Dominion Resources Inc. Generates Solid Earnings

By Matthew

One of the benefits of investing in a utility is its relatively stable earnings each quarter. That stability was on full display when Dominion Resources reported its third-quarter results before the market opened on Monday. Earnings were right in the middle of its guidance range after solid execution and an improvement in the weather generated solid results for the company.

Dominion results: The raw numbers

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Data source: Dominion Resources.

What happened with Dominion this quarter?Dominion generated solid results:

  • Dominion's operating earnings were right in the middle of its guidance range of $0.95 to $1.10 per share.
  • Fueling the strong year-over-year increase in operating earnings was a return to normal weather conditions and incremental earnings from its farmout transactions whereby it sold the natural gas drilling rights beneath some of its gas storage fields.
  • It is also worth noting that Dominion prefers to use operating earnings instead of GAAP earnings because it believes this is a more meaningful representation of the company's fundamental earnings power. That said, third quarter GAAP earnings were $0.03 per share less, which was due to "out-of-period tax-related items for our electric operations."
  • Also during the quarter, the company made steady progress on a number of important growth projects. Among the most important was joining its partners, includingDuke Energy , in making formal FERC filings for the Atlantic Coast Pipeline.

What management had to sayCEO ThomasFarrell, commenting on the company's results, said:

The projects that Farrell mentioned are vitally important to Dominion's ability to grow earnings. In the near term, the aforementioned Brunswick County plant is the closest to completion and will be followed in 2017 by Cove Point, which is a $3.8 billion project that will export natural gas. Further down the line, and perhaps most importantly, is the $5 billion Atlantic Coast Pipeline project, which is a 564-mile interstate pipeline that is expected to be in service by the fourth quarter of 2018.

That pipeline project is a key for Dominion and Duke, which is buying out project partner Piedmont Natural Gas in part to gain a greater share of the project, for not just the cash flow from the pipeline itself but for the potential future growth projects that could follow. We get a glimpse of that from Dominion Energy's president, Diane Leopold, who noted in a recent press release:

Dominion is playing a key role in the multipartner project, with it being responsible for building and operating the project. However, it is also worth noting the future potential for new natural-gas-fired power plants that both Dominion and Duke will be able to build once additional natural gas capacity is added to the region.

Looking forwardShifting gears and looking ahead to the fourth quarter, Dominion expects operating earnings to be in a range of $0.85 to $0.95 per share, which is ahead of last year's $0.84 per share. Driving this year-over-year increase is expected growth from its regulated gas and electric business, higher merchant generation margins, and lower capacity payments.

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Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Dominion Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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