Atlanta-based Piedmont Natural Gas (NYSE: PNY) recently reported its third-quarter results. The quarter was a mixed one for the company. Although Piedmont saw a 38% improvement in its operating performance, revenue dropped 7%.

Good, bad, or ugly?
A narrowing operating loss is a good sign, but decreasing revenue cannot be ignored as revenue is the fundamental driving force for any business. The 7% fall in revenue could have been very harmful for the company, but its effect was neutralized by the 14% reduction in the cost of gas. Because of the interaction of these two forces, the operating loss fell to $6.7 million from $10.8 million in the third quarter. For the nine months ended July 31, the company made an operating profit of $189.0 million and a net income of $123.1 million.

Cause and effect
The dip in revenue was caused by decreased activities in the secondary market. The natural gas industry is seasonal, and it was normal for Piedmont's top line to fall during this period. Its peers Dominion Resources (NYSE: D), Duke Energy (NYSE: DUK), and SCANA (NYSE: SCG) have also reported lower operating income during the period.

A chunk of the company's costs -- about $9.5 million -- decreased because of the company's gas cost calculation methods. Helped by these factors, EBITDA saw a huge improvement of $5.7 million over the third quarter of 2010 and stood at $20.5 million.

Thus, all is not bad for Piedmont. This quarter, the company has also successfully added more than 2,000 new customers. For the coming year, analysts expect the industry to grow by 10.6% and Piedmont to grow by 7.6%. According to the Energy Information Administration's "Annual Energy Outlook 2011," by 2035 the natural gas demand is likely to increase by 16% from that in 2009.

Piedmont is capitalizing on this growth potential by investing in equipment and by building transmission and distribution facilities.

The quarter may have seen losses, but if we take a wider view, the situation seems fine.