Sempra Energy (SRE) announced third-quarter 2011 pro forma earnings of 1.22 per share, a penny above the Zacks Consensus Estimate of $1.21, easily surpassing the year-ago quarterly figure of 53 cents per share.
Operating Statistics
Total revenue of Sempra Energy in the third-quarter 2011 was $2.6 billion, beating the Zacks Consensus Estimate by $505 million and the year-ago figure of $460 million. Sempra Utilities' top line increased to $2.1 billion from $1.6 billion in the year-ago quarter. Energy-related businesses generated revenue of $511 million compared with $507 million in third quarter of 2010.
Segment Update
San DiegoGas & Electric: Quarterly earnings for San Diego Gas & Electric (SDG&E) were $113 million compared with $106 million in the year-ago quarter driven by higher earnings for construction projects that are in progress, including the Sunrise Powerlink transmission line.
Southern California Gas Company: The segment generated earnings of $81 million, up $3 million year over year.
Sempra Generation: Earnings from this segment were $49 million compared with $59 million in the year-ago quarter. The downside reflects lower earnings from the company’s natural gas-fired power plants. This was, however, partially offset by an income-tax benefit.
Sempra Pipelines & Storage: Quarterly earnings for Sempra Pipelines & Storage were $66.0 million, up from the previous year figure of $43 million. The increase was primarily due to the company’s increased ownership in the South American utilities and foreign-currency gain in Chile.
Sempra LNG: Earnings from the segment were $24 million in the reported quarter, compared with $5 million in the year-ago quarter driven by additional revenues for contracted cargoes that were not delivered.
Financial Update
At the end of the third quarter of 2011, cash and cash equivalents were $657 million versus $912 million at fiscal-end 2010. Long-term debt increased to approximately $10 billion at the end of the reported period from $9 billion at the end of fiscal 2010.
Restructuring
During the quarter, Sempra Energy announced that its Sempra Generation, Sempra Pipelines & Storage and Sempra LNG subsidiaries will be consolidated into two new operating units: Sempra International and Sempra U.S. Gas & Power. The restructuring will be effective from January 1, 2012.
Outlook
The company maintained its earnings per share guidance in the range of $4.00–$4.30 for fiscal 2011. Including the gain related to the South American utility acquisitions in the second quarter of 2011, the company expects GAAP EPS to be in the range of $5.14–$5.44.
Based on the performance of third-quarter 2011 and continued progress on major projects, the company expects to meet its financial and operational objectives for the fiscal year 2011.
Peer Comparison
Recently, a Sempra Energy peer, Edison International (EIX) reported third-quarter 2011 results. In the reported quarter, the company reported pro forma earnings of $1.31 per share, outshining the Zacks Consensus Estimate of 1.27 per share. However, earnings came in below the year-ago quarterly pro forma earnings of $1.46 per share.
Our Take
Sempra Energy’s diversified basket of businesses insulates its operations to a significant degree from regulatory rate risks. We believe SRE presents a lower risk profile relative to its peers. Key growth drivers of the company are stable utility earnings, steady progress at its LNG terminals, the Sunrise Powerlink transmission line, ongoing installations of smart meter and renewable power projects in the Pacific Southwest.
However, we prefer to remain on the sidelines due to a lack of any near-term positive triggers, along with near-term trepidation in natural gas prices, an ongoing land dispute regarding its LNG terminal in Mexico and pending regulatory cases. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
Sempra Energy is a southern California-based energy services holding company engaged in the sale, distribution, storage, and transportation of electricity and natural gas. The company’s businesses are broadly divided into Sempra Utilities, and Sempra Global and parent. Sempra Utilities consist of two California regulated public utility companies – Southern California Gas Company (SoCalGas) and San Diego Gas & Electric (SDG&E).
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