Natural gas and electric company SCANA Corporation (SCG) has reported third quarter 2011 earnings of 81 cents per share, beating the Zacks Consensus Estimate of 77 cents.
The quarterly results were 2.5% higher than the year-ago profit level, driven by improved electric margins on base rate hikes and lower operations and maintenance expenses, partially offset by higher interest expense and share dilution.
Operating revenue of $1,092.0 million improved 0.4% from the year-ago level of $1,088 million but came in below the Zacks Consensus Estimate of $1,109 million.
Segment Performance
South Carolina Electric & Gas Company (SCE&G): Earnings from the segment, which is also SCANA's principal subsidiary, jumped to 92 cents per share from 87 cents in third quarter 2010. The growth was mainly driven by increases in electric margin from base rate, partially offset by higher interest and depreciation expense as well as share dilution.
As of September 30, natural gas and electric customers of SCE&G inched up 1.3% and 0.8%, respectively, on an annualized basis.
PSNC Energy: The segment registered a loss of 3 cents per share in the quarter, compared to a loss of 4 cents per share in prior-year period. At quarter end, PSNC Energy’s customer base increased 1.7% year over year.
SCANA Energy – Georgia: The segment, which houses SCANA’s retail natural gas marketing business in Georgia, reported a loss of 3 cents per share,compared with the loss of 4 cents experienced a year ago. The uptick can be attributed to decreased operating expenses, which were partially offset by lower margins. At September 30, SCANA Energy’s customer base was approximately 450,000.
Balance Sheet
At quarter end, SCANA had $4,661 million in long-term debt (inclusive of current portion).
Guidance
SCANA has maintained its full-year 2011 earnings guidance in the range of approximately $2.95–$3.10 per share. For 2012, the company’s preliminary estimate for earnings is in the range of $3.05-$3.25 per share.
Our Recommendation
We believe SCANA is a relatively strong and regulated integrated electric utility, supported by favorable regional demographics and electric utility rate. Given the Base Load Review Act rate recovery as well as some normal utility growth, we believe that the company can achieve its earnings target. Again, the company remains committed to nuclear construction, cost control, and providing safe, reliable energy for the balance of the year.
However, we remain concerned because of SCANA’s heavy debt level. The company also faces tough competition from Duke Energy Corporation (DUK) and Progress Energy Inc. (PGN).
Hence, we retain our long-term Neutral recommendation for SCANA. The company holds a Zacks #2 Rank, which is equivalent to a short-term Buy rating.
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