Southern Union Company (SUG) reported second-quarter 2010 adjusted net earnings of 42 cents, beating the Zacks Consensus Estimate of 37 cents by 5 cents. Results were ahead of 35 cents in second-quarter 2009. Adjusted net earnings were $53.0 million, up 21% from $43.8 million in the prior year quarter.

The solid performance in the quarter was primarily due to Trunkline LNG Company Infrastructure Enhancement Project being back in service as well as favorable impact of new rates at Missouri Gas Energy distribution company.

Adjusting for mark-to-market (MTM) gain on open economic hedges of $14 million or 11 cents, MTM loss recorded in prior accounting period of $5.7 million or 5 cents and loss on extinguishment of preferred stock of $3.3 million or 3 cents, the company reported net income of $69.2 million or 55 cents. Results compare favorably with net income of $31.1 million or 25 cents in second quarter 2009.

Prior-year quarter includes an MTM loss on open economic hedges of $3.5 million or 3 cents and MTM gain recorded in the prior accounting period of $9.1 million or 7 cents.

Revenue of Southern Union in the quarter totaled $573.1 million, up 26.5% from $453.0 million in the prior year period. The improvement was driven by strong performance at Transportation and Storage as well as at Gathering and Processing. However, lower revenue at Distribution was a partial offset. Results also surpassed The Zacks Consensus Estimate of $547 million.

Total operating expenses were $441.4 million up 16% from $380.4 million in second-quarter 2009.

Operating income increased a whopping 81% year over year to $131.7 million in the quarter.

Lower capitalized interest costs from lower outstanding capital project balances led interest expense increase 14.6% year over year to $55.4 million in the reported quarter.

Segment Update

Transportation and Storage: Revenue increased 8.4% year over year to $187.1 million in the quarter.

Earnings before interest and taxes (EBIT) in the quarter were $111.2 million, up 13.6% year over year. The increase was largely driven by an increase in revenues at Trunkline LNG, and increased contributions from the unconsolidated investment in Citrus.

Gathering and Processing: Revenue in the quarter was $282.7 million, a substantial increase of 61.5% year over year.

Segment posted an EBIT of $40.5 million in the quarter compared to a loss of $1.5 million in the prior year quarter.

Distribution Revenue declined 4.6% year over year to $99.7 million in the quarter.

EBIT in the quarter was $6.9 million compared with a loss of $0.3 million in the year ago period attributable to the favorable impact of the new rates.

Full-Year 2010 Guidance

Management reaffirmed its expectation of adjusted net earnings in the range of $1.75 to $1.95 per share and GAAP net earnings in a range of $1.92 to $2.12 per share.

Financial Update

Cash from operations were $242.5 million in the first half of 2010, down from $381.8 million in the first half of 2009.

Long term debt at quarter-end remained almost flat at $3.42 billion compared with fiscal 2009 end.

Strong performing segments coupled with the ongoing Phase VIII expansion project by Florida Gas Transmission Company will position Southern Union to post solid results going forward. We maintain our “Neutral” recommendation on Southern Union . The quantitative Zacks #3 Rank (Hold) for the company indicates no clear directional pressure on the shares over the near term.

 

 
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