Premier natural gas company
Spectra Energy Corp.
) reported first-quarter 2012 earnings per share from continuing
operations of 51 cents, lower than the Zacks Consensus Estimate of
53 cents and the year-earlier profit of 54 cents. The
underperformance was due to lower commodity prices and record warm
The company reported operating revenues of $1,544.0 million,
down approximately 4.2% from the year-earlier level of $1,612.0
million. The quarterly figure failed to meet the Zacks Consensus
Estimate of $1,630.0 million.
The segment posted quarterly earnings before interest and taxes
(EBIT) of $271.0 million, showing a downswing of nearly 3% from the
year-ago quarter. Higher software amortization costs and lower
revenues at Ozark Gas Transmission contributed to the reported
quarter's decline in profits, which were partially mitigated by the
profits from expansion projects that came online.
The segment reported a year-over-year fall in its EBIT to $151.0
million from the prior-year level of $167.0 million. The
underperformance was primarily due to lower customer usage related
to warmer weather.
Transmission & Processing:
The segment witnessed an EBIT of $138.0 million, down more than 1%
from the year-earlier level. Although the segment registered
improved results in the base gathering and processing business,
primarily driven by expansions in the Horn River area of British
Columbia, it remains tempered by lower earnings at the Empress
natural gas liquids (NGL) business.
The segment's EBIT of $93 million jumped from the year-ago level of
$81 million. The improvement was driven by improved volumes from
expansion projects. Again, the year-earlier quarter experienced
severe weather conditions, which were absent during the reported
The company produced NGLs of 412 thousand barrels per day
(MBbl/d), up 15.1% year over year. Price of NGLs averaged $1.00 per
gallon (down 11.5% year over year), while crude oil averaged at
approximately $103 per barrel (up 9.6% year over year). Natural gas
was sold at $2.74 per million British thermal units (MMBtu) versus
$4.11 per MMBtu in the first quarter of 2011.
As of March 31, 2012, Spectra Energy had long-term debt of
approximately $9,749 million with a debt-to-capitalization ratio of
51.5% (versus 53.3% in the preceding quarter).
Management remains optimistic on its performance going forward
on the back of its expansion program that remains on track. With
its market leading position, diversified asset portfolio and strong
investment opportunities, we expect Spectra Energy to sustain the
However, the heavy debt-to-capitalization ratio is a competitive
disadvantage for the company. Spectra also faces threats from
Kinder Morgan Inc
). Spectra Energy holds a Zacks #3 Rank, which translates into a
short-term Hold rating, and we maintain our long-term Neutral
recommendation on the stock.
KINDER MORGAN (KMI): Free Stock Analysis Report
SPECTRA ENERGY (SE): Free Stock Analysis Report
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