Hedge Loss to Hit AGL 3Q, Cuts View - Analyst Blog

By Zacks | October 12, 2012 AAA

Energy services holding company AGL Resources Inc. (GAS) provided its outlook for the third quarter ending September 30, 2012. The company expects earnings to be in the range of $2.60 per diluted share to $2.75 per diluted share for 2012, which is lower than their previous estimate.

AGL expects lower earnings in the third quarter due to changes in natural gas prices. To hedge its natural gas storage stock, the company deals in natural gas futures which suffered pre-tax hedge losses of $16 million or $0.08 per diluted share in its wholesale services segment.

The company expects to recover the losses in the fourth quarter of 2012 and the first quarter of 2013 with the help of hedging instruments that are settled by withdrawing natural gas stock and delivering to customers.

Although company's wholesale service segment generated good economic outcome during the first three quarters but fluctuating natural gas prices will have an effect on the company's earnings.

Natural gas distribution is usually a temperature-sensitive business with about half of all deliveries used for space heating. Consequently, milder-than-normal weather conditions in the future could adversely affect the company's operating results, cash flow and financial condition.

Atlanta, Georgia-based AGL Resources is an energy services holding company, whose principal business is gas distribution. Apart from the core distribution operations, AGL Resources is also engaged in other activities that include retail operations, wholesale services, midstream operations, energy services, cargo shipping and liquefied natural gas (LNG) and propane.

AGL Resources - one of the major distributors of natural gas in the nation along with the likes of Atmos Energy Corp. (ATO) - currently retains a Zacks #2 Rank (short-term Buy rating).

 

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