AGL Resources Misses Consensus - Analyst Blog

By Zacks Equity Research,

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Energy services holding company AGL Resources Inc. ( GAS ) reported dull first quarter 2012 results, bruised by warm weather and higher operating expenses.

The company -the largest domestic natural gas-only distribution entity with about 4.5 million customers across seven states following the December 2011 acquisition of Naperville, Illinois-based Nicor Inc. - announced earnings per share (excluding merger-related expenses) of $1.16, below the Zacks Consensus Estimate of $1.32.  Comparing year over year, the results dropped 28.8% from $1.63.  

Total operating revenues, at $1,404.0 million, were shy of the Zacks Consensus Estimate of $1,573.0 million but were up from the year-ago level of $878.0 million.

Segmental Performance

Distribution Operations: This segment comprising seven utilities, witnessed earnings before interest and taxes (EBIT) of $194.0 million, up from $141.0 million achieved during the first quarter of 2011. The positive comparison can be attributed to contributions from the inclusion of Nicor Gas.

Retail Operations: AGL's 'Retail' segment - made up of SouthStar Energy Services, Nicor Services, Nicor Solutions and Nicor Advanced Energy - achieved an EBIT of $60.0 million versus income of $68.0 million in the year-earlier period. The main reasons for the underperformance were warm weather compared to the year-earlier period and adverse inventory adjustments on account of weak natural gas prices, partially offset by a dip in transportation and gas costs.

Wholesale Services: The segment that includes Sequent Energy Management reported EBIT of $19.0 million, down from $33.0 million recorded in the prior-year quarter. The decrease was primarily due to a fall in the commercial activity as a result of reduced storage and transportation spreads.

The earnings contribution from AGL's other businesses - Midstream Operations and Cargo Shipping - were insignificant.


Management stated that the unfavorable weather conditions of the first quarter will likely generate lower earnings results for 2012 than the previous guided forecast of $2.80 to $2.95 per diluted share.

Rating & Recommendation

AGL Resources, which competes on a large scale with gas distributors like ONEOK Inc. ( OKE ) and Atmos Energy Corporation ( ATO ), currently retains a Zacks #4 Rank (short-term Sell rating). We are also maintaining our long-term 'Underperform' recommendation on the stock.

We expect the company's wholesale segment margin to be under pressure in the foreseeable future due to lower volatility and narrowing transportation/storage spreads. Moreover, AGL Resources' investment in higher-risk unregulated operations and ongoing regulatory uncertainties are other factors that temper the company's outlook.

ATMOS ENERGY CP ( ATO ): Free Stock Analysis Report
AGL RESOURCES ( GAS ): Free Stock Analysis Report
ONEOK INC ( OKE ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: ATO , GAS , OKE

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