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NiSource EPS Beats, Keeps Guidance

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Diversified utility NiSource Inc. (NI - Free Report) posted third quarter 2011 net operating earnings of 11 cents per share, surpassing the Zacks Consensus Estimate by a penny.and the year-ago figure by 7 cents.

GAAP earnings in the reported quarter were 13 cents per share versus 12 cents per share reported in the year-ago quarter. The difference of 2 cents between the operating and GAAP earnings in the reported quarter was due certain one-time gains.


Total revenue in the quarter under review improved 1.9% year over year to $1.02 billion driven by higher revenues from all of its reporting segments.

Revenue, however, missed the Zacks Consensus Estimate of $ 1.05 billion.

Operational Update

During the quarter the weather adjusted electric sales volume increased by 6.4% to 4,644.8 Gigawatt hours (GWh) from 4,366.5 GWh in the year-ago quarter.

Total operating expenses decreased 0.3% year over year in the quarter to $600.3 million.

Interest expenses during the quarter improved 1.9% primarily owing to the long-term debt maturity in November 2010 and a December 2010 repurchase of long-term debt. However, the benefits were partially offset by incremental interest expense associated with a swap maturity in November 2010, the issuance of long-term debt in June 2011 and December 2010, and higher average short-term borrowings and rates.

Segment Update

Gas Distribution Operations: Revenue increased 2.8% year over year to gross $326.5 million in the quarter. Operating earnings in the quarter were $8 million versus a loss of $40.7 million in the year-ago quarter.

Gas Transmission and Storage Operations: Segment revenue increased 4.7% year over year to $283.3 million. However, the operating earnings dropped 10.7% year over year to $68.2 million.

Electric Operations: Revenue increased 0.1% year over year to $398.7 million in the quarter. Operating earnings were $72.9 million, down 8.9% over the prior-year period.

Corporate and Other Operations: Segment revenue was $15.3 million, compared with $17.8 million in the year-ago quarter. The segment posted a wider operating loss of $7.1 million in the quarter than a loss of $5.8 million a year ago.

Financial Update

NiSource ended the quarter with cash and cash equivalents of $22.2 million, up substantially from $9.2 million as of December 31, 2010.

Long-term debts (excluding debts due within a year) as of September 30, 2011 were $6.33 billion versus $5.94 billion at 2010 end.

Net cash from operating activities in the first nine months of 2011 was $794.1 million, up substantially from $332.5 million reported in the year-ago comparable period. Capital expenditures were $774.2 million, up 39.8% year over year.

Looking Forward

NiSource now expects earnings for 2011 to be near the upper end of its previously issued guidance of $1.25 to $1.35 per share.

NiSource expects to make capital investments worth $1.1 billion in 2011.

Peer Comparison

Dominion Resources Inc. (D - Free Report) , which competes with NiSource, announced operating earnings of 95 cents per share for the third quarter 2011, below the year-ago figure of $1.03 per share but a penny ahead of the Zacks Consensus Estimate.

Dominion's operating revenue of $3.78 billion in the quarter declined 4.4% from the year-ago quarter. Revenue also marginally lagged the Zacks Consensus Estimate of $3.824 billion.

Our View

NiSource had a mixed quarter, with its top line falling short of our expectation and earnings beating it. In the first nine months of the year, NiSource was successful in increasing its customer base marginally from the prior-year level. We believe this is an encouraging sign and will aid in the future growth of the company.

The company presently retains a short-term Zacks #3 Rank, which translates into a short-term Hold rating.

Merrillville, Indiana based NiSource is an energy holding company whose subsidiaries provide natural gas, electricity and other products and services in the U.S. Its operating subsidiaries deliver energy to customers within the high-demand energy corridor stretching from the Gulf Coast through the Midwest to New England.

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