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Questar (STR) Overcomes Low Prices; Q1 Earnings In Line

Questar Corp. STR, a natural gas-focused energy company, reported adjusted first-quarter earnings of 50 cents per share, in line with the Zacks Consensus Estimate but higher than the year-ago quarter adjusted profit of 48 cents.

Strong customer growth, higher rates, together with continued implementation of efficiency measures buoyed the results, partially offset by the challenging commodity market.

Questar reported first-quarter revenues of $456.3 million, up 6% from a year ago. However, quarterly revenues failed to meet the Zacks Consensus Estimate of $496 million.

Segment Analysis

Questar Gas: The segment generated $407.9 million in revenues, up 9% from the prior-year quarter, owing to strong client growth. As of Mar 31, 2016, Questar Gas served more than 995,800 customers, up 2.1% from the year ago. This helped improve margins on the back of which the segment reported operating income of $83.4 million, 9% above the year-ago quarter profit of $76.6 million. The segment’s successful infrastructure-replacement program also supported earnings.

Wexpro: Segment revenues decreased 44% year over year to $3.5 million in the quarter. Segmental operating income from continuing operations also fell to $39.7 million from $41.7 million in the prior-year quarter, hamstrung by lower average investment base and decline in oil revenues.

Quarterly production of natural gas was down 4% to 14.4 billion cubic feet (Bcf) from 15.0 Bcf.

Questar Pipeline: The segment reported revenues of $43.0 million against $46.8 million in the comparable quarter last year due to lower transportation and natural gas liquids sales. Nevertheless, income from continuing operations improved slightly (by $0.2 million) from first quarter 2015 to $27.6 million. Lower costs favorably affected the result.

Total natural gas transportation volumes were $205.9 million decatherms, compared with 213.6 million decatherms in the first quarter of 2015.

Expense Summary

At $29.6 million, the general and administrative expenses for the quarter remained essentially flat, while depreciation, depletion and amortization costs rose 3% to $55.9 million. Total operating expense of $320.9 million marked an increase from the year-ago period level of $281.6 million owing to higher cost of sales.

Financials

As of Mar 31, 2016, Questar had long-term debt (including current portion) of $993.9 million, with a debt-to-capitalization ratio of 42.2%.

2016 Guidance Maintained

For 2016, Questar stuck to its earnings per diluted share projection in the range of $1.25–$1.35.

Zacks Rank

Questar – which has entered into a $4.4 billion merger deal with Dominion Resources Inc. D – currently carries a Zacks Rank #3 (Hold). Meanwhile, one can look at better-ranked players in the same industry like ONE Gas Inc. OGS and Southwest Gas Corp. SWX. Both carry Zacks Rank #2 (Buy).

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DOMINION RES VA (D): Free Stock Analysis Report
 
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ONE GAS INC (OGS): Free Stock Analysis Report
 
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