Premier natural gas company Spectra Energy
Corp. ( SE ) reported third-quarter 2012 earnings per
share from continuing operations of 27 cents, lagging the Zacks
Consensus Estimate of 31 cents. The quarterly figure also dropped
29% from the year-earlier profit of 38 cents. The underperformance
was due to lower commodity price realizations.ENTERPRISE PROD (EPD): Free Stock Analysis
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The company reported operating revenues of $1,072.0 million, down
approximately 4.5% from the year-earlier level of $1,123.0 million
and also failed to meet the Zacks Consensus Estimate of $1,157.0
U.S. Transmission : The segment posted quarterly
earnings before interest and taxes (EBIT) of $238.0 million,
reflecting an upside of 1.3% from the year-ago quarter. Higher
earnings from expansions and lower operating expenses contributed
to the growth.
Distribution : The segment reported a
year-over-year rise in its EBIT to $55.0 million from the
prior-year level of $50.0 million. The increase was primarily due
to increased short-term transportation revenues.
Western Canada Transmission & Processing :
The segment witnessed an EBIT of $83.0 million, down 30% from the
year-earlier level. Although the segment registered improved
results in the gathering and processing business, primarily driven
by expansions in the Horn River and Montney areas of British
Columbia, the upside was restricted by lower earnings at the
Empress natural gas liquids (NGL) business.
Field Services : The segment's EBIT of $62.0
million plummeted approximately 54% from the year-ago level of
$134.0 million. The underperformance was mainly due to lower
commodity prices as well as higher planned repairs and maintenance
expenses relating to the growth in the assets.
Production and Price Realizations
The company produced NGLs of 398 thousand barrels per day
(MBbl/d), up 1.5% year over year. Price of NGLs averaged $0.72 per
gallon (down nearly 42% year over year), while crude oil averaged
at approximately $92.22 per barrel (down 2.7% year over year).
Natural gas was sold at $2.81 per million British thermal units
(MMBtu) versus $4.19 per MMBtu in the third quarter of 2011.
As of September 30, 2012, Spectra Energy had long-term debt of
approximately $9,892 million with a debt-to-capitalization ratio of
51.2% (versus 51.3% in the preceding quarter).
Spectra Energy is one of North America's premier natural gas
infrastructure plays and has strong business positions in growth
markets. Though we believe commodity price concerns linger in the
near term, the company's core fee-based businesses of storage,
transmission, distribution and Canadian gathering and processing
have the potential to move the needle toward solid earnings and
cash flow growth in the long run.
Spectra plans to invest about $20 billion over the next decade on
fee-based gas infrastructure growth projects. The company is
executing expansion projects worth $8 billion. We see upside
potential from diverse near- to medium-term projects, including its
New Jersey-New York pipeline, which commenced construction during
the third quarter, an NGL pipeline in Texas, opportunities in the
Gulfstream Pipeline and infrastructure to serve western Canada LNG
However, we remain concerned about the lower price realizations
and also believe that the heavy debt-to-capitalization ratio is a
competitive disadvantage for the company.
The company's closest contender in the natural gas utilities
industry, Enterprise Products Partners L.P. ( EPD ),
has scheduled its earnings release for today, after market
Currently, we maintain our long-term Neutral recommendation on the
stock. The company retains a Zacks #3 Rank (short-term Hold