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ONEOK Misses 1Q Earnings Est

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ONEOK Inc. (OKE - Free Report) reported first-quarter 2013 earnings per share of 54 cents, missing the Zacks Consensus Estimate by 4 cents. However, quarterly earnings increased 5.9% year over year primarily on higher natural gas volumes collected and processed and natural gas liquids (NGL) volumes gathered in the Williston Basin.

Total Revenue

ONEOK Inc.’s revenues of $3.5 billion were 7.1% lower than the Zacks Consensus Estimate. However, quarterly revenues increased 3.7% year over year.

First-Quarter Operating Statistics

ONEOK Inc.’s total operating expense increased 10% year over year to $349.6 million due to a rise in cost of sales and fuel, operations and maintenance expenses, and depreciation and amortization charges.

Operating income was $273.9 million, down 16% year over year.

Increase in revenues was more than offset by higher total operating expenses. Operating margin was 7.7% compared with 9.5% a year-ago.

Segment Results

ONEOK Partners: ONEOK Partners' operating income was $177.7 million, down 30.6% year over year due to decrease in the natural gas liquids business from lower optimization and marketing margins, and the negative impact of ethane rejection. In addition, unfavorable outcome from the natural gas gathering and processing business due to lower realized NGL product prices and increase in compression costs was also responsible for this decline.

Natural Gas Distribution: Segmental operating income improved 1.8% year over year to $100.6 million due to higher rates in Oklahoma, Kansas and Texas, and increase in transportation volumes for higher demand from the weather-sensitive customers in Kansas.

Energy Services: The segment reported an operating loss of $4.4 million compared with a loss of $30.7 million a year-ago. Minimization of loss was primarily driven by improved storage and marketing margins from higher realized seasonal price differentials and marketing optimization initiatives.

Financial Condition

ONEOK Inc., on a stand-alone basis, ended the quarter with $551.3 million of commercial paper outstanding, $1.9 million in letters of credit and $646.8 million available under the $1.2 billion credit facility.

Cash and cash equivalents as of Mar 31, 2013 were $143.9 million compared with $583.6 million as of Dec 31, 2012.

As of Mar 31, 2013, long-term debt was $6,513.3 million versus $6,515.4 million as of Dec 31, 2012.

Cash provided by operating activities during the first three months of 2013 was $471.5 million, higher than $426.1 million in the year-ago comparable period.

Capital expenditures increased to $501.1 million from $348.4 million in the prior-year quarter due to a 58% year-over-year rise in expenses at the company’s subsidiary – ONEOK Partners.


ONEOK Inc. reaffirmed its net income guidance for 2013 in the range of $350 million to $400 million.

The company also guided that subject to its board’s approval it will increase the quarterly dividend rate by 2 cents for Jul 2013.

Other Energy Company Releases

Sempra Energy (SRE - Free Report) is slated to release its first quarter earnings on May 2. The Zacks Consensus Estimate is $1.02.

Chesapeake Utilities Corporation (CPK - Free Report) is slated to release its first quarter earnings on May 3. The Zacks Consensus Estimate is $1.34.

South Jersey Industries Inc. (SJI - Free Report) is slated to release its first quarter earnings on May 6. The Zacks Consensus Estimate is $1.71.

Our View

Despite an unfavorable performance in first-quarter 2013 due to lower realized NGL product prices and considerably thinner NGL location price differentials, we believe that the completion of several projects along with a strong financial position will boost ONEOK Inc.’s forthcoming results.

However, we are cautious about weak NGL pricing, stringent utility regulations and volatile commodity prices, which may to some extent, challenge the company’s future performance.

Tulsa, OK-based ONEOK Inc. is a diversified energy company, operating as a natural gas distributor primarily in the United States. The company currently has a Zacks Rank #3 (Hold).

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