OGE Energy Corporation (OGE) reported its second quarter 2011 results. In the reported quarter, the company with pro forma and GAAP earnings of $1.04 per share topped the Zacks Consensus Estimate of 88 cents. The results also comfortably beat year-ago earnings of 78 cents per share.
The upsurge came from the extremely hot summer weather in its service territory boosting electricity sales and higher margins in its natural gas midstream business.
Operational Metrics
OGE Energy’s operating revenues increased 10.2% year over year to $978.1 million in the reported quarter. Results were also higher than the Zacks Consensus Estimate of $627 million.
Electric Utility revenues increased to $568.7 million compared with $512.8 million in the year-ago quarter. Natural Gas Pipeline revenues increased to $409.4 million from $374.4 million in the year-ago quarter.
Segment Results
OGE Energy reported consolidated gross income of $428 million in second quarter 2011 compared with $381 million in the year-ago period. Net income was $103 million in the reported quarter, compared to $77 million in the year-ago quarter.
In the quarter under review, OGE Energy’s regulated electric utility subsidiary, Oklahoma Gas and Electric Company (OG&E) clocked gross income of $314 million compared with $282 million in the year-ago period due primarily to hot weather. This was partially offset by higher operating expenses. Net income for OG&E was $79 million in the reported quarter, compared with $60 million a year earlier.
OGE Energy’s midstream natural gas pipeline business, Enogex, reported gross income of $114 million compared with $99 million in the year-ago quarter due to higher natural gas gathering volumes and rising natural gas liquids prices. Net income was $25 million compared to $19 million a year earlier.
Guidance
OGE Energy expects its fiscal 2011 earnings to exceed the earlier guidance range of $3.00 – $3.20 per share. The bullishness for the increase stems from expected higher gross margins at its regulated utility.
Our Take
OGE Energy Corporation distributes natural gas and electricity through its subsidiaries (OG&E and Enogex) primarily in the south central United States. OGE Energy operates through four business segments – electric utility, natural gas transportation and storage, natural gas gathering and processing and natural gas marketing.
OGE Energy Corporation is a well-positioned regulated utility also having unregulated midstream gas businesses. Going forward, the company operates in a strong Oklahoma economy, has a bias toward fixed fee in its unregulated natural gas business, and employs ongoing infrastructure improvement programs.
However, we remain concerned about the volatility in its commodity business and pending regulatory cases, along with the unfavorable macro backdrop. All the above discussed positives have already been priced in the current valuation, leaving little room for further upside in the near term. OGE Energy presently retains a short-term Zacks #2 Rank (Buy). We have a long-term Neutral recommendation on the stock.
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