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Warm Weather Aids OGE Numbers - Analyst Blog

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OGE Energy Corporation ( OGE ), a distributor of natural gas and electricity primarily in the south central United States, reported fourth quarter and fiscal 2011 results. In the reported quarter, the company with pro forma and GAAP earnings of 37 cents per share topped the Zacks Consensus Estimate by 2 cents. It was also above the year-ago figure of 31 cents per share.

The upside was attributable to higher gross margins at Oklahoma Gas and Electric Company ("OG&E") due to increased transmission revenue, favorable weather and new customer growth. However, this was partially offset by higher operating expenses and increased ownership in Enogex by the company's equity partner.

In the fiscal year 2011, the company reported pro forma and GAAP earnings of $3.45 per share compared with pro forma earnings of $3.10 and GAAP earnings of $2.99 in fiscal 2010.

Operational Metrics

OGE Energy's operating revenues increased 6.9% year over year to $885.2 million in the reported quarter. The figure was also above the Zacks Consensus Estimate of $614 million. Electric Utility revenues were $445.9 million compared with $430.1 million in the year-ago quarter. Natural Gas Midstream Operations revenues increased to $439.3 million from $398.4 million in the year-ago quarter. In the fiscal year, the top line jumped 5.4% year over year to $4 billion. It also easily surpassed our expectation of $3.5 billion.

Residential sales from Electric utility were $172.3 million, up 4.4% y/y and Commercial sales were up 2% y/y to $113.7 million.

Operating income in the quarter under review was $36.4 million and net income was $43.2 million versus $33.8 million in the year-ago period.

Segment Results

In the fiscal year, OGE Energy's regulated electric utility subsidiary, OG&E clocked gross income of $1.2 billion compared with $1.1 billion in the year-ago period. Net income for the fiscal year was $263 million in the reported quarter, compared with $216 million a year earlier. The upside was driven by record high temperatures in 2011, recovery of various utility investments, transmission revenues associated with new projects, and new customer growth mainly in the oil and gas industry. However, these positives were partially offset by higher operating expenses.

OGE Energy's midstream natural gas pipeline business, Enogex, reported gross income of $441.0 million in the fiscal year compared with $423 million in the year-ago period. The results were driven by higher gathering volumes and natural gas liquids prices partially offset by increased operating expenses associated with system expansion and an increase in the ownership percentage by OGE's equity partner. However, net income declined to $82 million in the fiscal year compared with $91 million a year earlier.

Guidance

The company expects earnings from Enogex in the range of 85 cents to 95 cents per share in 2012. However, it did not provide any consolidated guidance for 2012. This it plans to provide after the final order in the Oklahoma general rate case scheduled for March 2012.

Peer Comparison

One of the company's peers, Entergy Corporation ( ETR ) recently reported fourth quarter and fiscal 2011 results. In the reported quarter, the company clocked operational EPS of 94 cents, falling short of the Zacks Consensus Estimate of 96 cents. Earnings also came in lower than the year-ago quarter's $1.30.

Our Take

OGE Energy is the largest electric utility in Oklahoma, with a low-risk portfolio of well-positioned regulated utility and unregulated midstream gas businesses. Moreover, the company continues to expand into the natural gas liquids rich basins in Western Oklahoma and the Texas panhandle.

In December last year, the company increased its quarterly dividend by 4.67% to 39.25 cents per share. The company's bias towards fixed fee in its unregulated natural gas business, a high dividend yield and ongoing infrastructure development programs all speak for its favor.

However, we remain concerned about the volatility in its commodity business and pending regulatory cases, along with the unfavorable macro backdrop. OGE Energy presently retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on the stock.

OGE Energy Corporation distributes natural gas and electricity through its subsidiaries(Oklahoma Gas and Electric Company, and Enogex) primarily in the south central United States.

ENTERGY CORP ( ETR ): Free Stock Analysis Report

OGE ENERGY CORP ( OGE ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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