ONEOK Inc. (OKE) reported a fourth-quarter profit of 76 cents per share, below 87 cents earned in the year-ago quarter. The quarterly results also marginally lagged the Zacks Consensus Estimate of 79 cents.
ONEOK’s full-year 2010 profits came in at $3.10 per share, surpassing the Zacks Consensus Estimate of $3.05 and the year-ago earnings of $2.87. The better-than-expected results in 2010 are attributed to strong performance across all segments.
Operating Statistics
Net revenues in the quarter rose 9.9% to $3.36 billion, short of the Zacks Consensus Estimate of $4.48 billion. Full-year revenues were $13.03 billion, up 17.3% year over year but below the Zacks estimate of $13.89 billion.
In the fourth quarter, operating income decreased 11.7% to $241.1 million compared with $273.1 million in the year-ago quarter.
The downside came from lower natural gas storage, marketing and transportation margins, net of hedging, in the energy services segment; expiration of the 2009 capital-recovery mechanism in Oklahoma in the distribution segment now included in base rates; and the ONEOK Partners segment selling its bankruptcy claims with Lehman Brothers in the same period in 2009.
The above negatives were partially offset by higher premium-services margins, higher natural gas liquids (NGL) optimization margins and favorable NGL price differentials, higher storage margins and NGL volumes, new performance-based rates in Oklahoma and increased natural gas volumes gathered and processed in the Williston Basin.
For the full-year operating income totaled $944.0 million compared with $894.6 million in 2009.
In the reported quarter, operating costs declined 2.5% year over year to $229.5 million primarily due to lower property taxes associated with the capital projects completed in 2009 in the ONEOK Partners segment, offset by higher property insurance and employee-related costs and the recognition of previously deferred costs in the distribution segment.
Segmental Results
ONEOK Partners: ONEOK Partners’ operating income was $159.7 million compared with $152.3 million in the year-ago quarter. Operating costs were $111.4 million compared with $116.2 million in the fourth quarter of 2009. Full-year segment operating income increased 7.3% to $586.3 million, with costs of $403.5 million, down 1.1% year over year.
The decrease in operating cost in both periods was due primarily to lower than estimated property taxes associated with the capital projects completed in 2009.
Distribution: The Distribution segment reported operating income of $60.8 million in the fourth quarter compared with $81.6 million last year. Full-year operating income at the segment was $226.4 million versus $221.6 million in 2009.
Operating costs in the fourth quarter were $111.4 million compared with $105.2 million in the year-ago quarter. Costs for the full-year rose 4.5% to $407.5 million in 2010. This increase was due primarily to the recognition of previously deferred integrity-management program costs in Oklahoma.
Energy Services: The Energy Services segment reported operating income of $19.8 million, down 47.5% from the year-ago period. Operating income for 2010 was $130.7 million compared with $123.6 million in the same period in 2009.
In the reported quarter, operating costs declined 46% year over year to $7.4 million, while full-year operating costs declined by $7.1 million to $28.4 million, mainly on lower legal-related costs and lower property taxes.
Financial Condition
On a stand-alone basis, ONEOK reported year-ending cash and cash equivalents of approximately $30.1 million with $127.0 million of short-term debt and $394.1 million of natural gas in storage.
Stand-alone cash flow from continuing operations, before changes in working capital, was $762.7 million for 2010, which exceeded capital expenditures and dividends of $423.5 million by $339.2 million.
As of December 31, 2010, ONEOK had in place a three-year stock repurchase program to buy up to $750 million of shares outstanding, with a cap on purchases up to $300 million worth of shares in any one calendar year. As of February 21, 2011, no shares were repurchased under the program.
Our View
Based in Tulsa, Oklahoma, ONEOK Inc. is a diversified energy company, operating as a natural gas distributor primarily in the United States. The company’s primary competitors include Dynegy Inc. (DYN) and OGE Energy Corp. (OGE).
We maintain our long term Neutral recommendation on ONEOK shares, supported by the company’s short term Zacks #3 Rank (Hold).
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