Southwest Gas loss widens

Kevin Rademacher

Thursday, Oct. 30, 2003 | 11:14 a.m.

Weather factors were again cited by Southwest Gas Corp. of Las Vegas on Wednesday as it reported a third-quarter loss of $17.4 million, or 51 cents per share.

That compares to $16.1 million, or 49 cents per share, lost in the same 2002 quarter.

The results compare to Wall Street estimates of a loss of just 39 cents per share, according to Thomson First Call.

The company emphasized that losses are common during the second and third quarters, the result of low demand for natural gas during the summer months.

"With cautious optimism, we now look forward to the fourth quarter and the beginning of the winter heating season," said Southwest Executive Michael Maffie.

Revenue for the third quarter was $220 million, down from $224 million a year ago.

So far this year, Southwest Gas has added 64,000 customers and serves about 1.5 million homes and businesses in Nevada, Arizona and Southern California. About 475,000 of those customers are in Southern Nevada.

The weaker-than-expected results, Maffie said, were caused by a lower operating margin.

That margin, defined by the company as revenue minus the cost of gas sold fell $1.7 million, or 2 percent, from the third quarter 2002. While customer growth added $2 million to that margin, it was offset by weaker activity in the company's gas sales, transportation and storage businesses.

Ken Kenny, Southwest Gas treasurer, said moderate temperatures hurt those business lines. The weather was, as usual, not cool enough to turn on furnaces, he said. It also was more mild than usual in the final weeks of the quarter, Kenny said, limiting sales to power plants that would typically use the gas to fuel power plants generating electricity for cooling.

"It's chamber of commerce weather," he said. "It wasn't really cold enough to using gas, and it wasn't really warm enough to be using electricity."

Also hurting results were higher operating expenses, which increased $1.8 million in the quarter compared to the same period last year. The company blamed the increase on the cost of expanding and upgrading the gas system to meet growing customer demands.

Jake Mercer, a utilities analyst for US Bancorp Piper Jaffray, said the company needs a quarter of cold weather to offset disappointing results posted in the first three months of the year. In the first quarter, which is historically strong, Southwest Gas results missed Wall Street estimates by 35 cents a share because of record warm temperatures in Arizona and Nevada.

He said the company can't be blamed for warmer than usual temperatures, but they still take a toll.

"You can understand it," Mercer said. "But it still does hurt from a cash-flow perspective."

That hurt is magnified by growth, he explained. The problem comes as the company incurs rising expenses to connect new customers that will take longer to recover as sales lag.

"It's one of those things where growth can work against you," Mercer said. "Don't get me wrong, I think most gas companies in the nation would love to operate in a growing region like that, but it can weigh on you."

Still, he said abnormally warm weather would have to persist for a number of quarters before a significant issue would materialize.

"The results were, for the most part, in line with expectations," Mercer said. "The operating margin was a little weaker than what I was expecting, but they seemed to attributing that to the cost of growth."

The company's stock fell 1.53 percent on the news this morning, trading at $22.50, down 35 cents.