Dominion Resources (D) reported fourth quarter 2010 operating earnings of 63 cents, lagging the Zacks Consensus estimate by 3 cents. Results were at par with year ago earnings. Operating earnings were $366 million, down 2% year over year.
The company fared well on the heels of favorable weather in the regulated electric service area, higher rate adjustment clause and lower outage costs. However, absence of contribution resulting from the divestiture of E&P operations, a higher income tax rate and lower contributions from producer services were partial offset.
Including one time unfavorable impact from impairment of merchant generation assets, reserve for potential rate credits, partially offset by favorable impact of other items, totaling 20 cents, Dominion reported fourth quarter 2010 net income of 43 cents, reversing the net loss of 1 cent a share in the year ago quarter. Net income was $250 million compared with a net loss of 9 million in fourth quarter 2009.
For full year 2010, Dominion reported operating earnings of $3.34 per share, lagging the Zacks Consensus estimate of $3.36. Results, however, were ahead of $3.27 reported in 2009 and at the higher end of the guidance of $3.20 to $3.40 per share. Operating earnings were $1.97 billion, up 1.5% from 2009.
Including favorable impact from sale of Appalachian E&P operations, partially offset by charges related to Work force reduction program, Peoples discontinued operations, Impairment of merchant generation assets and Reserve for potential rate credits, totaling $1.34 per share, Dominion reported 2010 net income of $4.69 per share, a stark improvement from $2.17 per share in 2009. Net income more than doubled from 2009 to total $2.76 billion in 2010.
Operational Update
Dominion reported revenue of $3.7 billion in the quarter under review, up 15% year over year. Revenue fell behind the Zacks consensus estimate of $3.9 billion.
For full year 2010, revenue grossed $15.1 billion, increased 2% from 2009. Result was almost in line with the Zacks Consensus estimate.
Operating earnings in the fourth quarter 2010 at Dominion Virginia Power were $115 million or 20 cents a share, higher than $92 million or 15 cents per share in the year ago quarter. 2010 operating earnings totaled $448 million or 76 per share, higher than $384 million or 65 cents per share in 2009.
Operating earnings in the fourth quarter 2010 at Dominion Energy were $122 million or 21 cents a share, lower than $145 million or 25 cents per share in the year ago quarter. 2010 operating earnings totaled $475 million or 80 cents per share, lower than $517 million or 87 cents per share in 2009.
Fourth quarter operating earnings at Dominion Generation totaled $203 million or 35 cents per share, higher than $183 million or 31 cents a share in the year ago quarter. Operating earnings for full year were $1.29 billion or $2.19 per share, higher than $1.28 billion or $2.16 a share in 2009.
Other Key Highlights
Dominion completed and energized two of new 230 kV lines, Pleasant View to Hamilton and Garrisonville. The major electric transmission projects, Meadow Brook to Loudoun is 98% complete and Carson to Suffolk is 60% complete. Both 500 kV lines are on track to be in-service by mid-year 2011.
The Bear Garden Power Station, the combined cycle gas facility, is 94% complete and will come online in the second quarter of 2011. The Virginia City Hybrid Energy Center is 79% complete and will come online in the second quarter of 2012.
Major construction projects, such as Appalachian Gateway and our Gathering Expansion Project, are continuing on schedule and on budget.
In early 2011 January, Cove Point Pier Expansion was put in service.
Dominion inked multi-year transportation service agreements to move Marcellus Shale volumes with Northeast Expansion, Ellisburg to Craigs, and Sabinsville to Morrisville projects
Looking Into 2011
Dominion reiterated its expectation to deliver operating earnings between $3.00 to $3.30 per share in 2011. The guidance include the impact of the bonus depreciation provisions of the recent tax bills enacted by Congress that are likely to generate substantial cash tax savings to Dominion through 2013.
The company, therefore, intends plans to use a portion of this cash benefit to repurchase $400 million to $700 million of equity in 2011.
Dominion expects operating earnings to be between 85 to 95 cents per share in the first quarter of 2011.
Dividend
The board of directors adopted a new dividend policy, thereby raising the payout ratio to 60-65%. The annual dividend rate approved y the board increased by 77% to $1.97 per share in 2011 from $1.83 per share in 2010. The board also declared first quarter 2011 dividend of 49.25 cents per share
Peer Comparison
American Electric Power Co., Inc. (AEP), which competes with Dominion, reported ongoing earnings of 38 cents, which came marginally below the Zacks Consensus Estimate of 39 cents. The company’s results also came below the year-ago quarterly earnings of 50 cents.
Earnings in the reported quarter were lower than the year-ago period due to lower utility earnings (5 cents), loss from property casualty (1 cent) and a charitable contribution along with a fleet lease buyout (6 cents). Utility earnings were lower mainly due to the directive of Public Utilities Commission of Ohio (PUCO) to the company to refund excess profits to its customers per the completion of the Significantly Excessive Earnings Test (SEET) in Ohio.
Fiscal 2010 ongoing earnings came in at $3.03 per share, way above both the Zacks Consensus Estimate of $2.90. However this came below fiscal 2009 earnings of $2.97.
The quantitative Zacks #3 Rank (short-term Hold rating) for Dominion indicates no clear directional pressure on the stock over the near term.
