.

During the quarter, the company bought back 927,000 shares for $20.24 per share, netting $18.8 million. Questar intends to conduct more repurchases in the coming months.

Guidance

Management reiterated its 2012 earnings guidance in the range of $1.15 to $1.19 per average diluted share. Total spending on capital programs for the year is expected to reach about $350 million.

For 2013, Questar guides for earnings in the range of $0.12 to $1.20 per share, while capital expenditure will be likely $445 million.

Questar expects to register strong growth in the next year with growth in investment base at Wexpro, enhanced production and earnings plus multi-year pipeline-replacement program and increase in customer level.

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.
 

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