Zacks_Analysts' Blog : OGE Energy Shy of Estimate - Analyst Blog

OGE Energy Corporation (OGE) reported its first quarter 2011 results. In the reported quarter, the company with pro forma and GAAP earnings of 25 cents per share missed the Zacks Consensus Estimate of 32 cents. The results fell short of pro forma earnings of 36 cents per share in the year ago-period but were in line with the GAAP results.

Operational Metrics

OGE Energy’s operating revenues decreased 4% year over year to $840.5 million in the reported quarter. Electric Utility revenues decreased to $422.1 million compared with $444 million in the year-ago quarter. Natural Gas Pipeline revenues decreased to $418.4 million from $431.8 million in the year-ago quarter.

Segmental Results

OGE Energy reported consolidated gross income of $307 million in first quarter 2011 compared with $306 million in the year-ago period. Operating income was $67.9 million versus $86.8 million in first quarter of 2010. Pro forma and GAAP net income was $25 million as compared with pro forma net income of $36 million and GAAP net income of $24 million in the year-ago quarter.

In the quarter under review, OGE Energy’s regulated electric utility subsidiary, Oklahoma Gas and Electric Company (OG&E) clocked gross income of $203 million compared with $193 million in the year-ago period due to increased revenues associated with various riders, higher demand revenues and new customer growth, partially offset by milder winter weather in first quarter of 2010. The segment reported pro forma and GAAP net income of $6.4 million versus pro forma net income of $8.2 million and GAAP net income of $1.2 million in the year-ago quarter.

OGE Energy’s midstream natural gas pipeline business, Enogex, reported gross income of $104 million compared with $115 million in first quarter of 2010 due to lower fuel recoveries and lower margins for operational storage hedges. In the reported quarter, segment pro forma and GAAP net income was 18.8 million versus pro forma net income of $29.4 million and GAAP net income of $27.4 million in the year-ago quarter.

Guidance

OGE Energy expects its fiscal 2011 earnings to be in the range of $3.00 – $3.20 per share.

Our Take

OGE Energy Corporation is a well-positioned regulated utility also having unregulated midstream gas businesses. Going forward, the company operates in a strong Oklahoma economy, has a bias toward fixed fee in its unregulated natural gas business, and employs ongoing infrastructure improvement programs.

However, we remain concerned about the volatility in its commodity business and pending regulatory cases, along with the unfavorable macro backdrop. All the above discussed positives have already been priced in the current valuation, leaving little room for further upside in the near term. OGE Energy presently retains a short-term Zacks #2 Rank (Buy). We have a long-term Neutral recommendation on the stock.

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

OGE Energy Corporation distributes natural gas and electricity through its subsidiaries (OG&E and Enogex) primarily in the south central United States. OGE Energy operates through four business segments – electric utility, natural gas transportation and storage, natural gas gathering and processing and natural gas marketing.