The weather continues to remain as unpredictable as ever, a fact that was on full display when Dominion Resources (D 0.87%) reported its fourth-quarter earnings before the market opened on Monday. The company missed its own guidance by a pretty wide margin due to the milder weather during the quarter, which was a reversal from previous quarters when weather helped its results. That being said, its earnings were really overshadowed by the announcement that Dominion is acquiring natural gas distribution, pipeline, and storage company Questar Corporation (NYSE: STR) in a $4.4 billion deal in order to enhance its growth, as well as the growth of its MLP, Dominion Midstream (NYSE: DM), in the future.
Dominion results: The raw numbers
|
Metric |
Q4 2015 Actuals |
Q4 2014 Actuals |
Growth (YOY) |
|---|---|---|---|
|
Operating Earnings |
$416 million |
$490 million |
(15.1%) |
|
Operating EPS |
$0.70 |
$0.84 |
(16.7%) |
Data source: Dominion Resources.
What happened with Dominion this quarter?
The unseasonably warm winter pushed Dominion's results below its own guidance:
- Operating earnings were well below its guidance range of $0.85 to $0.95 per share. The company said that warm temperatures accounted for at least an $0.08 per share impact to its earnings.
- In addition to the weather, earnings were down year over year due to the impact of bonus depreciation, as well as the lack of a farmout transaction after the company leased some of its acreage to a natural gas drilling company last year.
- During the quarter, the company made progress on a number of key projects. The construction of its Brunswick County natural gas power plant is now 96% complete, and the company successfully test fired all three turbines in December. In addition, its Cover Point liquefaction project is now 56% compete and on schedule to be in service by the end of next year. Finally, the company is making progress on its Atlantic Coast Pipeline, with construction expected to begin in the fourth quarter.
What management had to say
CEO Tomas Ferrell, commenting on the company's results, said:
Our fourth-quarter operating earnings were below our guidance range of $0.85 to $0.95 per share. The impact of warm temperatures accounted for at least $0.08 per share.
Weather continues to be a big factor in Dominion's ability to meet its earnings targets. Last quarter, for example, the company's earnings were right in the middle of its guidance range because of a "return to normal weather." Meanwhile, in the second quarter, its earnings were near the top end of its guidance range due to higher revenues from both the weather and growth projects. Because the weather can have such an unpredictable impact on earnings, Dominion has focused more of its attention on building fee-based growth projects such as Cove Point and the Atlantic Coast Pipeline, which should provide an even stronger baseline for future earnings.
Looking forward
The company forecasts its full-year 2016 earnings will be in the range of $3.60 to $4.00 per share, which would be ahead of the $3.44 per share it earned in 2015. Driving earnings growth will be an increase in revenue from growth projects expected to enter service this year, investment tax credits from its solar facilities, and lower projected expenses.
Dominion expects its Questar purchase to close by the end of 2016, and sees it supporting earnings growth in 2017, and enabling it to meet or exceed the top end of its earnings growth guidance in 2018. Further, Dominion anticipates that the deal will increase the inventory of MLP-eligible assets that it can drop down to Dominion Midstream, supporting its targeted annual distribution growth rate of 22%. As such, it's an acquisition that the company sees benefiting both its shareholders and unit holders of Dominion Midstream over the long term.
