Sempra Energy (SRE) announced its fourth-quarter earnings of $1.18 per share surpassing the Zacks Consensus Estimate of 94 cents and the year-ago quarterly earnings of 88 cents per share.
On a reported basis, including one-time items, earnings came in at $1.15 in the reported quarter compared with $1.16 in the year-ago quarter.
Operating Statistics
Total revenue of Sempra Energy in the fourth-quarter 2010 was $2.3 billion versus $2.5 billion in the year-ago period, reflecting a fall of 4.5%. Reported revenue in the quarter was also lower than the Zacks Consensus Estimate of $2.5 billion by $149 million. The downside came from both Sempra Utilities and Sempra Global businesses. Sempra Utilities’ top line decreased 1% to $1.8 billion year over year. Sempra Global revenue decreased 15% to $525 million year over year.
Sempra Energy reported quarterly earnings of $280 million compared with $288 million in the year-ago quarter. However in the reported quarter the company digested a loss of $7 million from the write-down of Sempra Energy’s investment in the RBS Sempra Commodities joint venture with Royal Bank of Scotland Group PLC (RBS). In December 2010, Sempra Energy and The Royal Bank of Scotland completed the sale of assets of their joint venture to JP Morgan Chase & Company (JPM). These assets included wholesale natural gas and power trading agreements, as well as over-the-counter and exchange-traded transactions, with counterparties across North America.
Segmental Update
San DiegoGas & Electric: Quarterly earnings for San Diego Gas & Electric (SDG&E) were $105 million, compared with $67 million in the year-ago quarter. The upside was primarily due to higher authorized margins, favorable resolution of a regulatory matter and the positive impact from the resolution of prior years’ tax issues.
Southern California Gas Company: Quarterly earnings for Southern California Gas Co. decreased to $74 million from $75 million in the year-ago quarter.
Sempra Generation: Earnings from this segment were $43 million, compared with earnings of $45 million in the year-ago quarter.
Sempra Pipelines & Storage: Quarterly earnings for Sempra Pipelines & Storage were $39 million versus $37 million in the year-ago quarter.
Sempra LNG: Sempra LNG earnings were $18 million in the reported quarter, compared with $35 million in the year-ago quarter. The downside was due to reduced payments by customers for contracted cargoes that were not delivered.
Sempra Commodities: Sempra Energy recorded a loss of $7 million in the reported quarter, compared with earnings of $69 million in the year-ago quarter. However performance in the reported period was down due to a $7 million loss from Sempra Energy’s investment in the RBS Sempra Commodities joint venture.
Financial Update
Cash and cash equivalents on December 31, 2010, were $912 million versus $110 million at the end of the comparable period a year ago. In fiscal 2010 the company generated $2.2 billion from operating activities compared to $1.9 billion generated in the year-ago period. Long-term debt increased to approximately $9 billion at the end of the reported period from $7.5 billion at the end of fiscal 2009.
Outlook
Sempra Energy is a southern California-based energy services holding company; involved in the sale, distribution, storage, and transportation of electricity and natural gas. Sempra Pipelines & Storage is an operating subsidiary of the company’s Sempra Global and parent business unit. It develops and operates natural gas pipelines and storage facilities in Latin America and the United States, and serves about 2.8 million power and gas customers. The company reaffirmed its prior earnings-per-share guidance of $4.00 to $4.30 for 2011.
Sempra Energy’s diversified basket of businesses insulates its operations to a significant degree from regulatory rate risks, compared to integrated utility peers. We believe that Sempra Energy presents a lower risk profile relative to its peers, supported by stable utility earnings, steady progress at its LNG terminals and Sunrise Powerlink transmission line, ongoing installation of smart meter and renewable power projects in the Pacific Southwest. We have a short-term Zacks #2 Rank (Buy) and a long-term ‘Neutral’ recommendation on the stock.
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