Scana Reports Mixed 3Q

Natural gas and electric company SCANA Corporation ( SCG - Analyst Report ) has reported third quarter 2012 earnings of 93 cents per share, surpassing the Zacks Consensus Estimate of 89 cents. The quarterly figure was also ahead of the year-earlier profit level of 81 cents a share. The company’s earnings grew on back of improvements in gas and electric margins arising from base rate increases.

Total operating revenue of $1,038.0 million in the quarter declined nearly 5% from the year-ago level of $1,092 million and came in below the Zacks Consensus Estimate of $1,068 million.

Segment Performance

South Carolina Electric & Gas Company (“SCE&G”): Earnings from the segment, which is also SCANA's principal subsidiary, were $1.01 per share, up 9.8% from the year-ago level of 92 cents per share. The segment experienced higher margins on increases in base rate under the Base Load Review Act and the Rate Stabilization Act, as well as lower operating and maintenance expense.

As of September 30, 2012, natural gas and electric customers of SCE&G inched up 1.5% and 0.6%, respectively, on an annualized basis.

PSNC Energy: The segment achieved break-even results on a per-share basis during the quarter. At quarter end, PSNC Energy’s customer base increased 2.0% year over year.

SCANA Energy-Georgia: The segment, which houses SCANA’s retail natural gas marketing business in Georgia, reported a loss of 3 cents per share, flat with the year-ago quarter level. As of September 30, 2012, SCANA Energy’s customer base was approximately 440,000.

Corporate and Other, Net: The loss in this business segment narrowed to 2 cents a share in the quarter from 5 cents in the previous quarter.

Guidance

SCANA adjusted its full-year 2012 earnings guidance in the range of approximately $3.10–$3.25 per share from its earlier guidance of $3.05–$3.25 per share. The company reiterated its internal target of $3.17 per share.

Our Recommendation

We believe SCANA is a relatively strong and regulated integrated electric utility, supported by favorable regional demographics and electric utility rate. Given the Base Load Review Act rate recovery as well as some normal utility growth, we believe that the company can achieve its earnings target. Again, the company remains focused on nuclear construction, cost control, apart from providing safe, reliable energy for the balance of the year.

SCANA’s nuclear expansion project is a catalyst for future earnings growth. Given its financing plan, construction budget and schedule, we are hopeful that it will be able to fund its nuclear expansion project.

However, we remain concerned about SCANA’s high interest and depreciation expenses, as well as share dilution. The company’s peers include Duke Energy Corporation ( DUK - Analyst Report ) .

Hence, we retain our long-term Neutral recommendation for SCANA. The company carries a Zacks #3 Rank, which is equivalent to a short-term Hold rating.