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Sempra Energy (SRE - Free Report) reported its third-quarter 2012 results with pro forma earnings per share of $1.33 beating the Zacks Consensus Estimate of $1.00 per share and year-ago figure of $1.20.

The company reported GAAP earnings per share of $1.09 versus $1.20 in the year-ago quarter. The variance of 24 cents between GAAP and pro forma earnings per share was due to a non-cash charge related to a write-down on the company's investment in the Rockies Express Pipeline.

Operating Statistics

Total revenue of Sempra Energy in the third quarter of 2012 was $2.5 billion, down 2.7% year over year. However, reported quarterly revenue comfortably beat the Zacks Consensus Estimate of $2.3 billion.

In the reported quarter, Sempra Utilities' top line increased to $2.2 billion from $2.1 billion in the year-ago quarter. Energy-related businesses generated revenues of $337 million compared with $511 million in the year-ago quarter.

Segment Update

San Diego Gas & Electric: Quarterly earnings for San Diego Gas & Electric (SDG&E) were $174 million compared with $113 million in the year-ago quarter, primarily due to lower taxes, higher transmission earnings and reduced expenses related to the 2007 wildfires.

Southern California Gas Company (SoCalGas): The segment generated earnings of $71 million, down $81 million year over year.

Sempra South American Utilities: The segment recorded earnings of $40 million, down from $50 million in the third quarter of 2011. In the third quarter 2011, Sempra South American Utilities had a foreign-currency benefit of $19 million.

Sempra Mexico: The segment recorded earnings of $54 million compared with $47 million last year. This was due primarily to improved operating performance.

Sempra Renewables: The segment recorded earnings of $13 million, up from $1 million in the third quarter of 2011.  The increase was primarily due to an increase in solar and wind assets.

Sempra Natural Gas: The segment recorded a loss of $68 million versus a profit of $41 million in third-quarter 2011. Segment results were impacted by lower natural gas and power prices, including the expiration of the 10-year California Department of Water Resources power-supply contract in the third quarter 2011. Excluding a $60 million charge related to the Rockies Express Pipeline, the segment recorded an $8 million loss in the third quarter 2012.
Financial Update

As of September 30, 2012, cash and cash equivalents were $530 million versus $657 million at the end of September 30, 2011. Long-term debt increased to approximately $11.2 billion at the end of the reported period from $10.1 billion at fiscal-end 2011.


Sempra Energy reaffirmed its fiscal 2012 pro forma earnings guidance range of $4.00 to $4.30 per share. However, including the charges related to the Rockies Express Pipeline and a second-quarter deferred tax benefit at the parent company related to life-insurance contracts, the GAAP guidance was trimmed. The company now expects fiscal 2012 GAAP earnings guidance in the range of $3.21–$3.51 versus the earlier range of $3.46–$3.76.

Our Take

Sempra’s Earnings surpassed our expectation by 33 cents. Going forward, the company continues to make progress with its major infrastructure projects. In June this year, the company’s Sunrise Powerlink project came online. The project is expected to help in meeting the power demand and improving reliability of the regional electric grid.

Recently in October the company was awarded two bids by Comisión Federal Electricidad (“CFE”), Mexico’s state-owned electric utility, to construct a $1 billion natural gas pipeline network in northwestern Mexico. The new pipeline will be comprised of two segments that will interconnect with the U.S. interstate pipeline system and provide natural gas to existing CFE power plants. The capacity for each segment is fully contracted by the CFE for a 25-year term. The first pipeline is expected to begin operations in late 2014.

Moreover, the company’s diversified basket of businesses insulates its operations to a significant degree from regulatory rate risks. However, the above positives are offset by a lack of near-term positive triggers, along with near-term trepidation in natural gas prices and pending regulatory cases.

The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Sempra Energy is a southern California-based energy services holding company involved in the sale, distribution, storage, and transportation of electricity and natural gas. The company’s businesses are broadly divided into Sempra Utilities, Sempra International and Sempra U.S. Gas & Power.

Some of the company’s main competitors are UGI Corp. (UGI - Free Report) and MDU Resources Group Inc. (MDU - Free Report) .

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