OGE Energy Corporation (OGE) reported third quarter EPS of $1.65, beating the Zacks Consensus Estimate of $1.54 by 11 cents. The results also beat the year-ago quarterly EPS of $1.40. The company operates in Oklahoma, where unemployment is significantly lower than the national average. The resilience in the economy of its service area bodes well for the company.
Operational Results
OGE Energy’s operating revenues increased 33.1% year-over-year to $1.1 billion in the reported quarter, soundly beating the Zacks Consensus Estimate of $892 million for the quarter. Electric Utility revenues increased to $723 million compared to $577.9 million in the year-ago quarter. Natural Gas Pipeline revenues increased to $402.4 million from $267.4 million in the year-ago quarter.
OGE Energy’s operating income was $274.2 million compared with $229.7 million in the year-ago quarter. Net income was $163.1 million compared to $136.8 million in the year-ago quarter.
OGE Energy’s regulated electric utility subsidiary, Oklahoma Gas and Electric Company’s (OG&E) gross profit was $412 million compared with $342 million in the year-ago quarter. The increase was due primarily to favorable weather in the company’s service territory. Net income was $142 million in the reported quarter, compared with $123 million in the year-ago quarter.
OGE Energy’s midstream natural gas pipeline business, Enogex’s gross profit was $103 million, compared with $93 million in the year-ago quarter. The increase was primarily due to higher natural gas liquids prices, a 16% increase in processing volumes and record natural gas gathering volumes. Net income was $24 million, compared to $18 million in the year-ago quarter.
Financial Condition
At quarter-end, OGE Energy reported cash and cash equivalents of $8.5 million, up from $2.3 billion at the end of the year-ago period. Long term debt increased to $2.4 billion as of September 30, 2010 from $2.1 billion at the end of fiscal 2009.
The company’s cash from operating activities at the end of the reported period was $586.9 million compared to $439.3 million in the year-ago period.
Outlook
OGE Energy is the largest electric utility in Oklahoma, and its well positioned regulated utility and unregulated midstream gas businesses are low risk. The company is pursuing an aggressive energy efficiency program, investing in renewable energy technologies and upgrading its infrastructure.
However, OGE Energy’s utility operations are subject to federal, state and local legislative requirements, as well as extensive environmental regulations. Changes in the regulatory environment could also impact the company’s earnings. Inability to comply with various laws and regulations and obtain fair and timely rate relief and requisite regulatory approvals could have an adverse impact upon its future earnings and growth.
OGE Energy increased its fiscal 2010 earnings guidance range to $2.95 – $3.05 from the earlier guidance range of $2.70 – $2.95 per share.
We are currently Neutral on the Zacks #3 Rank (Hold) stock.
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