OKE Beats Est, Lowers Guidance
ONEOK Inc. (OKE) reported fourth-quarter 2012 earnings per share of 53 cents, beating the Zacks Consensus Estimate by 8 cents. However, quarterly earnings were 3.6% lower than the prior-year results of 55 cents (on a split-adjusted basis) primarily due to the weak performance of the Energy Services segment.
The company’s earnings of $1.71 per share in 2012 surpassed the Zacks Consensus Estimate by 5%. Full-year earnings per share were 1.8% higher than the prior-year results, mainly due to the increase in natural gas and natural gas liquids (NGL) volumes, improved rates in natural gas distribution segment, and lower operating costs.
Total Revenue
ONEOK’s quarterly revenue of $3.66 billion was 13.7% above the Zacks Consensus Estimate. However, quarterly revenue decreased 10.1% from $4.07 billion in the year-ago quarter.
Full-year 2012 revenue was $12.6 billion, $0.35 billion above the Zacks Consensus Estimate. However, revenue was 14.7% lower than the prior-year results.
Operating Statistics
Cost of sales and fuel in the quarter decreased 9.4% year over year to $3.06 billion.
Quarterly total operating expenses was $310.9 million, down 6.88% year over year due to lower operations and maintenance costs.
Segment Results
ONEOK Partners: ONEOK Partners' fourth-quarter operating income was $230.5 million, down 27.4% year over year due to the decrease in the natural gas liquids business, unfavorable NGL price differentials and lower isomerization margins, and the decrease in the natural gas liquids business related to operational measurement losses and lower realized natural gas and NGL prices.
Natural Gas Distribution: Segmental operating income improved 46% year over year to $79.5 million due to higher rates in Oklahoma, Kansas and Texas; partially offset by lower transportation margins in Kansas.
Energy Services: In the quarter under review, the segment reported an operating loss of $10.3 million compared with a loss of $5.5 million in the prior-year quarter. The lackluster performance was due to a decline in premium-services margins along with lower storage and marketing margins.
Financial Condition
ONEOK, on a stand-alone basis, ended fourth quarter with $817.2 million of commercial paper outstanding, $1.9 million in letters of credit and $380.9 million available under the $1.2 billion credit facility.
Cash and cash equivalents as of Dec 31, 2012 were $583.6 million compared with $65.9 million as of Dec 31, 2011.
As of Dec 31, 2012, long-term debt was $6.5 billion versus $4.5 billion as of Dec 31, 2011.
Cash provided by operating activities for the twelve months ended Dec 31, 2012 was $1 billion, lower than $1.4 billion in the year-ago comparable period.
Capital expenditure for year increased to $1.9 billion from $1.3 billion in 2011 due to the rise in expenditures at the company’s subsidiary ONEOK Partners.
Guidance
ONEOK Inc. trimmed its net income and operating income guidance for full year 2013, primarily due to weak performance from ONEOK Partners segment, lower anticipated volumes and prices of NGL, and a decline in the NGL location price differentials.
ONEOK’s full-year 2013 net income guidance will be in the range of $350 million to $400 million, down from prior estimate of $405–$455 million.
Midpoint of ONEOK's full-year 2013 operating income guidance decreased to $1.14 billion from previous guidance of $1.2 billion.
Capital expenditures for 2013 are expected to be approximately $3 billion, with roughly $2.64 billion to be spent at ONEOK Partners for new growth projects and $0.31 billion on a stand-alone basis.
The company also guides that subject to its board’s approval it will increase the quarterly dividend rate by 2 cents for Jul 2013. Initially, the company expected to raise the dividend rate by 3 cents.
ONEOK also modified its anticipation to increase dividends by roughly 55%–65% within 2012 to 2015, subject to the board’s approval, compared with its earlier guidance of 65% to 70%. The company affirmed its long-term dividend payout target of 60% to 70% of recurring earnings.
Other Energy Company Releases
The Laclede Group, Inc. (LG) reported fourth-quarter 2012 earnings per share of $1.25, 16 cents above the Zacks Consensus Estimate.
Vectren Corporation’s (VVC) fourth-quarter 2012 earnings of 52 cents were 23.8% higher than the Zacks Consensus Estimate.
Atmos Energy Corporation (ATO) posted fourth-quarter 2012 earnings per share of 74 cents, missing the Zacks Consensus Estimate by 4 cents.
Our View
Despite a favorable performance in the fourth quarter of 2012, we are skeptical about weak NGL pricing, stringent utility regulations and volatile commodity prices. We believe these negatives may to some extent challenge the company’s future performance.
ONEOK Inc. currently has a Zacks Rank #4 (Sell).
Tulsa, Oklahoma-based ONEOK Inc. is a diversified energy company, operating as a natural gas distributor primarily in the United States.
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