SCANA Corporation (SCG) reported second-quarter 2010 earnings of 43 cents per share, below the Zacks Consensus Estimate as well as the year-ago earnings of 45 cents.
The decline was largely due to the impact of higher property taxes, interest, and operating and maintenance expenses, associated with the share dilution. It was partially offset by higher electric margins owing to favorable weather in the quarter, customer growth and the electric base rate increase under the Base Load Review Act (BLRA).
Total revenue expanded by nearly 7% to $939 million from the year-earlier figure of $878 million, and also surpassed the Zacks Consensus Estimate of $876 million.
Segment Performance
South Carolina Electric & Gas Company: Earnings from the segment, which is also SCANA’s principal subsidiary, increased by a penny year over year to 50 cents per share, driven by the improved customer base and favorable weather that consequently boosted electric and natural gas margins. However, the positives were partially offset by higher interest, operating and maintenance expenses, property taxes and dilution. Natural gas and electric customers spiked 1.1% and 0.9% year over year, respectively.
PSNC Energy: The segment reported a loss of 1 cent per share, compared with break-even results in the year-ago quarter. Increased operating expenses and slightly higher interest, which were partly offset by customer growth, led to the modest decline. Customer growth increased by 1.5% year over year.
SCANA Energy: The segment reported a loss of 5 cents per share, compared with a loss of 3 cents in the comparable quarter last year, attributable to lower margins due to warmer weather in the quarter.
Financials
At the end of the quarter, the company’s long-term debt balance was $4.65 billion, representing a debt-to-capitalization ratio of 56.7%.
Guidance
SCANA issued full-year 2010 earnings guidance in the range of $2.90–3.05 per share, excluding non-recurring items, and continues to target an average annual earnings growth rate of 4% to 6% over the next 3–5 years.
Our Recommendation
We believe SCANA has a relatively strong and regulated integrated electric utility, supported by favorable regional demographics and electric utility rate. However, its heavy debt level and the overall business risk associated with the nuclear generation construction project keep us on sidelines. Hence, we retain our Zacks #3 Rank (‘Hold’) for SCANA.
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