Warm weather hurts Southwest results

Kevin Rademacher

Wednesday, Feb. 19, 2003 | 11:01 a.m.

Southwest Gas Corp. of Las Vegas announced fourth-quarter net income of $37.8 million, or $1.13 per share, exceeding Wall Street expectations by 6 cents a share despite warm winter weather that has resulted in lower natural gas usage.

The consensus estimate, according to Thomson First Call, was $1.07 per share.

The results announced Tuesday are an improvement over the $31 million, or 96 cents per share, earned in the fourth quarter of 2001, and come after two money-losing mid-year quarters.

The Las Vegas-based utility posted losses of $21 million and $16 million in the second and third quarters, respectively.

Company executives said such a fourth-quarter rebound is not unusual as demand for natural gas increases in colder months. Profits also were shored up by $9 million received in a legal settlement related to a failed merger and $1.8 million from the sale of assets.

Those factors helped boost net income while fourth-quarter revenue slipped to $336 million in 2002 from $384 million in the same 2001 period.

Jake Mercer, a utilities analyst for U.S. Bancorp Piper Jaffray, said the revenue slide was not a concern.

"Revenue ... is going to fluctuate with the price of gas," he said. "With gas companies, I am more concerned with the bottom line."

While many utilities were tripped up by ventures into non-regulated businesses, such as energy trading, Southwest Gas stayed close to its core business. The company is now reaping the benefits of its consistency, Mercer said.

"Really, with Las Vegas being the fastest growing metro area in the United States, (Southwest Gas) has not needed to branch out because they are in such a strong, growing territory," he explained. "Right now, that's what stock and bond holders are looking for. ... I think they are going to continue on that course."

Michael O. Maffie, Southwest's president and chief executive, said in a statement that results were positive, but pointed to warm weather this winter as a culprit in limiting profits.

"I'm pleased to report an improvement in operating results," his statement said. "However, I'm disappointed in the magnitude of the increase. We did a good job controlling the cost side of the equation, but warm weather throughout our service area negatively impacted the revenue side."

Net income for 2002 was $44 million, compared to $37.2 million for 2001.

The company serves more than 1.4 million customers in Nevada, Arizona and California.

Southwest Gas added 58,000 customers in 2002, an increase of 4 percent.