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Dominion Energy Inc. Generates High-End Earnings in Q3

By Matthew DiLallo – Nov 1, 2018 at 2:48PM

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The utility also made good progress on the strategic front.

Dominion Energy Inc. (D -2.74%) delivered strong third-quarter results, with operating earnings coming in at the top end of its guidance range. Because of that, the utility remains on pace to achieve its full-year forecast. On top of that, the company made excellent progress on its strategic initiatives, which keeps it on pace to generate steady growth in the coming years.

Digging into the numbers

Metric

Q3 2018

Q3 2017

Change (YOY)

Operating earnings

$758 million

$672 million

12.8%

Operating EPS

$1.15

$1.04

10.6%

Data source: Dominion Energy Inc.

Heading into the third quarter, Dominion Energy anticipated that its operating earnings would be in a range of $0.95 to $1.15 per share. Actual earnings, however, achieved the high end of that forecast due to strong operating results across all three of its business segments:

A chart showing Dominion Energy's earnings by source in the third quarter of 2018 and 2017.

Data source: Dominion Energy.

Favorable weather conditions in the company's service territories helped boost the earnings growth in the company's power-delivery and power-generation segments. Meanwhile, the start-up of the company's Cove Point Liquefaction project, which manufactures and exports liquefied natural gas (LNG) to global markets, helped fuel the year-over-year surge in earnings in the gas infrastructure segment.

Dominion's earnings also benefited from a lower tax rate thanks to reform legislation passed in the U.S. late last year. Those factors enabled the company to more than offset lower renewable-energy tax credits and an increase in its share count after it sold stock to boost its balance sheet and fund its expansion programs.

Pipelines over water at sunset.

Image source: Getty Images.

A look at what's ahead

Dominion has been very active on the strategic front over the past quarter. In September, the company agreed to sell three electric generating facilities for a total of $1.32 billion. The utility intends on using the cash to repay debt. Meanwhile, at the end of October, the company agreed to sell its 50% interest in Blue Racer Midstream to a private equity fund for up to $1.5 billion. Again, it intends to use those proceeds to retire debt.

One of the reasons Dominion is selling noncore assets is that it has decided to pull the plug on its master limited partnership Dominion Energy Midstream (NYSE: DM). Dominion had been using that entity as a funding vehicle by selling its midstream assets to Dominion Energy Midstream. However, an adverse policy change made those sales no longer as economically appealing. Because of that, Dominion has offered to take its MLP private.

In addition to all that wheeling and dealing to improve the company's financial profile, Dominion Energy continues to move forward with its proposed acquisition of SCANA (SCG). Dominion recently made a new offer to acquire SCANA in hopes of appeasing regulators in the state of South Carolina. That's one of the few remaining hurdles the company needs to overcome so that it can close that acquisition.

Finally, Dominion updated investors on the progress of its Atlantic Coast Pipeline and the associated Supply Header project. The company and its partners experienced several delays, which will impact the cost and schedule of the project. The company now estimates that the main pipeline will be in service by late 2019, while other segments should start up by mid-2020. Meanwhile, the company estimates that the project will cost between $6.5 billion and $7 billion, up from its prior estimate of $6 billion to $6.5 billion. Given the size of the project, it will be a needle mover for the company's profitability when it comes online.

On pace to generate steady income growth

Dominion's solid third-quarter results, when combined with the company's strategic progress, have it on track to achieve its long-term plan to grow earnings at a 6% to 8% annual pace through 2020. That will allow the company to continue increasing its 4.6%-yielding dividend, which could give it enough power to generate market-beating total returns in the coming years.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Dominion Resources, Inc. Stock Quote
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D
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