SCANA Beats EPS, Misses Rev

Zacks

Natural gas and electric company SCANA Corporation (SCG) has reported second quarter 2012 earnings of 55 cents per share, surpassing the Zacks Consensus Estimate of 49 cents. The quarterly figure also jumped from the year-earlier profit level of 44 cents a share. The company’s earnings grew on back of improvements in gas and electric margins due to base rate increases. 

Total operating revenue of $908.0 million in the quarter declined 9.2% from the year-ago level of $1,000 million and came in below the Zacks Consensus Estimate of $914 million.
 
Segment Performance
 
South Carolina Electric & Gas Company (“SCE&G”): Earnings from the segment, which is also SCANA's principal subsidiary, were 59 cents per share, 22.9% above the year-ago level of 48 cents per share. The segment experienced higher margins on increases in base rate under the Base Load Review Act, partially tempered by higher operating and maintenance expense, interest expense, depreciation, as well as share dilution.
 
As of June 30, 2012, natural gas and electric customers of SCE&G grew 1.5% and 0.8%, respectively, on an annualized basis.
 
PSNC Energy: The segment achieved break-even on a per-share basis during the quarter. At quarter end, PSNC Energy’s customer base increased 1.9% year over year.
 
SCANA Energy-Georgia: The segment, which houses SCANA’s retail natural gas marketing business in Georgia, reported a loss of 2 cents per share, consistent with the results achieved a year ago. As of June 30, 2012 SCANA Energy’s customer base was approximately 450,000.
 
Corporate and Other, Net: This business segment suffered a 100% year-over-year decline to report loss of 2 cents a share in the quarter.
 
Guidance
 
SCANA has maintained its full-year 2012 earnings guidance in the range of approximately $3.05–$3.25 per share.
 
Our Recommendation
 
We believe SCANA is a relatively strong and regulated integrated electric utility, supported by favorable regional demographics and electric utility rate. Given the Base Load Review Act rate recovery as well as some normal utility growth, we believe that the company can achieve its earnings target. Again, the company remains committed to nuclear construction, cost control, apart from providing safe, reliable energy for the balance of the year.
 
SCANA’s nuclear expansion project is a catalyst for future earnings growth. Given its financing plan, construction budget and schedule, we are hopeful that it will be able to fund its nuclear expansion project.
 
However, we remain concerned about SCANA’s high operating and maintenance expenses. The company’s peers include Progress Energy Inc. (:PGN).
 
Hence, we retain our long-term Neutral recommendation for SCANA. The company holds a Zacks #3 Rank, which is equivalent to a short-term Hold rating. 
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