OGE Energy Lags Earnings, Gives View
OGE Energy Corporation (OGE), a distributor of natural gas and electricity primarily in the south central United States, reported first quarter 2013 earnings of 23 cents per share, missing the Zacks Consensus Estimate of 34 cents. Earnings were also lower than the prior-year figure of 38 cents per share.
A regulated electric utility company, Oklahoma Gas and Electric Company (“OG&E”), contributed earnings of 13 cents per share in the reported quarter, flat year over year. Enogex, a midstream natural gas business, contributed earnings of 12 cents per share, down from 25 cents per share in the year-ago quarter. OGE Enogex Holdings LLC posted a loss of 2 cents per share versus breakeven results in the prior-year period.
Operational Metrics
OGE Energy’s operating revenues of $901.4 million increased from $840.7 million in the first quarter of 2012.
Electric Utility revenues were $455.5 million, up from $426.7 million in the first quarter of 2012. Natural Gas Midstream Operations revenues were $445.9 million, up 7.7% year over year.
Sales of electricity to residential customers were 2.2 MWH versus 1.9 MWH in the year-ago period. Sales to Commercial customers were 1.5 MWH, flat year over year. Sales to Industrial customers were 0.9 MWH, down from 1MWH in the prior-year period.
OGE Energy’s consolidated gross profit was $348 million in the reported quarter, down from $355 million in first quarter of 2012.
Total operating expenses in the quarter under review were $273 million, up 6.2% year over year. Operating income of $75.4 million declined 23.3% year over year on the heels of higher expenses.
Segment Results
OG&E clocked gross profit of $243 million, up from $231 million in the comparable quarter last year, driven by revenues associated with transmission projects, favorable weather and new customer growth.
Enogex’s gross margin on revenues was $105 million, down from $124 million in the prior-year quarter. The decline reflects lower gross margins in the processing and transportation businesses. However, the decline was partially offset by increase in processing and gathered volumes.
Financial Update
Cash and cash equivalents as of Mar 31, 2013 were $7.1 million, up from $1.8 million as of Dec 31, 2012. Long-term debt as of Mar 31, 2013 was $2,848.7 million, approximately flat with $2,848.6 million as of Dec 31, 2012.
Guidance
OGE Energy expects consolidated earnings for 2013 in the range of $3.35 to $3.60 per average diluted share. The guidance reflects normal weather for the remainder of 2013. However, it does not take into account any impact from the midstream partnership with CenterPoint Energy, Inc. (CNP).
Recently, CenterPoint Energy, OGE Energy and ArcLight Capital Partners, LLC declared the closing of a previously announced partnership that includes CenterPoint Energy's interstate pipelines and field services businesses and the midstream business of Enogex LLC. The partnership will be managed by a general partner whose governance will be shared by CenterPoint Energy and OGE on an equal basis.
Our Take
OGE Energy failed to meet the Zacks Consensus Estimate on higher operating expenses. Currently, the company is pursuing an aggressive energy efficiency program, investing in renewable energy technologies and upgrading its infrastructure. Going forward, these initiatives would help in improving the top and bottom line.
However, we remain concerned about the volatility in its commodity business and the unfavorable macro backdrop. The company presently retains a short-term Zacks Rank #3 (Hold).
Stocks worth considering are The AES Corporation (AES) and ALLETE, Inc. (ALE), both with a Zacks Rank #2 (Buy).
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