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Energy services holding company AGL Resources (GAS - Analyst Report) reported weak fourth-quarter 2012 results, owing to higher operating costs partially offset by solid performance by the Distribution segment.

The company announced earnings per share (excluding merger-related expenses) of 91 cents, showing a decrease from 94 cents earned in the comparable quarter last year. The results also failed to meet the Zacks Consensus Estimate of $1.01.

Total operating revenues of $1,218.0 million, fell shy of the Zacks Consensus Estimate of $1,386.0 million but were up from the year-ago level of $790.0 million.

For its fiscal year ended Dec 31, 2012, AGL reported per share adjusted profits of $2.46, beating the Zacks Consensus Estimate of $2.45 but deteriorating from the 2011 adjusted earnings of $2.92 per share. Operating revenues of $3,922.0 million were 67.7% above the prior year level but missed the Zacks Consensus Estimate of $4,075.0 million.

Segmental Performance

Distribution Operations: This segment, comprising seven utilities, witnessed earnings before interest and taxes (EBIT) of $158.0 million, higher than $127.0 million obtained in the fourth quarter of 2011. The result was positively influenced by contributions from the inclusion of Nicor Gas and enhanced revenues from regulatory infrastructure programs.

Retail Operations: Comprising SouthStar Energy Services, Nicor Services, Nicor Solutions and Nicor Advanced Energy, this segment achieved an EBIT of $37.0 million against a profit of $29.0 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: This segment, which includes Sequent Energy Management, reported a profit of $10.0 million, lower than $14.0 million recorded in the prior-year quarter. Hedge losses affected the segments’ performance partially offset by better commercial activities.

Midstream Operations: This segment, mainly comprising natural gas storage facilities reported EBIT of $4.0 million, higher than $3.0 million obtained during the fourth quarter of 2011.

Cargo Shipping: This segment generated profits of $9.0 million in the reported quarter.

Quarterly Dividend  

AGL Resources increased its quarterly common stock dividend by more than 2% to 47 cents per share ($1.88 per share annualized). The new dividend will be paid on Mar 1, 2013 to shareholders of record as of Feb 15.

Guidance

Management guided earnings of $2.50 to $2.70 per share for 2013. But excluding the Wholesale Services segment, the same is expected in the range of $2.40 to $2.50 per share.

Zacks Rating

AGL Resources is one of the largest electric utility holding companies in the U.S., and is the premier energy company serving the eastern half of the country. It remains a leader in power plant productivity, cost control (operating and construction) and new technology research.

However, operating results of the company are affected by weather conditions and may vary on a seasonal and quarterly basis. Natural gas distribution is usually a temperature-sensitive business with about half of all deliveries used for space heating.

Usually, almost 75% of the deliveries and sales occur during the six-month period of October through March. Consequently, milder-than-normal weather conditions in the future could adversely affect the company’s operating results, cash flow and financial condition.

The company currently retains a Zacks Rank #5 (Strong Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.

However, there are other natural gas distributors in the energy sector that are expected to perform well in the coming one to three months. These include Centrica plc (CPYYY), Clean Energy Fuels Inc. (CLNE - Snapshot Report) and Sempra Energy (SRE - Analyst Report). All three have Zacks Rank #2 (Buy).

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