Dominion Resources Inc. (D) reported third quarter 2011 operating earnings of 95 cents, a penny more than the Zacks Consensus estimate and at the mid-point of the company’s third quarter guidance range of 90 cents to $1.00 per share.
Results, however, dipped 7.8% below the year-ago earnings of $1.03. Operating earnings for the quarter dropped 10.3% year over year to $541 million.
The year-over-year decline was largely due to lower merchant generation margins, lower weather-related sales in the regulated electric service territory, and lower contributions from producer services. However, higher electric transmission revenues and accretion due to share repurchases helped mitigate these negatives to a great extent.
Operational Update
Dominion’s operating revenue of $3.775 billion in the quarter declined 4.4% from the year-ago quarter. Revenue also marginally lagged the Zacks Consensus Estimate of $3.824 billion.
Total operating expenses in the third quarter reached $2.7 billion, down 3.8% from $2.8 billion in the year-ago quarter. The company’s adjusted earnings before interest and tax (EBIT), or operating income, was $1.107 billion compared to $1.188 billion in third quarter 2010.
On a segmental basis, operating income for the company’s Dominion Virginia Power segment was $263 a $46 million increase from $217 million in the year-ago quarter. Operating income at Dominion Energy was $168 million, marginally higher than $165 million earned last year. Third quarter operating income at Dominion Generation totaled $696 million significantly lower than $826 million reported in the year-ago quarter.
Corporate and Other Eliminations EBIT in third quarter 2011 and the year-ago quarter was $20 million.
Other Key Highlights
Dominion’s business segments continued to make significant progress on the infrastructure development front during the third quarter.
At the Generation segment, the company is nearing the completion of its major growth projects. The 585-megawatt Virginia City Hybrid Energy Center is now more than 93% complete and on target for service in the summer of 2012. At Warren County, the 1,300-megawatt gas-fired combined cycle plant, site work and other preparations are ongoing and construction is expected to start by spring of 2012, pending regulatory approval.
At the Electric transmission business segment, Dominion has more than 40 projects planned over the next five years. Alongside project start-ups, the company also aims to meet growing demand and maintain reliability of its electric transmission line construction projects. The company recently received approval for the modernization of the Mount Storm-to-Doubs line. Work is planned on this project over the next three years with completion scheduled in 2015.
At Dominion Energy, the company has commenced construction for two major projects — the Natrium gas processing and fractionation project in West Virginia and the Appalachian Gateway. The former is expected to be in service by late 2012, while the latter should start operations anytime in 2012.
Looking into 2011
As each Dominion’s business segments moves ahead on the long-term infrastructure growth plan, the company expects its annual operating earnings per share growth to be in the range of 5% to 6% beginning next year.
Dominion forecasts fourth quarter operating earnings to come in the range of 58 cents and 73 cents, compared to 63 cents reported in the fourth quarter of 2010. The company expects to deliver the earnings on the back of lower share count and higher base and rider revenues. However, a normal weather and lower merchant generation margins could mar some of the positive influences.
Fourth quarter adjusted earnings before interest and tax (EBIT) is expected to be in the range of $755-$865 million, while operating earnings should range between $330 million and $415 million.
Taking into account the year-to-date results and fourth quarter guidance, Dominion also narrowed down its operating earnings guidance for full-year 2011 to $3.05 and $3.20 per share range.
Richmond, Virginia based Dominion, together with its subsidiaries, engages in producing and transporting energy in the United States. The company primarily competes with American Electric Power Co. (AEP) and NiSource Inc. (NI).
The quantitative Zacks #3 Rank (short-term Hold rating) for Dominion indicates no clear directional pressure on the stock over the near term.
