Dominion (D) reported second quarter 2011 operating earnings of 59 cents, in line with the Zacks Consensus estimate and at the higher end of the company’s guidance of 50 cents to 60 cents per share. Results were, however, 18% below the year-ago earnings of 72 cents. Operating earnings were $338 million, plummeting 21% year over year.
The year-over-year decline was largely due to lower merchant generation margins, higher scheduled outage costs and interest expense, and normal weather in the regulated electric service territory. However, higher rate adjustment clause earnings and contributions from producer services as well as lower share count due to buyback were partial offset.
Including the one-time unfavorable impact from Kewaunee operations of $1 million, severance cost of $11 million and other items of $4 million, which were partially offset by the favorable impact from recoverable spent nuclear fuel-related costs of $14 million, the company reported net income of $336 million or 58 cents a share, comparing unfavorably with $1.761 billion or $2.98 per share in the second quarter of 2010.
Operational Update
Dominion reported revenue of $3.34 billion in the quarter under review, up 8% year over year. Revenue lagged the Zacks Consensus Estimate of $3.39 billion.
Operating earnings at Dominion Virginia Power were $115 million or 20 cents a share, reflecting an increase from $112 million or 19 cents per share in the year-ago quarter.
Operating earnings at Dominion Energy were $104 million or 18 cents a share, higher than $86 million or 14 cents per share in the year-ago quarter.
Second quarter operating earnings at Dominion Generation totaled $194 million or 34 cents per share, lower than $276 million or 47 cents a share in the year-ago quarter.
Other Key Highlights
Dominion completed and energized 500 kV transmission line projects, Meadow Brook to Loudoun and Carson to Suffolk. The company started work on the West Virginia portion of its next major transmission project.
The 580-megawatt combined cycle plant, Bear Garden, started commercial operation in May. The 585-megawatt Virginia City Hybrid Energy Center is 90% complete and is expected to be in service in summer 2012. Pending regulatory approval, construction on Warren County, a 1,300-megawatt gas-fired combined cycle plant, is expected to start in spring 2012.
Appalachian Gateway received the regulatory approval and is expected to be in service by September 2012.
Looking into 2011
Dominion expects operating earnings between 90 cents and $1.00 per share for the third quarter of 2011. The company expects to deliver the earnings on the back of lower share count and higher revenues from growth projects. However, a normal weather, lower merchant generation margins and a higher effective income tax rate could mar some of the positive influences.
Dominion reiterated its expectation to deliver operating earnings between $3.00 and $3.30 per share for 2011.
The quantitative Zacks #3 Rank (short-term Hold rating) for Dominion indicates no clear directional pressure on the stock over the near term.
Richmond, Virginia based Dominion, together with its subsidiaries, engages in producing and transporting energy in the United States. American Electric Power Co. (AEP), which competes with Dominion, will report its second quarter results before the market opens on July 29 while another peer NiSource Inc. (NI) is scheduled to report its results before the market opens on August 2.
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