Earnings decline for gas company

Southwest Gas Corp. of Las Vegas on Tuesday reported a decrease in net income for the fourth quarter and for the year because of warmer than normal temperatures and slowing customer growth.

Fourth-quarter consolidated net income decreased to $43.1 million from $46.7 million a year ago. Earnings per share dropped to $1.01, down from $1.12 in the final quarter of 2006.

For the full year, Southwest earned $83.2 million, down from $83.9 million. Earnings per share fell to $1.97 from $2.07 a year ago.

The average analyst expected annual earnings per share of $2.06, according to Southwest Gas.

Still, a Southwest executive was upbeat.

"We are pleased to report earnings of $1.97 a share, our second best earnings performance in 15 years and a noteworthy result in a time when there is turbulence in the economy," CEO Jeffrey Shaw said in a statement.

Shaw attributed slowing customer growth to the housing market slump.

"For the first time in 15 years, our new-customer growth rate was below 3 percent," Shaw said.

The company added 29,000 customers last year, an increase of 1.6 percent, down from 4.1 percent in the prior year. The number of Nevada district customers, which includes Bullhead City, Ariz., and Needles, Calif., increased 2 percent during 2007 to 655,000.

"We have not been immune from the downturn in the housing markets," Shaw said.

Shaw estimated that the company's service territory in Nevada, Arizona and part of California contained 25,000 vacant homes as a result of foreclosures. Housing prices are declining in Phoenix and Las Vegas, he said.

"We believe that growth continues," Shaw said. "That's just a big number of homes that needs to be absorbed."

Shaw predicted the housing market will return to "more normal levels" in two years.

"Until then, we anticipate that our growth rate will remain in the range of 1.5 percent to 3 percent," Shaw said.

He mentioned several reasons for optimism. In Las Vegas, 45,000 new hotel rooms are expected to be built over the next five years, creating new jobs. Commercial development remains strong in Phoenix, he said.

Meanwhile, Shaw said, Arizona experienced its warmest November in 113 years of recorded history. The warm weather reduced operating margin by $12 million or 18 cents per share, he said. Operating margin is operating revenues less the cost of gas sold.

In its recently filed general rate case in Arizona, Southwest Gas proposed rate design changes to address the effect of weather on revenues.

For the full year, operating margin grew by $35 million. The company attributed $15 million of that to a rate increase in Arizona and $3 million to a rate increase in California.

Southwest Gas employee productivity jumped by 25 percent over the last five years. The company had 714 customers for every employee last year, up from 571 in 2002.

"That's one of the best ratios in the industry," Shaw said.

In the fourth quarter, operating expenses declined $3.6 percent or 3 percent from the last period of the prior year.

Southwest Gas shares rose 4 cents, or 0.15 percent, Tuesday to close at $25.87 on the New York Stock Exchange.

Contact reporter John G. Edwards at jedwards@reviewjournal.com or (702) 383-0420.