Natural gas-focused energy company, Questar Corp. (STR) reported weak second quarter 2010 results due to higher operating expenses. Earnings per share, excluding after tax separation costs, came in at 20 cents, lower than the Zacks Consensus Estimate of 36 cents, but surpassed the year-ago profit of 18 cents.
After adjusting the effect of separation costs, earnings per share was 16 cents, down 11.1% from the prior-year profit.
Total consolidated revenues for the quarter came in at $201.1 million, up 8.4% from the year-ago level of $185.6 million based on higher production volumes, but came below the Zacks Consensus Estimate of $636 million.
Questar Spin-off
In recent times, Questar successfully split its unregulated exploration and production (“E&P”) business from its regulated utility business, thereby creating two independent, publicly traded companies. The newly formed company was named QEP Resources (QEP) and results of the second quarter of 2010 and prior periods of QEP have been restated as income from discontinued operations. Following the spin-off, Questar comprises Wexpro, Questar Pipeline and Questar Gas.
Wexpro
Business segment wise, Wexpro consolidated sales were up 26.5% year over year to $4.3 million while the segment income from continuing operations increased to $22.0 million from $19.8 million in the prior-year period.
Wexpro reported a 4.3% rise in quarterly production of natural gas (12.1 billion cubic feet /Bcf from 11.6 Bcf, a year ago).
Questar Pipeline
Questar Pipeline’s consolidated revenues of $48.2 million were up 10.3% from the year-ago quarter while income from continuing operations came in at $15.9 million, a slight increase of 6.0%. The increased results were attributed to higher contracted transportation commitments and strong natural gas liquids (NGL) sales.
Questar Gas
At $148.6 million, this segment’s revenues inched up 7.3% year over year. However, the segment reported a net loss of $2.2 million, 10.0% wider than the loss of $2.0 million in the second quarter of 2009.
Balance Sheet
As of June 30, Questar’s cash and cash equivalents totaled $82.8 million while total long-term debt (including the current portion) stood at $831.1 million. The debt-to-capitalization ratio was approximately 46.1%.
2010 Guidance
Questar expects 2010 net income from continuing operations8 to be in the range of $180 million to $185 million or $1.00 to $1.05 per average diluted share.
Our Recommendation
We remain optimistic about Questar’s strong upstream asset base, robust margins, attractive hedges and low cost structure. Moreover, post-split, the company holds the promise of unlocking significant shareholder value. However, we maintain a Neutral recommendation on the stock in the long run, reflecting uncertain macro backdrop and commodity price volatility.
After adjusting the effect of separation costs, earnings per share was 16 cents, down 11.1% from the prior-year profit.
Total consolidated revenues for the quarter came in at $201.1 million, up 8.4% from the year-ago level of $185.6 million based on higher production volumes, but came below the Zacks Consensus Estimate of $636 million.
Questar Spin-off
In recent times, Questar successfully split its unregulated exploration and production (“E&P”) business from its regulated utility business, thereby creating two independent, publicly traded companies. The newly formed company was named QEP Resources (QEP) and results of the second quarter of 2010 and prior periods of QEP have been restated as income from discontinued operations. Following the spin-off, Questar comprises Wexpro, Questar Pipeline and Questar Gas.
Wexpro
Business segment wise, Wexpro consolidated sales were up 26.5% year over year to $4.3 million while the segment income from continuing operations increased to $22.0 million from $19.8 million in the prior-year period.
Wexpro reported a 4.3% rise in quarterly production of natural gas (12.1 billion cubic feet /Bcf from 11.6 Bcf, a year ago).
Questar Pipeline
Questar Pipeline’s consolidated revenues of $48.2 million were up 10.3% from the year-ago quarter while income from continuing operations came in at $15.9 million, a slight increase of 6.0%. The increased results were attributed to higher contracted transportation commitments and strong natural gas liquids (NGL) sales.
Questar Gas
At $148.6 million, this segment’s revenues inched up 7.3% year over year. However, the segment reported a net loss of $2.2 million, 10.0% wider than the loss of $2.0 million in the second quarter of 2009.
Balance Sheet
As of June 30, Questar’s cash and cash equivalents totaled $82.8 million while total long-term debt (including the current portion) stood at $831.1 million. The debt-to-capitalization ratio was approximately 46.1%.
2010 Guidance
Questar expects 2010 net income from continuing operations8 to be in the range of $180 million to $185 million or $1.00 to $1.05 per average diluted share.
Our Recommendation
We remain optimistic about Questar’s strong upstream asset base, robust margins, attractive hedges and low cost structure. Moreover, post-split, the company holds the promise of unlocking significant shareholder value. However, we maintain a Neutral recommendation on the stock in the long run, reflecting uncertain macro backdrop and commodity price volatility.
QUESTAR (STR): Free Stock Analysis Report
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