ONEOK Inc. Misses on Q4 Earnings, Up Y/Y

Zacks

ONEOK Inc. (OKE) reported fourth-quarter 2013 adjusted earnings per share of 54 cents, missing the Zacks Consensus Estimate by 10%. However, quarterly earnings increased 1.9% year over year.

Excluding an after-tax cost of 8 cents per share as a result of separation of the natural gas distribution business into a separate publicly traded entity, ONE Gas, Inc. (OGS) and a non-cash after-tax charge of 3 cents related to the accelerated wind down of the Energy Services segment, the company reported GAAP earnings of 43 cents per share compared with 53 cents per share a year ago.

For 2013, ONEOK Inc.’s adjusted earnings were $1.78 per share, surpassing the Zacks Consensus Estimate by 2.3%. Annual earnings increased 4.1% year over year.

On a GAAP basis, the company’s annual earnings were $1.27 per share versus $1.71 per share a year ago. The variance between GAAP and adjusted earnings was due to 42 cents per share of non-cash after-tax charges related to the wind down of the energy services segment and after-tax costs of 9 cents per share for the ONE Gas separation.

Revenues

In fourth-quarter 2013, ONEOK Inc. posted revenues of $4.14 billion, beating the Zacks Consensus Estimate by 12.2%. Reported revenues increased 13.1% year over year.

The company’s annual revenues were $14.6 billion, surpassing the Zacks Consensus Estimate by 2.3%. Revenues surged 15.6% from the prior-year figure of $12.6 billion.

Segmental Highlights

The ONEOK Partners L.P. (OKS) segment reported operating income of $252.9 million, up 9.7% year over year. Natural Gas Distribution’s operating income dropped 18.7% year over year to $64.6 million. The Energy Services segment incurred a quarterly operating loss of $15.9 million compared with a loss of $10.3 million in the year-ago quarter. The Other segment also reported a loss of $7 million.

Operating Highlights

In the quarter under review, ONEOK Inc.’s total operating expenses jumped 18.6% year over year to $368.6 million primarily due to higher operations and maintenance expenses, and a rise in depreciation expenses and general taxes.

Quarterly operating income was $294.6 million, down 1.7% year over year.

The company’s interest expenses increased 7.8% year over year to $90.1 million due to higher long-term debt.

Financial Condition

ONEOK Inc.’s cash and cash equivalents as of Dec 31, 2013 were $149.3 million compared with $583.6 million as of Dec 31, 2012.

As of Dec 31, 2013, long-term debt (excluding current maturities) was $7,755 million versus $6,515.4 million as of Dec 31, 2012.

For 2013, cash provided by operating activities was $1,294.8 million, higher than $984 million in the year-ago comparable period.

ONEOK Inc.’s capital expenditure was $2,256.6 million in 2013, up 20.9% year over year primarily due to investment in several projects at the company’s ONEOK Partners and Natural Gas Distribution segments.

Guidance

ONEOK Inc. maintained its 2014 guidance provided on Dec 2, 2013. Net income and operating income are expected to be $285 million and $1,160 million, respectively, for the year.

ONEOK Inc. is expected to allocate $560 - $640 million for the 2014 dividend payout. The company plans to increase the 2014 annual dividend by 53% to $2.33 per share, subject to the board’s approval. The company targets average annual dividend increase in the range of 20% - 25% between 2013 and 2016.

At the Peer

Chesapeake Utilities Corporation (CPK) is slated to release its fourth-quarter 2013 earnings on Mar 7. The Zacks Consensus Estimate is 97 cents.

Our View

Despite ONEOK Inc.’s quarterly earnings miss, reported results increased year over year primarily due to a rise in natural gas volumes gathered, processed and sold, and increased natural gas liquids volumes gathered as a result of the completion of several projects.

ONEOK Inc. is currently streamlining its operations. The company recently completed the separation of its natural gas distribution business. The company received a one-time cash payment of $1.13 billion from ONE Gas. ONEOK Inc. intends to utilize the fund to reduce its debt level, thereby improving future margins.

As for growth projects, the company plans to invest around $2.27 billion in 2014, the majority of which will be under ONEOK Partners’ portfolio. Currently, the partnership is in the middle of several projects and intends to start a few ventures shortly. These projects will enable ONEOK Inc. to serve more customers in the future.

ONEOK Inc. currently has a Zacks Rank #3 (Hold).

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