) reported first-quarter profit of $1.16 per share, down by 3 cents
from the year-ago quarter. The quarterly results also lagged the
Zacks Consensus Estimate of $1.31 per share.
The year-over-year decline was attributable to lower margins at
segment, which stemmed from lower realized seasonal natural gas
storage price differentials. The continuous decline in natural gas
prices also impacted profitability.
Net revenues in the quarter dropped 9.2% to $3.41 billion from
$3.76 billion reported in the year-ago quarter. The top line also
disappointed the Zacks Consensus Estimate of $4.69 billion.
In the first quarter 2012, cost of sales and fuel was down 11.5%
year over year. As a result, gross income rose 2.2% to $643.6
million in the reported quarter from the year-ago level of $629.9
Total operating expenses (excluding the goodwill impairment)
rose 2.1% year over year, mainly due to higher depreciation and
Operating income decreased 0.7% to $325.9 million from $328.3
million in the year-ago quarter. This was due to the combined
impact of higher expenses and lower revenues on a year-over-year
Interest expenses decreased by 4.5% to $75.8 million from $79.4
million in the year-ago period.
ONEOK Partners' operating income was $256 million compared with
$177.6 million in the year-ago quarter. Operating costs were $115.9
million compared with $108.7 million in the first quarter of 2011.
The increase was due to higher materials expenses and scheduled
There was an accident at the company's NGL fractionation
facility in Medford, Oklahoma. The accidental release of brine and
propone from a storage well disrupted operations for 10 days and
expenses incurred to rectify the damage lowered the net margin by
Natural Gas Distribution:
The Distribution segment reported operating income of $98.8 million
in the first quarter compared with $103.1 million a year ago. The
reduction in demand due to warmer weather in Kansas and Oklahoma
lowered the transportation margin of this division.
During the quarter the company sold its retail natural gas
marketing business to Constellation Energy Group, Inc. for $32.0
The Energy Services segment reported an operating loss of $31
million versus an operating income of $48 million in the prior-year
The operating loss during the reported quarter was due to a
$65.3 million decrease in storage and marketing margins stemming
from lower realized seasonal natural gas storage price
differentials. The continuous decline of natural gas prices also
Operating costs were $4.8 million versus $8.0 million in the
prior-year period. The decline was mainly due to lower
Cash and cash equivalents as of March 31, 2012, were $781.2
million versus $66 million as of December 31, 2011.
Cash flow from operation during the quarter was $426.1 million
versus $647.8 million reported in the year-ago quarter.
Long-term debt as of March 31, 2012 was $5.22 billion, higher
than $4.53 billion as of December 31, 2011. The increase in the
debt level was due to the issue of $700 million 4.25% notes due
ONEOK Inc. reaffirmed its net income guidance for 2012 in the
range of $360 million to $410 million.
ONEOK's performance during the quarter fell short of our
projection. The shortfall was primarily due to the continuous
decline of natural gas prices and the warmer winter in its service
During the quarter, the board of directors has authorized a
two-for-one split of ONEOK common stock, subject to shareholder
approval. If approved, the share count of the company will increase
to 600 million from the present level of 300 million. We consider
this to be a smart move that would bring in more investors.
We maintain our long-term Neutral recommendation on ONEOK
shares, supported by the company's short term Zacks #3 Rank (Hold).
The company's primary competitors include
OGE Energy Corp.
Based in Tulsa, Oklahoma, ONEOK Inc. is a diversified energy
company, operating as a natural gas distributor primarily in the
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