Zacks_Analysts' Blog : ONEOK Inc. Misses, Guidance Intact - Analyst Blog

ONEOK Inc. (OKE) reported a first-quarter profit of $1.19 per share, down from $1.44 earned in the year-ago quarter. The quarterly results also lagged the Zacks Consensus Estimate of $1.32 per share.

The year-over-year decline was attributable to lower margins at the Energy Services segment, which stemmed from lower realized seasonal natural gas storage price differentials and narrower realized Mid-Continent-to-Gulf-Coast price differentials. Higher operating costs and depreciation and amortization expense also led to a lackluster performance at the Distribution segment, which too was responsible for the much reduced income.

Total Revenue

Net revenues in the quarter slipped 1.5% to $3.87 billion from $3.92 billion reported in the year-ago quarter. The results also disappointed the Zacks Consensus Estimate of $5.09 billion.

Operating Statistics

In the first quarter 2011, cost of sales and fuel was 2.2%, down year over year. As a result, gross income rose 2.3% to $633.6 million in the reported quarter from the year-ago level of $619.4 million.

Total operating expenses rose 7.8% year over year, mainly due to a 7.9% escalation in the operation and maintenance cost of the company.

Lower revenues combined with higher expenses, in the recently completed quarter, spelt doom for operating income. Operating income decreased 2.2% to $330.0 million from $337.3 million in the year-ago quarter.

Interest expenses climbed 3.7% to $79.4 million from $76.5 million in the year-ago period.

Segmental Results

ONEOK Partners: ONEOK Partners' operating income was $177.6 million compared with $120.2 million in the year-ago quarter. Operating costs were $108.7 million compared with $96.3 million in the first quarter of 2010. The increase in operating cost was attributable to higher employee-related costs associated with incentive and benefit plans administered by ONEOK coupled with higher property taxes.

Distribution: The Distribution segment reported operating income of $104.8 million in the first quarter compared with $113.7 million a year ago. The segment incurred operating costs of $6.8 million, up from the previous year due to higher share-based compensation costs and increased pension costs.

Energy Services: The Energy Services segment reported operating income of $47.8 million, down 53.6% from $103 million in the prior-year period. Operating costs were $8.0 million versus $7.4 million in the prior-year period.

Financial Condition

On a stand-alone basis, as of March 31, 2011, the company did not have any short-term debt and had $253 million of cash and cash equivalents.

At the end of the quarter the company had $1.2 billion available on its existing credit facilities, which was renewed on April 2011 and scheduled to expire in April 2016.

Cash flow from operation during the quarter was $647.8 million versus $558.7 million reported in the year-ago quarter.

Long-term debt of the company as of March 31, 2011 was $4.97 billion, higher than $3.68 billion as of December 31, 2010.

Guidance

ONEOK Inc. reaffirmed its net income guidance for 2011 in the range of $325 million to $360 million.

Our View

Despite the earnings miss, we appreciate ONEOK Inc.’s ability to consistently pay regular dividends to its shareholders.

We maintain our long-term Neutral recommendation on ONEOK shares, supported by the company’s short-term Zacks #3 Rank (Hold). The company’s primary competitors include Dynegy Inc. (DYN) and OGE Energy Corp. (OGE).

Based in Tulsa, Oklahoma, ONEOK Inc. is a diversified energy company, operating as a natural gas distributor primarily in the United States.