Diversified utility, NiSource Inc. (NI), posted net operating earnings of 33 cents per share in the fourth quarter of 2010, falling short of the Zacks Consensus Estimate of 34 cents and the year-ago quarter's operating earnings of 36 cents.
NiSource's operating earnings of 2010 were $1.22 per share compared with $1.07 per share reported in 2009. The results were in line with the Zacks Consensus Estimate, provided by 12 covering analysts.
NiSource recorded GAAP earnings for 2010 of $1.06 per share compared with 84 cents per share in the previous year. The difference of 16 cents between operating and GAAP earnings, during the financial year, was due to certain one-time items excluded from GAAP earnings.
Total Revenue
Gross revenue during the quarter improved 11% year over year to $1,667.7 million from $1,502.7 million in the year-ago quarter. Gross revenue increased across the board in all of the company's business segments – Electric Operations increased 2.8%, Gas Transportation and Storage increased 4.4%, Gas Distribution increased 15.7% and Corporate and Other Operations increased 83%.
Reported quarter revenue however missed the Zacks Consensus Estimate of $1,699 million.
NiSource's total revenue for 2010 was $5,818.3 million versus $5,836 million reported in the prior fiscal year, reflecting a decline of 0.3%. Despite a growth in contribution from Gas Transportation and Storage, Electric Operationsand Corporate and Other Operations, the year-over-year decline in the results was attributable to the fall in contribution from theGas Distribution segment.
Fiscal year 2010 revenue of the company also missed the Zacks Consensus Estimate of $6,082 million.
Segment Details
Gas Distribution Operations: Operating earnings during the fourth quarter was $113.0 million versus $114.6 million in the year-ago quarter, reflecting a decline of 1.4%. The decline was mainly due to lower residential and commercial margins, as well as lower off-system sales.
Operating earnings from this segment for 2010 was $342.9 million versus $329.4 million reported in 2009, reflecting a growth of 4.1%. The year-over-year growth was attributable to regulatory and service programs including impacts from rate cases at various utilities and the implementation of new rates under Columbia Gas of Ohio's approved infrastructure replacement program.
Gas Transmission and Storage Operations: Operating earnings during the fourth quarter was $100.0 million versus $116.7 million in the year-ago quarter, reflecting a decline of 14.3%. The annualized shortfall was mainly due toshorter-term transportation and storage services.
Operating earnings from this segment for 2010 was $377.2 million versus $408.9 million reported in 2009, reflecting a decline of 7.8%. The year-over-year decline was due to decreases in shorter-term transportation and storage services and lower mineral rights leasing revenues.
Electric Operations: Operating earnings during the fourth quarter was $43.8 million versus $35.5 million in the year-ago quarter, reflecting a growth of 23.4%. Increased industrial usage and margins drove the growth in the reported quarter.
Operating earnings from this segment for 2010 was $218.3 million versus $162.3 million reported in 2009, reflecting a growth of 34.5%. Higher operating earnings were led by improvement in industrial margins and usage, along with increased recovery under NIPSCO's environmental investment mechanism, and increased off-system sales.
Corporate and Other Operations: The segment posted an operating loss of $8.3 million in the quarter versus a loss of $7.6 million in the year-ago quarter.
In 2010, the segment posted a loss of $20.9 million versus a loss of $19.8 million in the previous year.
Quarterly Highlights
During the quarter the weather adjusted electric sales volume increased by 3.4% to 4,082.2 Gigawatt hours (GWh) from 3,948.5 GWh in the year-ago quarter
Total operating expenses climbed 0.9% in the quarter to $670.6 million. Operating expenses, excluding the impact of trackers, went up 2.2% to $580.3 million.
Despite a growth in revenue during the quarter, operating income of the company decreased 4.1% to $248.5 million from $259.2 million in the year-ago quarter mainly due to steeper operating expenses.
Interest expenses during the quarter decreased 1.1% due to a reduction in debt levels.
Annual Highlights
The company experienced a year-over-year growth of 0.2% in electric consumers, which lifted the weather adjusted electric sales volumes of the company in 2010 by 6.1% to 16,833.9 Gigawatt hours (GWh) from 15,869.1 GWh recorded in 2009.
The company also experienced a $7 million year-over-year reduction in interest expenses in 2010 due to the November 2010 long-term debt maturity, the December 2009 term loan repayment, the maturity of the company's November 2009 floating rate note and lower short-term interest rates.
Financial Position
As of December 31, 2010, NiSource had cash and cash equivalents of $9.2 million, down from $16.4 million as of December 31, 2009.
Long-term debts (excluding the debts due within a year) of the company as of December 2010, was $5,936.1 million versus $5,969.1 million as of December 31, 2009.
A Glimpse into 2011
NiSource expects 2010 operating earnings per share in the range of $1.25 to $1.35. The guidance takes into account a gradual albeit modest recovery in the economy across the markets served by its utilities.
The company did not provide GAAP figures but indicated that GAAP numbers for 2011 would differ from operating earnings due to unpredictable weather and other factors affecting comparability.
The capital expenditure for 2011 is expected to be $1.1 billion.
Our View
Although the company lagged estimates, NiSource is making a steady progress in key business priorities, including the advancement of customer service, achievement of regulatory initiatives at Northern Indiana Public Service Company (NIPSCO), strategic investments in the Marcellus Shale region of Appalachia, and execution of its strategy of combining long-term infrastructure replacement programs with complementary regulatory initiatives in its Gas Distribution Operations.
We believe the above strategic developments will help the company to improve its performance and reach the new operating earnings level of 2011.
We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.
Merrillville, Indiana based NiSource is an energy holding company whose subsidiaries provide natural gas, electricity and other products and services in the U.S. Its operating subsidiaries deliver energy to customers within the high-demand energy corridor stretching from the Gulf Coast through the Midwest to New England.
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