Spectra Energy Corporation (SE) reported its third quarter results of 30 cents per share, compared to the Zacks Consensus Estimate of 28 cents and the year-earlier quarter earnings of 49 cents. Earnings came in above expectations on the back of contribution from the company’s fee-based businesses.

The U.S. Transmission segment posted earnings before interest and taxes (EBIT) of $239 million, up more than 10% year over year. The segment benefited from business expansion projects and capitalization of previously expensed project development costs. These positives were partially offset by lower gas processing revenues as a result of lower prices and volumes. Distribution segment reported EBIT of $48 million, up 9% year over year, driven by higher storage and transportation revenues.

Western Canada Transmission & Processing segment reported EBIT of $84 million, down 25.7% from the year-earlier level. Improved revenues in the fee-based gathering and processing business were more than offset by lower Empress System earnings, primarily as a result of lower fractionation spreads. Fractionation spreads at Empress System averaged $6.75 for the quarter, down 38% from the year-ago level.

Field Services segment reported EBIT of $45 million, decreased significantly from the year-earlier quarter due to lower commodity prices.

During the quarter, crude oil averaged approximately $68 per barrel, down more than 42% year over year. Natural gas liquids (NGL) to crude relationship averaged 42% versus 51% in third quarter 2008.

At the end of the reported quarter, long-term debt stood at $9.35 billion. This represents a debt-to-capitalization ratio of 55.5%.

Management hinted that Spectra is on track to meet the financial goals it had set for the year, including the 2009 EPS target of $1.15. Based on the operational performance and momentum of the company’s future expansion projects, we believe that Spectra remains in a position to experience earnings growth in 2010 and beyond.

Zacks Investment Research
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