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Energy services holding company AGL Resources Inc. (GAS - Analyst Report) reported lackluster third-quarter 2012 results, owing to poor performance from Distribution segments as well as higher operating costs.

The company – the largest domestic natural gas-only distribution entity with about 4.5 million customers across seven states following the December 2011 acquisition of Naperville, Illinois-based Nicor Inc. – announced earnings per share (excluding merger-related expenses) of 9 cents, improving from 2 cents earned in the comparable quarter last year.  However, the result failed to meet the Zacks Consensus Estimate of 22 cents.

Total operating revenues of $614.0 million, were shy of the Zacks Consensus Estimate of $721.0 million but were up from the year-ago level of $295.0 million.

Segmental Performance

Distribution Operations: This segment, comprised of seven utilities, witnessed earnings before interest and taxes (EBIT) of $80.0 million, higher than $70.0 million obtained during the third quarter of 2011. The result was positively influenced by contributions from the inclusion of Nicor Gas.

Retail Operations: AGL’s ‘Retail’ segment – made up of SouthStar Energy Services, Nicor Services, Nicor Solutions and Nicor Advanced Energy – achieved an EBIT of $5.0 million, against a loss of $5.0 million in the year-earlier period. The quarter’s performance benefited from the addition of a retail business unit from Nicor along with lower transportation and gas costs.

Wholesale Services: The segment that includes Sequent Energy Management reported a loss of $23.0 million, narrower than the loss of $37.0 million recorded in the prior-year quarter. Better commercial activities aided the segment performance.

The earnings contribution from AGL’s other businesses – Midstream Operations and Cargo Shipping – were insignificant.


Management stated that the unfavorable weather conditions that prevailed in the first half of 2012 will likely impact the company’s performance, which is reflected through a lower earnings guidance of $2.60 to $2.75 per share.

Rating & Recommendation

Another natural gas distributor – Tulsa, Oklahoma-based ONEOK Inc. (OKE - Analyst Report) – reported third-quarter 2012 earnings of 31 cents per diluted share, missing our projection of 32 cents per diluted share.

AGL Resources currently retains a Zacks #3 Rank (short-term Hold rating). We are also maintaining our long-term Neutral recommendation on the stock.

AGL Resources offers a wide range of retail energy-related products and services, natural gas wholesale marketing and other gas supply management services. Over the past few years, these businesses have contributed significantly to the company’s overall earnings and we expect this trend to continue in the coming days as well.

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