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Energy services holding company AGL Resources Inc. (GAS - Analyst Report) reported weaker-than-expected first quarter 2013 earnings, hurt by low and volatile natural gas prices.

AGL Resources – which became the largest domestic natural gas-only distribution entity with about 4.5 million customers across seven states following the Dec 2011 acquisition of Naperville, IL-based Nicor Inc. – announced earnings per share of $1.31, below the Zacks Consensus Estimate of $1.35.

However, compared with the year-earlier period, AGL Resources’ earnings per share rose by 12.9% – from $1.16 (excluding merger-related expenses) to $1.31 – amid higher energy use on the back of lower-than-expected temperatures, as against the unusually warm last one.

Total operating revenues, at $1,709.0 million, were ahead of the Zacks Consensus Estimate of $1,422.0 million and were also up from the year-ago level of $1,404.0 million.

Segmental Performance

Distribution Operations: The segment, comprising seven utilities, reported earnings before interest and taxes (EBIT) of $218.0 million, up from $194.0 million achieved during the first quarter of 2012. The result was positively influenced by favorable weather conditions and enhanced revenues from AGL Resources’ regulatory infrastructure programs.  
 
Retail Operations: Comprising SouthStar Energy Services, Nicor Services, Nicor Solutions and Nicor Advanced Energy, this segment achieved an EBIT of $70.0 million against a profit of $60.0 million in the year-earlier period. The quarter’s performance benefited from a colder-than-normal winter and contribution from the Jan acquisition of 500,000 retail warranty contracts.
    
Wholesale Services: The unit, which includes Sequent Energy Management, reported a profit of $15.0 million, lower than $19.0 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 $2.0 million, down from $3.0 million earned during the first quarter of 2012. The decline was on account of higher operating expenses, to an extent negated by improved operating margin and other income.

Cargo Shipping: This segment generated profits of $2.0 million in the reported quarter, double that of the year-earlier period. The positive comparison was driven by a rise in cargo capacity and lower depreciation and amortization expense incurred by AGL Resources.

Guidance

AGL Resources management reiterated its earnings guidance of $2.50–$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 Rank

AGL Resources currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

However, there are certain natural gas distribution utilities like Atmos Energy Corp. (ATO - Snapshot Report), Questar Corp. (STR - Analyst Report) and EQT Corp. (EQT - Analyst Report) that offer tremendous value and are worth buying now. All these companies sport a Zacks Rank #1 (Strong Buy).

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