Spectra Energy Corporation (SE) reported fourth quarter results of 33 cents per share, in line with the Zacks Consensus Estimate and the year-earlier earnings of 32 cents. The quarterly results showed a sound contribution from the company’s fee-based businesses in an improving commodity-price environment and a stronger Canadian dollar.

Spectra’s experience of an earnings surprise for the preceding four quarters varies between 7.1% and 15.8%, with the average being 11.5%. There was no change in estimates over the last 7 days. However, over the last 30 days, 3 of the 7 analysts covering the stock have raised their estimates for 2010 while no analyst moved in the opposite direction.

Currently, the Zacks Consensus Estimate for full fiscal 2010 earnings is $1.49 per share, which is significantly higher than the full fiscal 2009 earnings of $1.18 per share.

Meanwhile, the U.S. Transmission segment posted quarterly earnings before interest and taxes (EBIT) of $204 million, up nearly 27% year over year. The segment benefited from the contribution of business expansion projects that came online last year. The Distribution segment reported an EBIT of $96 million, up approximately 7% year over year.

Western Canada Transmission & Processing segment reported an EBIT of $120 million, up 85% from the year-earlier level. This significant increase was driven by improved revenues in the fee-based gathering and processing business on the back of higher contracted volumes and expansion projects.

The Field Services segment reported an EBIT of $77 million, an increase of 12% from the year-earlier quarter due to higher commodity prices.

During the quarter, crude oil averaged approximately $76 per barrel, up nearly 29% year over year. The natural gas liquids (NGL) to crude relationship averaged 53% versus 46% in the fourth quarter of 2008.

At the end of the reported quarter, long-term debt stood at $8.95 billion. This represents a debt-to-capitalization ratio of 53.8%.

Management hinted that Spectra is on track to meet its financial goals for the year, including the 2010 diluted EPS target of $1.42. Based on the operational performance, new customer contracts and future expansion projects, we believe that Spectra remains in a position to fulfill its target of more than 12% return on capital employed this year. We currently have an Outperform rating on Spectra shares.

Zacks Investment Research

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