OGE Energy Beats on Earnings, Affirms View - Analyst Blog

OGE Energy Corp. OGE reported solid first quarter 2014 results. The company's earnings per share of 25 cents surpassed the Zacks Consensus Estimate by a penny and also improved a significant 108.3% from the year-ago profit of 12 cents per share.

The upswing in the bottom line reflects sizable returns from the company's two businesses – Oklahoma Gas and Electric Company (OG&E), a regulated electric utility and Enable Midstream Partners, LP, having natural gas midstream operations.

Notably, in mid April, the company completed its initial public offering of Enable Midstream Partners LP common units. This Oklahoma City-based partnership was formed out of the assets of OGE Energy Corp.'s Enogex unit and the pipelines of CenterPoint Energy Inc. CNP. The units trade on the New York Stock Exchange under the ticker symbol “ENBL”.

CenterPoint has a majority stake of 54.7% while OGE Energy holds a 26.7% interest in Enable units. Affiliates of ArcLight Capital Partners currently own 12.4% of the midstream partnership, although that percentage could drop to 11.5% if underwriters opt to exercise their purchase option.

Total Revenue

OGE Energy's operating revenues in the fourth quarter jumped 23% year over year to $560.4 million. Also, the reported figure was ahead of the Zacks Consensus Estimate of $472.0 million.

Total megawatt-hour (MWH) sales in the reported quarter were 7.2 MWH versus 6.5 MWH in the prior-year quarter. This upside resulted from higher residential and commercial sales.

Operational Highlights

Total operating expenses in the quarter under review decreased 24.8% year over year to $205.2 million. Operating income of $61.8 million declined 18.0% year over year.

Interest expense of $35.9 million declined 12.9% year over year. The company's gross profit of $267.0 million surged 10.1% year over year during the quarter, backed by the increase in wholesale transmission revenues and customer growth. Moreover weather played a crucial role as heating degree days were 15% higher than 2013.

OG&E, the regulated utility, contributed earnings of 10 cents per share in the quarter, up 42.9% from 7 cents per share in the year-ago period.

The company's Federal Energy Regulatory Commission/FERC transmission projects continued to drive utility earnings growth. It has already completed two transmission lines with a capital investment totaling about $280 million under a well-managed budget.

OGE Energy's interest in natural gas midstream operations contributed after-tax equity earnings of 15 cents per share compared with 6 cents per share in 2013. The improvement reflects the accretive effect of the Enable transaction along with favorable commodity prices and higher natural gas and natural gas liquids sales.

Guidance

OGE Energy maintained its consolidated earnings guidance for 2014 in the range of $1.94 to $2.06 per average diluted share.

Other Releases

Public Service Enterprise Group Inc. PEG reported first quarter 2014 earnings of $1.01 per share, beating the Zacks Consensus Estimate of 97 cents by 4.1%. Earnings were up 18.82% year over year. The results reflect the investments made by the company in its stable rate regulated business.

Entergy Corp. ETR reported first-quarter 2014 earnings of $2.29 per share, beating the Zacks Consensus Estimate by 8.5%.

Our Take

OGE Energy once again beat our earnings expectation. We expect the buoyant economy in Oklahoma to bring in more customers. In addition, OGE Energy's aggressive investments in alternative energy will spur its future growth momentum given the current pro-environment drive in the U.S.

The company will capitalize on its midstream capabilities given robust gas production in Oklahoma and the Texas Panhandle region. OGE Energy plans to pursue more transmission opportunities as it has already demonstrated a successful track record of building high-voltage transmission lines both on time and budget. The company expects $115 million of gross profit from its transmission investments in 2014, up $34 million over 2013.

Presently, OGE Energy holds a short-term Zacks Rank #2 (Buy).