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Earnings Trail at Dominion, Sales Up

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Dominion Resources Inc. (D - Free Report) reported first quarter 2012 operating earnings of 83 cents per share, 6.7% lower than the Zacks Consensus Estimate of 89 cents and 2 cents blow the year-ago earnings.

Dominion’s earnings came in lower than the mid-point of the guidance of 80–95 cents.

Operating earnings during the quarter were impacted by higher-than-normal storm and service restoration activity, the delayed in-service date of its Natrium processing plant, lower merchant generation margins and lower-than-expected electric sales.

GAAP earnings were 86 cents, in line with the year-ago number. The difference between GAAP and operating earnings in the reported quarter was due to a $20 million gain from investments in nuclear decommissioning trust funds and a $1 million loss from discontinued operations.

Operational Update

Dominion’s operating revenue of $3.47 billion in the first quarter increased 1.7% year over year. Despite a decline in contribution from Dominion Virginia Power and Dominion Generation, solid performance from Dominion Energy benefited the overall performance.

Revenue also came ahead of the Zacks Consensus Estimate of $3.40 billion.

Total operating expenses in the first quarter climbed 12% year over year to $2.53 billion. The increase was due to higher electric fuel and other energy related purchases and purchased gas, offset marginally by a decline in operations and maintenance expenses.

The company’s earnings before interest and tax were $985 million, up 1.4% year over year.

Segment Update

Dominion Virginia Power recorded revenue of $949 million in the first quarter of 2013, down 4.4% year over year. Operating earnings in the quarter also declined 12.8% year over year to $266 million.

Dominion Energy reported revenue of $876 million, up 7.3% year over year. Operating earnings came in at $288 million, up 21.0% year over year.

Dominion Generation’s revenue declined 2.0% year over year to $1.69 billion. Segment operating earnings increased 5.5% over the prior-year quarter to $399 million.

Highlights of the Quarter

During the quarter the company decided to monetize three of its merchant generation units having a combined generation capacity of 4,110 megawatt (MW). This would lower the uncertainty faced by the company to sell electricity in the open markets. The sale of these assets is expected to generate after-tax proceeds of $650 million, which Dominion intends to utilize for debt reduction and further develop its regulated business operations.

The company also progressed on its Cove Point LNG liquefaction project. The company was able to enter into long-term (20 year) Terminal Service Agreements with two companies; the capacity of the project is fully subscribed. Subject to regulatory nod the company will start construction in 2014 and bring the project online by 2017.

Financial Update

Dominion exited the quarter with cash and cash equivalents of $35 million, down from $248 million as of Dec 31 2012.

Long-term debt at quarter end increased to $17.27 billion from $16.85 billion at prior-year end.

Cash from operating activities in the first quarter decreased to $1.05 billion from $1.62 billion in the year-ago quarter.

Capital expenditure in the first three months of 2013 amounted to $200 million, down $80 million from the year-ago period.

Looking Ahead

Dominion expects to deliver second quarter operating earnings in a range of 60 cents to 70 cents per share. The guidance was based on normal weather conditions in its electric service territory and higher rate adjustment clause revenues. In addition the company expects higher revenues from its gas transmission growth projects.

Dominion affirmed full year 2013 operating earnings in a band of $3.20–$3.50 per share.

Other Company Releases

American Electric Power Co., Inc. (AEP - Free Report) is scheduled to release its first quarter earnings on Apr 26. The Zacks Consensus Estimate for the quarter is currently pegged at 80 cents.

NiSource Inc. (NI - Free Report) is slated for an Apr 30 earnings release. The Zacks Consensus Estimate stands at 71 cents.

Calpine Corporation is scheduled to release its first quarter earnings on May 2. The Zacks Consensus Estimate for the quarter is currently pegged at a loss of 4 cents.

Our View

Dominion retained its earnings guidance for the year despite booking first quarter results in the bottom half of the guided range.  

Even though the company decided to sell a portion of its merchant unit, we believe lower contributions from its remaining unregulated retail energy operations might weigh on future performance.

The quantitative Zacks Rank #3 Rank (Hold) for Dominion indicates no clear directional pressure on the stock over the near term.

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