Dominion Lags Est., Guides 2012 - Analyst Blog

By Zacks Equity Research,

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Dominion Resources Inc. ( D ) reported fourth quarter 2011 operating earnings of 58 cents per share, 5 cents less than the Zacks Consensus Estimate.

Results also dipped 7.9% below the year-ago earnings of 63 cents per share. Operating earnings for the quarter dropped 8.7% year over year to $334 million.

The year-over-year decline was largely due to lower weather-related sales in the regulated electric service territory and lower merchant generation margins.  However, higher rate adjustment clause earnings and lower operation and maintenance expenses were partial offsets.

Including non-recurring charges of $133 million or 23 cents per share, the company reported net income of $201 million or 35 cents a share compared with $298 million or 51 cents per share in the fourth quarter of 2010.

Full year 2011 operating earnings came in at $3.05 per share, 6 cents lower than the Zacks Consensus Estimate. Results were also 8.7% below the year-ago earnings of $3.34 per share.  Operating earnings were $1.75 billion, up 11.2% over 2010.

Adjusting for non-recurring charges of $346 million or 60 cents per share, the company reported net income of $1.4 billion or $2.45 a share compared with $2.8 billion or $4.76 per share in 2010.

Operational Update

Dominion's operating revenue of $3.2 billion in the fourth quarter declined 15.2% from the year-ago quarter. Revenue also lagged the Zacks Consensus Estimate of $4 billion.

Full year operating revenue was $14.4 billion, down 5.4% year over year and also fell short of the Zacks Consensus Estimate $15.6 billion

Total operating expenses in the fourth quarter reached $2.8 billion, down 5.7% year over year while full year total operating expenses were $11.5 billion, down 3.7% from 2010.

The company's earnings before interest and tax were $708 million compared with $822 million in fourth quarter 2010. Full year results were $3.7 billion versus $3.9 billion in 2010.

Segment Update

Dominion Virginia Power segment revenue in fourth quarter 2011 was $901 million, down 10% year over year while full year revenue inched up 0.4% over the prior year to $1.1 billion.

Operating earnings in the quarter declined 3% year over year to $112 million while full year earnings came in at $501 million, up 11.8% over 2010.

Dominion Energy revenue was $775 million, down 16.5% year over year while full year revenue was $3.1 billion, down 11% from 2010.

Operating earnings came in at $153 million, up 25% year over year while full year earnings improved 9.6% from 2010 to $521 million.

Dominion Generation revenue dipped 17% year over year to $1.6 billion while full year revenue declined 8.9% from 2010 to $7.7 billion.

Segment operating earnings dropped 42% over the prior-year quarter to $117 million with full year earnings declined 22% to $1 billion.

Other Key Highlights

Dominion's business segments continued to make significant progress on the infrastructure development front.

At the Generation segment, the company is nearing the completion of its major growth projects. The 585-megawatt Virginia City Hybrid Energy Center is nearing completion and on target for service in the summer of 2012. At Warren County, the 1,300-megawatt gas-fired combined cycle plant, site work and other preparations are ongoing and construction is expected to start by spring of 2012, pending regulatory approval. The 590-megawatt Bear Garden combined cycle gas facility already began commercial operation.

At the Electric transmission business segment, Dominion has more than 40 projects planned over the next five years. The two major 500-kilovolt electric transmission projects - Meadow Brook to Loudoun in Northern Virginia and Carson to Suffolk in Southeastern Virginia - are already online. The Mount Storm-to-Doubs line is on track with completion scheduled in 2015.

At Dominion Energy, construction of the Appalachian Gateway project began last summer and is expected be in service in late 2012. Construction of Appalachian Gateway project began last summer and should be in service later this year.  Construction of Phase I of the Natrium gas processing and fractionation plant is scheduled to be in service in December.

Financial Update

Cash provided by operating activities in 2011 increased to approximately $3 billion from $1.8 billion in 2010.

Capital expenditure amounted to $3.6 billion, up from $3.4 billion in 2010.

Long-term debt at 2011 end increased to $17.4 billion from $15.8 billion at 2010 end.

Dividend Update

The company's board of directors continues to expect a dividend payout ratio of 60%-65% of expected earnings. The board also initiated an annual dividend of $2.11 per share for 2012, up 7% year over year.

Recently, the board also declared a first-quarter dividend of 52.75 cents per share.

Looking into 2012

Dominion expects to deliver first quarter operating earnings in a range of 85 cents to $1 per share. The company guided the range based on expected higher rate adjustment clause earnings and growth in electric service territory, partially offset by lower merchant generation margins.

Dominion guides 2012 operating earnings to a band of $3.10-$3.35 per share. The guidance takes into account expected benefits of higher revenues from rider projects, higher sales in electric service area and lower operating expense. However, lower merchant generation margins are expected to dwarf the positives.

Zacks Rank

The quantitative Zacks #4 Rank (short-term Sell rating) for Dominion indicates downward pressure on the stock over the near term.

Richmond, Virginia based Dominion, together with its subsidiaries, engages in producing and transporting energy in the United States. The company primarily competes with American Electric Power Co. ( AEP ) and NiSource Inc. ( NI ).

AMER ELEC PWR ( AEP ): Free Stock Analysis Report
DOMINION RES VA ( D ): Free Stock Analysis Report
NISOURCE INC ( NI ): Free Stock Analysis Report
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Zacks Investment Research

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: AEP , D , NI

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