Spectra Energy Corp. (SE) reported second-quarter earnings of 27 cents per share, below the Zacks Consensus Estimate of 29 cents, but ahead of the year-earlier profit of 22 cents. The year-over-year result benefited from Spectra’s fee-based businesses, improved commodity prices at its Field Services business, and a stronger Canadian dollar.
The company’s operating revenues were $1,063 million, slightly below the Zacks Consensus of $1,069 million but surpassed the year-ago period level of $937 million.
The U.S. Transmission segment posted quarterly earnings before interest and taxes (EBIT) of $223 million, down nearly 5% year over year. Prior-year quarter’s results included a $24 million net benefit related to project development costs. Excluding the benefit, EBIT increased 6%. The segment benefited from the contribution of business expansion projects as well as from higher processing revenues attributable to higher prices.
The Distribution segment reported an EBIT of $73 million, an increase of approximately 83% year-over-year owing to the stronger Canadian dollar and lower operating fuel costs.
The Western Canada Transmission & Processing segment reported an EBIT of $69 million, up nearly 19% from the year-earlier level. This significant increase was driven by the improved results in the base gathering and processing business, partially offset by lower earnings at the Empress natural gas liquids (NGL) business as a result of scheduled maintenance activities.
The Field Services segment’s EBIT of $58 million significantly increased from the year-earlier level of $24 driven primarily by higher commodity prices.
During the quarter, crude oil averaged approximately $78 per barrel, up nearly 30% year over year. At the end of the reported quarter, long-term debt stood at $8.7 billion. This represents a debt-to-capitalization ratio of 52.8%.
We remain impressed with the company’s successful execution on its capital program that remains focused on future growth. The company hinted that it is on track to close its planned Bobcat Gas Storage acquisition and will deploy at least $1 billion per year in growth capital. The acquisition is expected to boost earnings growth in the near term.
However, with a debt-to-capitalization ratio of 52.8%, the company’s relatively debt-heavy balance sheet is a competitive disadvantage. Hence, we remain Neutral on Spectra.