Scana Executives Temper Earnings Forecast For Next 3-5 Years

Executives at Scana Corp. (SCG), a southern U.S. utility with merchant power operations, said that although margins have improved and its customer base is growing, the stilted economic recovery will weigh on earnings growth over the next few years.

The Columbia, S.C., company reported slightly better-than expected earnings for the fourth quarter as margins rose from strong weather-driven demand and a bigger ratebase at its utility operations. These gains were offset by higher costs and share dilution.

Power demand surged last year across much of the U.S. as consumers cranked up their air conditioners and heaters amid unusually hot and cold temperatures. Industrial demand was a bright spot as manufacturers ramped up activity, particularly in the southeast thanks to strong export demand for American goods. That growth is expected to slow this year.

"While we're beginning to see signs of longer-term economic recovery in our service territories, we remain conservative in our estimates and cautiously optimistic about our longer-term sustained recovery," Chief Financial Officer Jimmy Addison said in a conference call Friday.

The sluggish housing market and high unemployment rate are pressuring the recovery. Scana serves 660,000 electric customers through its South Carolina utility and more than one million gas customers in the Carolina states and Georgia.

"We are tempering our average annual earnings growth" to 3% to 5% over the next three to five years, versus the 4.4% average seen over the last six years, he added. The company expects to earn between $2.95 and $3.10 a share in 2011.

Scana shares closed down 4.1% to $40.67, deepening losses after the conference call executives hosted Friday afternoon. Shares have rallied 16% over the past 12 months, slightly outpacing the broader utility group.

For the fourth quarter, Scana reported fourth-quarter profits of $95 million, or 74 cents a share, including a seven-cent weather benefit.

Analysts were expecting the company to report net income of $95.5 million, or 73 cents a share, based on a recent Thomson Reuters survey.

Revenue rose 4.7% to nearly $1.15 billion.

Total electricity sales rose 9.5% in the quarter to 5.74 million kilowatt hours on strong power sales across its operations. Retails sales to residential and commercial customers through its South Carolina Electric & Gas utility, representing 92% of total demand at the company, rose 8.3% while wholesale demand jumped 24%.

Scana expects to see earnings growth in 2012 and beyond thanks to projects announced for a solar manufacturing facility and new Amazon.com Inc. (AMZN) distribution center. In the meantime, Charleston export activity should support jobs growth.

The company's project to build two new nuclear reactors in South Carolina is on schedule and on budget. Scana is seeking a Department of Energy loan guarantee but has said it will pursue the project without if the terms are not right.

Meanwhile, the company has scaled back its new debt offering for 2012 to $450 million from $600 million because of its operating results and tax benefits. The bonus depreciation tax benefit will bolster cash flow by $50 million this year.

Scana also raised its quarterly dividend by a penny to 48.5 cents a share.

-By Naureen S. Malik, Dow Jones Newswires; 212-416-4210; [e-mail]