Sempra Energy (SRE) announced fourth quarter and fiscal 2011 earnings results. During the fourth quarter, the company reported pro forma earnings of 1.21 per share easily surpassing the Zacks Consensus Estimate of $1.06 and the year-ago quarterly figure of $1.15 per share.
In fiscal 2011, pro forma earnings reported by the company were $4.47 per share compared with $3.93 per share in fiscal 2010. It also comfortably surpassed our expectation of $4.33. Including the gain of $1.15 per share related to the South American utility acquisitions, the company reported GAAP earnings per share of $5.62 versus $2.98 in the year-ago period.
Operating Statistics
Total revenue of Sempra Energy in the fourth-quarter 2011 was $2.6 billion, beating the year-ago figure of $2.3 billion and the Zacks Consensus Estimate by $20 million. In fiscal 2011, the company generated revenue of $10 billion, above the year-ago figure of $9 billion and our expectation by $356 million.
In the fourth quarter of 2011, Sempra Utilities’ top line increased to $2.4 billion from $1.9 billion in the year-ago quarter. Energy-related businesses generated revenue of $215 million compared with $476 million in fourth quarter of 2010.
Segment Update
San Diego Gas & Electric: Quarterly earnings for San Diego Gas & Electric (SDG&E) were $158 million compared with $105 million in the year-ago quarter driven by favorable resolution of regulatory matters, earnings from construction projects in progress and higher authorized margin.
Southern California Gas Company (SoCalGas): The segment generated earnings of $79 million, up $5 million year over year.
Sempra Generation: The segment incurred a loss of $6 million compared with earnings of $43 million in the prior-year quarter. The downside reflects expiration of the 10-year California Department of Water Resources power-supply contract in September 2011.
Sempra Pipelines & Storage: Quarterly earnings for Sempra Pipelines & Storage were $70 million, up from $39 million a year ago. The upside was primarily due to additional earnings from the segment’s acquisition of a controlling interest in South American utilities in April 2011. The segment had also gained $277 million from acquisitions in the second quarter 2011.
Sempra LNG: Earnings from the segment were $24 million in the reported quarter, compared with $18 million in the year-ago quarter.
Financial Update
As of December 31, 2011, cash and cash equivalents were $252 million versus $912 million at fiscal-end 2010. Long-term debt increased to approximately $10.1 billion at the end of the reported period from $9 billion at the end of fiscal 2010.
During 2011, net cash provided by operating activities was $1.9 billion versus $2.2 billion in the fiscal 2010. Capital expenditures in 2011 were $2.8 billion versus $2.1 billion in fiscal 2010.
In its earnings call, the company increased its quarterly dividend by 25% to 60 cents per share versus its previous dividend payout of 48 cents. The increased dividend will be payable on April 15, 2012, to shareholders of record on March 26, 2012.
Restructuring
As announced in the third quarter, Sempra Energy consolidated Sempra Generation, Sempra Pipelines & Storage and Sempra LNG into two new operating units — Sempra International and Sempra U.S. Gas & Power — effective January 1, 2012. From the first quarter 2012, Sempra Energy will report earnings from its four principal operating units: SDG&E, SoCalGas, Sempra International and Sempra U.S. Gas & Power.
Guidance
Based on the impact of accounting change due to restructuring, Sempra Energy provided guidance for earnings in the range of $4 to $4.30 per share.
Peer Comparison
Recently, a Sempra Energy peer, PG&E Corporation (PCG) reported fourth quarter and fiscal 2011 results. In the reported quarter, PG&E Corporation’s operating earnings per share of 89 cents in the fourth quarter of fiscal 2011 went past the Zacks Consensus Estimate of 85 cents and the year-ago number of 70 cents.
Our Take
The company exceeded its 2011 earnings guidance of $4 to $4.30. It also increased its dividend and re-affirmed its target payout ratio of 45% to 50%. Moreover, the company is working on restructuring to facilitate the integration of its assets.
We believe the company is well poised given the stable earnings stream from its utility subsidiaries and its focus on infrastructure improvement. Also, its diversified basket of businesses insulates its operations to a significant degree from regulatory rate risks.
However, we prefer to remain on the sidelines due to a lack of any near-term positive triggers, along with near-term trepidation in natural gas prices, an ongoing land dispute regarding its LNG terminal in Mexico and pending regulatory cases. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
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