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NI's Mixed Show, Guides Favorably

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Diversified utility, NiSource Inc. (NI - Free Report) posted net operating earnings of 44 cents per share in the fourth quarter of 2012, in line with the Zacks Consensus Estimate but above the year-ago quarter’s operating earnings of 32 cents by 37.5%.

The 2012 operating earnings of $1.46 per share surpassed the Zacks Consensus Estimate by a penny. The results were 10.6% ahead of the Zacks Consensus Estimate.

The improvement in earnings was attributable to the consistent infrastructure investments of the company. The progress made in its Gas Transportation and Storage business enabled a better performance from the prior year.

NiSource recorded GAAP earnings of $1.41 per share for 2012 compared with $1.05 per share in the previous year. The difference of 3 cents between operating and GAAP earnings during the financial year was due to certain one-time items.

Total Revenue

Gross revenue during the quarter declined 2.8% year over year to $1,399.7 million from $1,439.7 million. The decline was mainly due to lower contribution from the Gas Distribution segment which decreased 20.3%, offset partially by a 9.2% improvement in Electric Operations and 16.0% increase in the Gas Transportation and Storage revenue.

The quarter’s revenue missed the Zacks Consensus Estimate by 8.7%.

NiSource’s total revenue for 2012 was $5,070 million down 11.9% from $5,756.3 million reported in the prior year. In spite of the higher contribution from Gas Transportation and Storage, Electric Operations and Corporate and Other Operations, the year-over-year decline was due to a dull Gas Distribution segment.

2012 revenue also lagged the Zacks Consensus Estimate by 6.3%.

Highlights of the Release

In 2012, cost of sales was 30% of total revenue against 40.5% in 2011. Lower input cost had a favorable impact on the margins of the company despite a 0.7% increase in total operating expenses in 2012 from the 2011 levels.

Operating earnings from the Gas Distribution segment in 2012 was $397.8 million, up 10.5% from the prior year on consistent investment. In 2012, NiSource made capital investment worth $650 million in this business segment and plans to repeat the same in 2013.

The new projects which were put into service in 2012 from the Gas Transportation and Storage business yielded positive results. The joint ventures with other industry operators will aid the company to better its performance in 2013. NiSource expects to invest $700 million in this segment in 2013.

The operating income of the company was $1.07 billion, up 13.2% from the 2011 levels.

The interest expenses of the company in 2012 were $418.3 million, up 11% from the prior year mainly due to new debts issued by the company.

Financial Position

As of Dec 31, 2012, NiSource had cash and cash equivalents of $36.3 million, down from $11.5 million as of Dec 31, 2011.

Long-term debts (excluding the debts due within a year) of the company as of Dec 2012, were $6,819.1 million versus $6,267.1 million as of Dec 31, 2011. During the year, the company issued new long-term debt worth $991.4 million while it redeemed debt worth $331.6 million in 2012.

Cash flow from operating activities during the year increased to $1,275.5 million from $870.2 million in the prior year. The company distributed dividend worth $273.2 million in 2012 versus $257.8 million in the prior year.

A Glimpse into 2013

NiSource expects 2013 operating earnings per share in the range of $1.50 to $1.60. The guidance takes into account the balanced business strategy of the company and growth opportunities across the board.

The company did not provide GAAP figures but indicated that 2013 numbers would differ from operating earnings due to unpredictable weather and other factors affecting comparability.

Capital expenditure for 2013 is expected at $1.8 billion, up 20% from the prior year. The company continues to make strategic investments in developing its infrastructure to achieve its long-term earnings growth target of 5% to 7% per year.

Other Company Release

Pike Electric Corporation reported earnings of 67 cents per share in the second quarter of fiscal 2013, surpassing the Zacks Consensus Estimate of 25 cents.

Wisconsin Energy Corp. (WEC - Free Report) announced fourth-quarter 2012 operating earnings of 43 cents per share, 4.9% above the Zacks Consensus Estimate of 41 cents.

Otter Tail Corporation (OTTR - Free Report) announced fourth-quarter 2012 operating earnings of 47 cents per share, 56.7% above the Zacks Consensus Estimate of 30 cents.

Our View

Nisource lagged our top line expectation and marginally surpassed our earnings expectation. It has chalked out plans for overall infrastructure development; the increase in capital expenditure from 2012 levels is a testament to that fact.

In 2012, the company was able to increase its customer base in both the gas and electric business segments from 2011 level. However, this did not result in improving sales volume due to inconsistent weather.

Merrillville, Indiana based NiSource is an energy holding company the subsidiaries of which 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. The company currently has a Zacks Rank #4 (Sell).

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