Zacks_Analysts' Blog : Dominion Beats EPS, Revs Short - Analyst Blog

Dominion Resources Inc. (D) reported first quarter 2011 operating earnings of 93 cents, beating the Zacks Consensus estimate of 91 cents. Results were however lower versus the year-ago operating earnings of 96 cents.

On a reported basis the company clocked earnings per share of 82 cents in the reported quarter versus 29 cents in the year-ago quarter. The variance of 11 cents between the reported and operating earnings in the quarter came mainly after considering an impairment charge for merchant generation asset.

Operational Update

Dominion reported revenues of $4.1 billion in the quarter under review, down 2.7% year over year. Revenue also fell behind the Zacks consensus estimate of $4.3 billion.

Operating earnings amounted to $541 million compared to operating earnings of $576 million for the same period in 2010. The decrease in operating earnings year over year is primarily attributable to lower merchant generation margins, a pleasant weather in its regulated electric service territory, the absence of earnings from the company's exploration & production (E&P) operations and higher interest expense.

The downside was partially offset by higher Federal Energy Regulatory Commission transmission revenues, rate adjustment clause earnings, higher contributions from unregulated retail energy marketing operations and accretion due to share repurchases. Overall the company reported net earnings of $479 million compared with $174 million in the year-ago quarter.

Guidance

Richmond, Virginia-based Dominion Resources is a major energy company engaged in the regulated and unregulated electricity distribution, generation, and transmission businesses. Dominion is one of the nation’s largest producers and transporters of energy.

Dominion expects second quarter 2011 operating earnings per share in the range of 50 cents – 60 cents. This is however a tad lower compared to second quarter 2010 operating earnings of 72 cents per share.

The downside in expectations is fuelled by a hope for normal weather in the regulated service territory, lower merchant generation margins, the absence of earnings from the company's E&P operations and higher interest expenses. Thus in the near-term the quantitative Zacks #4 Rank (short-term Sell rating) for Dominion indicates clear downward pressure on the stock over the near term.

Over the longer run we maintain our “Neutral” rating on Dominion. In the near-term we would advise investors to focus on its Zacks #2 Rank (short-term Buy rating) peers like Integrys Energy Group, Inc. (TEG) and NiSource Inc. (NI).