Natural gas and electricity provider Dominion Resources Inc. (D) on Friday reported a 17% increase in profit for the third quarter from last year, helped by higher contributions from the company's regulated electric utility and gas transmission businesses as well as its unregulated retail energy marketing operations. Excluding items, operating earnings for the quarter topped analysts' consensus estimate.
Looking ahead, the company provided operating earnings outlook for the fourth quarter below analysts' consensus estimate, but reaffirmed its outlook for fiscal year 2009 operating earnings, citing year-to-date results and the company's limited sensitivity to commodity price changes. The company also reiterated its operating earnings outlook for fiscal year 2010.
Dominion serves retail energy customers in 12 states with a portfolio of more than 27,500 megawatts of generation, 1.1 trillion cubic feet equivalent of proved natural gas and oil reserves, 14,000 miles of natural gas transmission, gathering and storage pipeline, and 6,000 miles of electric transmission lines. The company also operates the nation's largest natural gas storage systems with 975 billion cubic feet of storage capacity.
Third-Quarter Results
The Richmond, Virginia-based company's reported earnings for the third quarter increased to $594 million, or $1.00 per share, from $508 million, or $0.87 per share, in the year-ago period.
Excluding items, operating earnings for the latest quarter rose to $592 million, or $0.99 per share, from $545 million or $0.94 per share, in the prior-year quarter. While announcing its financial results for the second quarter in July, Dominion had forecast operating earnings in a range of $0.88-$0.93 per share. On average, ten analysts polled by Thomson Reuters expected the company to report earnings of $0.90 per share for the quarter. Analysts' estimates typically exclude special items.
The factors that contributed to the higher operating earnings for the quarter as compared to the prior year include contributions from the regulated electric utility and gas transmission businesses as well as unregulated retail energy marketing operations, and a lower effective income tax rate. These were partially offset by unfavorable weather in the regulated electric service territory, lower merchant generation margins and lower contributions from producer services.
The company noted that drivers which compared favorably to its operating earnings guidance for the third quarter include higher contributions from gas transmission operations, higher contributions from unregulated retail energy marketing operations, lower financing costs and a lower effective income tax rate. These were partially offset by unfavorable weather in the regulated electric service territory.
Operating revenues for the latest quarter declined 16% to $3.65 billion from $4.37 billion in the previous-year quarter, and missed analysts' consensus revenue estimate of $3.94 billion for the quarter.
Thomas Farrell II, chairman, president and chief executive officer, of Dominion Resources, said, "Our core businesses continued to deliver strong operating earnings results this quarter despite unfavorable weather in our electric service territory. Driven by the performance of our regulated businesses, and combined with lower financing costs and a lower effective income tax rate, our operating earnings exceeded the top end of our guidance range."
Peer Performance
Although the utility sector is protected from consumer sentiments amid severe economic downturn, weak demand and the slowdown in residential and commercial real estate growth have impacted the utility companies' profits. The economic crisis has forced people to be more prudent in their electricity usage. Weather also plays a key role in electricity usage, as cooler weather translates to less use of electricity.
Greensburg, Pennsylvania-based Allegheny Energy Inc. (AYE) on Thursday reported a lower third-quarter profit, hurt by charges and lower results from its generation business, which was affected by weak economy and low power prices. The company's third-quarter net income attributable to the company was $77 million or $0.45 per share, compared with $89 million or $0.52 per share in the same quarter last year.
Also on Thursday, Columbus, Ohio-based American Electric Power Co., Inc. (AEP) reported an 18.4% year-over-year increase in its profit for the third quarter, helped by rate increases and cost cutting. This was partially offset by weak industrial demand amid the economic downturn, mild weather as well as a quarterly revenue drop. The Columbus, Ohio-based American Electric reported net income of $443 million or $0.93 per share, compared to $374 million or $0.93 per share in the prior-year quarter. Revenues dropped to $3.5 billion from $4.2 billion the same quarter last year.
Segmental Results
Operating earnings at Dominion Virginia Power for the quarter was $95 million, or $0.16 per share, up from $84 million, or $0.15 per share, in the same period last year. Dominion Energy's operating earnings for the quarter increased to $95 million, or $0.16 per share, from $81 million, or $0.14 per share, in the previous-year quarter. Dominion Generation's operating earnings for the quarter were $459 million, or $0.77 per share, compared to $449 million, or $0.77 per share, in the year-ago quarter.
Year-To-Date Results
For the first nine months of fiscal year 2009, Dominion's reported earnings declined to $1.30 billion, or $2.19 per share, from $1.49 billion, or $2.56 per share, a year ago.
Operating earnings for the period increased to $1.57 billion, or $2.65 per share, from $1.41 billion, or $2.43 per share, in the same period last year.
Operating revenue for the nine-month period declined to $11.88 billion from $12.12 billion in the previous-year period.
Outlook
For the fourth quarter, Dominion forecasts operating earnings in a range of $0.55-$0.65 per share. This compares to operating earnings of $0.72 per share in the same period of the prior year. Analysts expect the company to report earnings of $0.67 per share for the fourth quarter.
According to the company, drivers expected to compare favorably to the year-ago period include higher contributions from the gas transmission businesses and a lower effective income tax rate. These are expected to be offset by higher planned outage expenses, higher interest expense and lower volumes from the company's remaining E&P operations due to the expiration of overriding royalty interests associated with former volumetric production payment agreements.
For fiscal year 2009, the company reaffirmed its outlook for operating earnings in a range of $3.20-$3.30 per share. Analysts expect the company to report earnings of $3.23 per share for the year.
Dominion also reaffirmed its fiscal 2010 operating earnings outlook in a range of $3.20-$3.40 per share. Analysts expect the company to report earnings of $3.24 per share for the year.
According to the Energy Information Administration, the rate of decline in electricity consumption in the U.S. is expected to slow during the second half of 2009, especially in the southwestern United States, where warm temperatures increased summer air conditioning usage. EIA projects total U.S. electricity consumption will decline by 3.3% in 2009 and then grow by 1.3% in 2010 as the improving economy leads to slowly recovering industrial sector electricity sales.
Stock Quotes
D closed Thursday's regular trading session at $34.63, up $0.02 on a volume of 3.97 million shares. In the past 52 weeks, the stock has been trading in a range of $27.15-$38.24.
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