Gas distributor Nicor Inc. (GAS) reported disappointing fourth quarter 2010 results, hampered by weakness in its shipping and other energy-related businesses.

Earnings per share came in at 87 cents, missing the Zacks Consensus Estimate by 6 cents and way below the year-ago income of $1.21.Total operating revenues, at $738.8 million, was ahead of the Zacks Consensus Estimate of $711.0 million but was down 3.8% year over year.

Segmental Performance

Gas Distribution: The segment operating income for the most recent quarter was $53.2 million, a slight increase from $51.3 million achieved during the fourth quarter of 2009. The positive comparison can be attributed to higher gas distribution margin and gains on property sales, which were partially offset by increased operating/maintenance costs and higher depreciation expense.

Shipping: Nicor’s Shipping segment achieved an operating profit of $7.1 million versus income of $13.5 million in the year-earlier period. The main reasons for the underperformance were lower operating revenues and higher operating costs. The increase in operating expenses were primarily attributable to higher cargo claims expense and higher wages and benefits, while lower operating revenues came on the back of lower volumes shipped, somewhat offset by higher average rates.

Other Energy Ventures: Operating profit came in at $11.5 million, down $15.0 million year over year. The decrease came on the back of lackluster operating performance at the company’s wholesale natural gas marketing business.

Guidance

For 2011, Nicor has guided towards earnings per share of $2.30 – $2.50, reflecting lower expected results from its gas distribution business.

Our Recommendation

Even though Nicor has a Zacks #2 Rank (short-term Buy rating) in the short run, we are Neutral on the company in the longer term.

Nicor is currently in the process of being acquired by AGL Resources (AGL) – the owner of Atlanta’s natural-gas utility – for about $3.1 billion in cash, stock and debt.

 
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