Dominion Resources Inc.
(
D
) reported fourth quarter 2012 operating earnings of 69 cents per
share, a penny above the Zacks Consensus Estimate. The results
were also above the year-ago figure of 58 cents per share.
Including impairment charges, restoration costs and other charges
of $1.35 per share, the company reported a net loss of 66 cents
per share compared with earnings per share of 35 cents a year
ago.
The results were driven by lower operations and maintenance
expenses and benefit from the contribution of assets to the Blue
Racer Midstream joint venture. However, these positives were
partially offset by lower contributions from unregulated retail
energy marketing operations and an extended outage at Millstone
Unit 2.
Full year 2012 operating earnings came in at $3.05 per share,
flat year over year. The figure, however, missed the Zacks
Consensus Estimate of $3.10. Including one-time charges of $2.04
per share, GAAP earnings per share were $1.01.
Operational Update
Dominion's operating revenue was up 1.2% year over year to $3.17
billion in the fourth quarter. Revenue, however, lagged the Zacks
Consensus Estimate by $527 million. Full year operating revenue
was $13.09 billion, down 7.4% year over year. The top-line
results also missed the Zacks Consensus Estimate of $14.7
billion.
Total operating expenses in the fourth quarter was $3.60 billion,
up 29.3% year over year. The increase in revenue could not offset
the rise in operating expenses. Therefore, Dominion incurred a
loss from operations of $440 million versus a profit of $340
million in the comparable quarter last year.
Segment Update
Dominion Virginia Power
segment revenue in fourth quarter 2012 was $843 million, down
6.4% year over year. Operating earnings in the quarter were up
17% year over year to $131 million.
Dominion Energy
revenue was $764 million, down 1.4% year over year.
Operating earnings came in at $189 million, up 23.5% year over
year.
Dominion Generation
revenue declined 7.9% year over year to $1.5 billion. However,
segment operating earnings were up 17% over the prior-year
quarter to $137 million.
Other Key Highlights
Dominion's business segments continued to make significant
progress on various projects.
At the Generation segment, the 585-megawatt Virginia City Hybrid
Energy Center came on line on schedule. The construction of the
1,329-megawatt, gas-fired power station in Warren County, Va. and
the Brunswick County Power Station which is a combined-cycle
facility continues on schedule. The gas-fired power station is
expected to come on line in 2014 and the combined-cycle facility
is expected to come on line in 2016. Additionally, the
coal-to-biomass conversions of Altavista, Southampton, and
Hopewell are on schedule. These projects are expected to come on
line by the end of 2013.
At the Energy segment, the Appalachian Gateway Project was placed
into service. This project transports natural gas produced in
West Virginia and Pennsylvania. Two other projects, the Ellisburg
to Craigs project and the Northeast Expansion that provides
transportation services also came on line in 2012.
The construction on Phase 1 of the Natrium natural gas processing
and fractionation plant is almost complete. Apart from these
achievements, the segment entered into a joint venture with Blue
Racer Midstream, LLC to provide gathering and processing services
to producers in the Utica shale region.
The third segment Dominion Virginia Power completed phase 2 of
the Mount Storm-to-Doubs modernization project. Also, the segment
was able to place into service approximately $400 million of new
electric transmission assets.
Financial Update
Cash provided by operating activities in 2012 increased to
approximately $4.1 billion from $3 billion in 2011. Capital
expenditure amounted to $4.1 billion, up from $3.7 billion in
2011.
Long-term debt at end of Dec 2012 decreased to $16.9 billion from
$17.4 billion at the end of Dec 2011.
In Dec 2012, Dominion Resources provided a fresh dividend outlook
which includes the achievement of a targeted dividend payout
ratio of 65% to 70%. The company also hiked its dividend rate to
$2.25 per share for 2013 reflecting a 6.6% increase from $2.11
per share in 2012. The hiked quarterly dividend payment of 56.25
cents per share will be paid in Mar 2013 subject to the board
statement in January 2013. The current dividend policy is a
replacement of the one set in Dec 2010 which involved the
realization of a 60% to 65% payout ratio.
Looking into 2013
Dominion expects to deliver first quarter 2013 operating earnings
in a range of 80 cents to 95 cents per share. Dominion expects
2013 operating earnings in a range of $3.20-$3.50 per share. The
guidance reflects normal weather in its regulated service
territory, benefits of higher revenues from rider and energy
growth projects, and sales growth in electric service area. The
company expects these to be primarily offset by higher
depreciation and operations and maintenance expenses, financing
costs and a higher effective income tax rate.
Our Take
Though by a penny, Dominion's bottom line was above the Zacks
Consensus Estimate. However, the top line missed the expectation.
Going forward, Dominion's strategy to focus on growth of its
regulated business, infrastructure development projects and its
diminishing reliance on commodity based earnings would act as key
growth drivers. Also, we expect the current dividend policy would
win the confidence of the company's shareholders and will add
value to their wealth accretion. However, lower merchant
generation margins and a higher tax rate remain matters of
concern. The company presently retains a short-term Zacks Rank #3
(Hold).
Other Stocks to Consider
Other stocks to consider are
Ameren Corporation
(
AEE
) with a Zacks Rank #1 (Strong Buy), and
The AES Corporation
(
AES
) and
CMS Energy Corp.
(
CMS
) that carry a Zacks Rank #2 (Buy).
AMEREN CORP (AEE): Free Stock Analysis Report
AES CORP (AES): Free Stock Analysis Report
CMS ENERGY (CMS): Free Stock Analysis Report
DOMINION RES VA (D): Free Stock Analysis
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