Diversified utility NiSource Inc. (NI) posted second quarter 2011 net operating earnings of 17 cents per share, surpassing the Zacks Consensus Estimate of 14 cents as well as the year-ago results of 13 cents. Net operating earnings totaled $45.6 million, up 23.2% year over year.
GAAP earnings in the reported quarter were 14 cents per share versus 10 cents per share reported in the year-ago quarter.
Revenue
Total revenue in the quarter under review improved 7.8% year over year to $1.18 billion driven by higher revenues from all of its reporting segments.
Revenue, however, missed the Zacks Consensus Estimate of $ 1.27 billion.
Operational Update
During the quarter the weather adjusted electric sales volume increased by 4.8% to 4,260.5 Gigawatt hours (GWh) from 4,065.8 GWh in the year-ago quarter.
Total operating expenses rose 2.0% year over year in the quarter to $603.4 million. The increase was attributable to higher operation and maintenance expense. However, total operating expenses, as a percentage of revenue, declined 294 basis points over the prior year.
The year-over-year revenue growth along with reduction in costs as a percentage of revenue boosted operating income during the quarter. Operating income of the company rose 5.3% to $162.2 million from $154 million in the year-ago quarter.
Interest expenses during the quarter improved 4.1% primarily owing to the November 2010 long-term debt maturity and the December 2010 tender offer to repurchase long-term debt.
Segment Update
Gas Distribution Operations: Revenue increased 6.6% year over year to gross $502 million in the quarter. Operating earnings in the quarter were $48.7 million versus $35.9 million in the year-ago quarter, reflecting an increase of 35.7%.
Gas Transmission and Storage Operations: Segment revenue climbed 16.3% year over year to $307.3 million. Operating earnings surged 13.1% year over year to $84.7 million.
Electric Operations: Revenue increased 2.2% year over year to $346.6 million in the quarter. Operating earnings were $37.3 million, down 22.8% over the prior-year period.
Corporate and Other Operations: Segment revenue was $24.4 million, compared with $19.8 million in the year-ago quarter. The segment posted a wider operating loss of $8.5 million in the quarter than a loss of $5.1 million a year ago.
Financial Update
NiSource ended the quarter with cash and cash equivalents of $59.9 million, up substantially from the 2010 end level of $9.2 million.
Long-term debts (excluding debts due within a year) at quarter end were $6.34 billion, a tad above $5.94 billion at 2010 end. To bolster its long-term financial strength, the company issued $400 million, 30-year notes during the quarter.
Net cash from operating activities in the quarter totaled $736 million versus $402.5 million a year ago. Capital expenditures were $445 million, up 32% year over year.
Looking Forward
NiSource affirmed its 2011 net operating earnings guidance of $1.25 to $1.35 per share.
NiSource expects to make capital investments worth $1.1 billion in 2011.
Peer Comparison
Dominion Resources Inc.(D), which competes with NiSource, announced operating earnings of 59 cents per share for the second quarter 2011, below the year-ago figure of 72 cents per share but in line with the Zacks Consensus Estimate.
Dominion reported revenues of $3.34 billion in the quarter under review, down 8% year over year. Revenues were marginally behind the Zacks Consensus Estimate of $3.39 billion.
Our View
NiSource had a mixed quarter, with its top line falling short of our expectation and earnings beating it. The company witnessed a growth in sales in the first half of the year compared with the year-ago period. However, the company’s total customers ebbed over the last six months versus the comparable period last year. We believe the company should work to check the attrition in the customer rate.
We maintain our Neutral recommendation on NiSource. The quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates upward pressure on the stock over the near term.
