Sempra Energy (SRE) announced second-quarter 2011 earnings of 97 cents per share, below the Zacks Consensus Estimate of $1.00. However, it comfortably surpassed the year-ago quarterly figure of 89 cents per share. The results were driven by contributions from utility and pipeline acquisitions.
Including a gain of $1.15 per share related to the write-up in the value of the company's original investments in Chile and Peru (as a result of the acquisition of a controlling interest in those utilities earlier in 2011), the company reported GAAP EPS of $2.12 compared with 89 cents in the previous-year quarter.
Operating Statistics
Total revenue of Sempra Energy in the second-quarter 2011 was $2.4 billion, beating the Zacks Consensus Estimate by $354 million and the year-figure of $2.0 billion. Sempra Utilities' top line increased to $1.9 billion from $1.6 billion in the year-ago quarter. Energy-related businesses generated revenue of $500 million compared with $458 million in the second quarter of 2010.
Segment Update
San Diego Gas & Electric: Quarterly earnings for San Diego Gas & Electric (SDG&E) were $71 million, compared with $75 million in the year-ago quarter.
Southern California Gas Company: The segment generated earnings of $59 million, down $10 million year over year due to lower natural gas storage revenues and higher employee benefit costs and other expenses.
Sempra Generation: Earnings from this segment were $50 million compared with $52 million in the year-ago quarter.
Recently, the segment had announced a 25-year contract with Pacific Gas & Electric, a subsidiary of PG&E Corporation (PCG), to supply renewable power from a 150-megawatt (MW) expansion of Sempra Generation's Copper Mountain Solar complex in Nevada. The contract is subject to approval by the California Public Utilities Commission.
Sempra Pipelines & Storage: Quarterly earnings for Sempra Pipelines & Storage were $337 million, a quantum leap from the previous year figure of $39 million due to the gain related to the write-up in the value of the original investments in Sempra Pipelines & Storage's electric utilities in Chile and Peru and higher earnings primarily from increased ownership in these companies.
Sempra LNG: Earnings from the segment were $18 million in the reported quarter, compared with $13 million in the year-ago quarter driven by payments by customers for contracted cargoes that were not delivered.
Financial Update
At the end of second quarter 2011, cash and cash equivalents were $392 million versus $912 million at fiscal-end 2010. Long-term debt increased to approximately $9.7 billion at the end of the reported period from $9 billion at the end of fiscal 2010.
Outlook
The company maintained its earnings per share guidance in the range of $4.00–$4.30 for fiscal 2011. Including the gain of $1.15 accrued in the reported quarter, the company expects GAAP EPS to be in the range of $5.15–$5.45.
Peer Comparison
Recently, a Sempra Energy peer, PG&E Corporation reported its second quarter results with operating earnings per share of $1.02 that fell short by a penny from the Zacks Consensus Estimate. However, results comfortably surpassed the year-ago number of 91 cents.
Our Take
Sempra Energy’s diversified exposure insulates its operations to a significant degree from regulatory rate risks. We believe the company presents a lower risk profile relative to its peers.
This is further supported by stable utility earnings, steady progress at its LNG terminals, ongoing installations of smart meter and renewable power projects in the Pacific Southwest. Moreover, the company is continuously making progress in major California utility projects and in the build-out of contracted renewable energy infrastructure.
However, we prefer to remain on the sidelines due to 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 involved 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 consists of two California regulated public utility companies – Southern California Gas Company (SoCalGas) and San Diego Gas & Electric (SDG&E). The Sempra Global and the parent business wing consists of unregulated subsidiaries – Sempra Generation, Sempra LNG and Sempra Pipelines & Storage – engaged in providing energy products and services.
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