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Southwest Gas Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 9, 2012 01:20PM
Southwest Gas Corp. (SWX) filed Quarterly Report for the period ended 2012-03-31. Southwest Gas has a market cap of $1.93 billion; its shares were traded at around $42.45 with a P/E ratio of 16.7 and P/S ratio of 1. The dividend yield of Southwest Gas stocks is 2.5%. Southwest Gas had an annual average earning growth of 7% over the past 10 years.
Highlight of Business Operations:On a seasonally adjusted basis as of March 31, 2012, Southwest had 1,866,000 residential, commercial, industrial, and other natural gas customers, of which 1,006,000 customers were located in Arizona, 675,000 in Nevada, and 185,000 in California. Residential and commercial customers represented over 99% of the total customer base. During the twelve months ended March 31, 2012, 55% of operating margin was earned in Arizona, 34% in Nevada, and 11% in California. During this same period, Southwest earned 86% of its operating margin from residential and small commercial customers, 4% from other sales customers, and 10% from transportation customers. These general patterns are expected to remain materially consistent for the foreseeable future.
The items discussed in this Executive Summary are intended to provide an overview of the results of the Companys operations. As needed, certain items are covered in greater detail in later sections of managements discussion and analysis. As reflected in the table below, the natural gas operations segment accounted for an average of 85% of twelve-month-to-date consolidated net income over the past two years. As such, managements discussion and analysis is primarily focused on that segment. Natural gas sales are seasonal, peaking during the winter months; therefore, results of operations for interim periods are not necessarily indicative of the results for a full year.
Operating margin for 2012 is expected to increase primarily due to the additional revenue authorized in the Arizona rate case effective January 2012. However, the incremental margin in 2012 compared to 2011 is expected to be 10% to 20% lower than the $52.6 million approved because the average usage and margin per Arizona customer in 2011 were higher than the amounts used in calculating the deficiency when the rate case was filed in 2010. Southwest recently filed a general rate case in Nevada requesting an increase in revenue of $27 million. Southwest has requested that the new rates become effective in November 2012. No assumption has been included in the margin projection about the amount of rate relief to be granted in this case.
During the past two years, NPL has focused its efforts on obtaining pipe replacement work under both blanket contracts and incremental bid projects. For the twelve months ended March 31, 2012, approximately 76% of revenues were from replacement work compared to 71% for the twelve months ended March 31, 2011. Federal and state pipeline safety-related programs and bonus depreciation incentives have resulted in many utilities undertaking multi-year distribution pipe replacement projects. NPLs established relationships with utilities and history of quality work and expertise are anticipated to result in a sustained level of performance and the potential for growth in the replacement market for the next several years.
Investing Cash Flows. Cash used in consolidated investing activities increased $22.6 million in the first quarter of 2012 as compared to the same period of 2011. The increase was primarily due to additional construction expenditures, including scheduled and accelerated pipe replacement (to take advantage of bonus depreciation tax incentives), and equipment purchases by NPL due to the increased replacement construction work of its customers. Offsetting these cash outflows in the current-year period were draw-downs of funds, restricted to utilization for construction activities, associated with an industrial development revenue bond issuance in 2009.
Stocks Discussed: SWX,