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Tickers in this Article: CNP, ED, OGE
OGE Energy Corporation (OGE), a distributor of natural gas and electricity primarily in the south central United States, reported first quarter 2012 pro forma and GAAP earnings of 38 cents per share, beating the Zacks Consensus Estimate by 5 cents. Quarterly earnings were also above the year-ago figure of 25 cents per share. Oklahoma Gas and Electric Company ("OG&E"), a regulated electric utility subsidiary, contributed earnings of 13 cents per share in the reported quarter, compared with 6 cents per share last year. The upside is attributed to recent capital investments improving infrastructure.

Enogex, a midstream natural gas business, contributed earnings of 25 cents per share compared with 19 cents per share in the year-ago quarter. The upside is commendable since it comes amid a difficult natural gas price environment, highlighting the strategic location of the company's assets and new investments in the liquids rich natural gas basins of Oklahoma and the Texas panhandle.

Operational Metrics

OGE Energy's operating revenues of $840.7 million in the reported quarter remained flat year over year. The figure was, however, below the Zacks Consensus Estimate of $890 million. Electric Utility revenues were $426.7 million compared with $422.1 million in the year-ago quarter. Natural Gas Midstream Operations revenues decreased to $414.0 million from $418.4 million in the year-ago quarter.

OGE Energy's consolidated gross margin on revenues was $355.4 million in the reported quarter, compared with $307.3 million a year ago. Net income attributable to OGE Energy was $37.1 million in the first quarter, compared with $24.8 million in the year-ago quarter.

Segment Results

OGE Energy's regulated electric utility subsidiary, OG&E's gross margin on revenues was $231 million, compared with $203 million in the comparable quarter last year. The increase was primarily due to revenues associated with customer-focused investments. Net income at the utility was $12 million, compared with $6 million a year earlier.

OGE Energy's midstream natural gas pipeline business, Enogex's gross margin on revenues was $124 million, compared with $104 million in the prior-year quarter. The increase was primarily due to higher gross margins in the transportation and processing businesses. Net income attributable to OGE Enogex Holdings increased from $19 million in the first quarter of 2011 to $25 million in the first quarter of 2012.

Guidance

OGE Energy's consolidated earnings guidance for fiscal 2012 is $3.40 to $3.60 per average diluted share. The guidance assumes approximately 99.1 million average diluted shares outstanding and normal weather for the remainder of the year, but does not reflect any impact from the pending Oklahoma general rate case.

Our Take

OGE Energy is the largest electric utility in Oklahoma, with a low-risk portfolio of well-positioned regulated utility and unregulated midstream gas businesses. Moreover, the company continues to expand into the natural gas liquids-rich basins in Western Oklahoma and the Texas panhandle.

OGE Energy Corporation distributes natural gas and electricity through its subsidiaries (Oklahoma Gas and Electric Company, and Enogex) primarily in the south central United States.

In December last year, the company increased its quarterly dividend by 4.67% to 39.25 cents per share. The company's bias toward fixed fee for its unregulated natural gas business, a high dividend yield and ongoing infrastructure development programs all speak for its favor.

However, we remain concerned about the volatility in its commodity business and pending regulatory cases, along with the unfavorable macro backdrop. OGE Energy presently retains a short-term Zacks #3 Rank (Hold rating). We have a long-term Neutral recommendation on the stock. This is in line with its peers like CenterPoint Energy Inc. (CNP) and Consolidated Edison Inc. (ED).

 
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