Spectra Energy (SE) Beats on Q3 Earnings, Ups Dividend - Analyst Blog

Natural gas company Spectra Energy Corp. (SE) reported third-quarter 2014 earnings per share from continuing operations of 31 cents, beating the Zacks Consensus Estimate of 26 cents. Robust performance from  Spectra Energy Partners, in addition to higher volumes and improved natural gas realizations, led to the beat.

However, the bottom line declined from 42 cents in the year-ago quarter. The downside came from weak performance by the Western Canada Transmission & Processing and Field Services segments.

The company's operating revenues of $1,207 million rose 5.5% from the year-earlier level of $1,144 million but came short of the Zacks Consensus Estimate of $1,236 million.

Dividend Increase

Spectra Energy increased its quarterly cash dividend by 10.5% to 37 cents ($1.48 annualized). The company added that the new dividend will be paid on Dec 9 to shareholders of record on Nov 17.

Segmental Analysis

Spectra Energy Partners: The segment posted quarterly earnings before interest, taxes, depreciation and amortization (EBITDA) of $422 million, reflecting an increase of 17.2% from the year-ago quarter. An increase in volumes transported as a result of expansions and project ramp-ups as well as higher tariffs aided the result.

Distribution: The segment reported a marginal decline in EBITDA to $82 million from $83 million in the year-ago quarter. The benefits of lower operating expenses were offset by a weaker Canadian dollar.

Western Canada Transmission & Processing: The segment witnessed EBITDA of $156 million, down 10.3% from the year-earlier level. The downside came from the weaker Canadian dollar and higher turnaround costs. However, it was partially offset by higher NGL margins.

Field Services: The segment's EBITDA of $63 million slumped 54% from the year-ago level of $137 million. A significant decline in equity earnings from DCP Midstream, LLC primarily weighed on the result.

Production and Price Realizations

The company produced NGL of 471 thousand barrels per day (MBbl/d), up from the year-ago quarter level of 442 MBbl/d. Price of NGLs was flat year over year, averaging $0.90 per gallon. Crude oil averaged approximately $97.24 per barrel (down 8.1% year over year). Natural gas was sold at $4.06 per million British thermal units (MMBtu) versus $3.58 per MMBtu in the third quarter of 2013.  

Balance Sheet

As of Sep 30, 2014, Spectra Energy had long-term debt of approximately $13.1 billion with a debt-to-capitalization ratio of 55.4%.

Open Season Announcement

On Nov 4, Spectra Energy commenced an open season for its Texas Eastern South Texas Expansion Project (STEP). The pipeline will transfer natural gas from Louisiana to the South Texas market and is likely to start operations in early 2017.

Zacks Rank

At present, Spectra Energy carries a Zacks Rank #4 (Sell).

Promising Stock Picks

One could consider better-ranked players from the same industry like Cheniere Energy Partners LP. (CQP), Oiltanking Partners, L.P. (OILT) and Tallgrass Energy Partners, LP (TEP), all of which have a Zacks Rank #2 (Buy).

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