Diversified energy company,
) second quarter operating earnings came in at 59 cents per share,
missing the Zacks Consensus Estimate by 5 cents. However, it was
far below the year-ago earnings of 70 cents per share.
Lower sales margins from operations, lower investment income and
higher depreciation expense more than offset the positive impact of
lower operating costs, lower gross receipts taxes and reduced
interest expense, leading the company to deliver weak numbers.
The reported quarter includes certain one time items - regulatory
charges of 1 cent, trust securities impairment of 1 cent, income
tax charge-Retiree Drug Change of 2 cents, favorable impact of
non-core asset sales/impairments of 1 cent, mark-to-market
adjustments of 2 cent, plant closing costs of 7 cents, merger
accounting commodity contracts of 3 cents. Including the impact of
these one time items, FirstEnergy reported earnings of 45 cents per
share versus 48 cents per share reported in the second quarter of
FirstEnergy generated total revenue of $3.87 billion in the quarter
under review versus $4.06 billion in the year-ago quarter,
reflecting a decline of 4.7%. Lower revenues from regulated
distribution largely attributed to the decline.
Revenues substantially missed the Zacks Consensus Estimate of $4.03
FirstEnergy's nuclear capacity factor was 78% in the second quarter
of 2012 versus 75% in the second quarter of 2011.
Total electric distribution deliveries increased 0.9% year over
year. Industrial deliveries increased 3% and commercial deliveries
increased 1%. However, Residential deliveries declined 1%
attributable to declining average customer consumption and a meager
reduction in the number of residential accounts.
Total expense in the reported quarter was $3.3 billion, down 6.4%
from the year-ago quarter of $3.5 billion. The decline in expenses
was primarily due to lower purchased power expenses and operating
The magnitude of total revenue growth was higher than the increase
in total expenses resulting in a favorable margin in the reported
period. Accordingly, operating income improved 6.9% year over year
to $557 million.
Interest expenses increased 13.1% to $242 million in the quarter
Cash and cash equivalents as of June 30, 2012 were $0.094 billion
versus $0.202 billion as of December 31, 2011. Long-term debt and
other long-term obligations were $15.2 billion versus $15.7 billion
at the end of December 31, 2011.
Cash flows from operating activities during the quarter were $0.475
billion versus $0.540 billion in the second quarter of 2011.
FirstEnergy reiterated its operating earnings expectation in a band
of $3.30 to $3.60 per share for 2012. GAAP earnings for 2012 are
expected in the range of $2.80 to $3.10.
One of the company's peers,
American Electric Power Co. Inc.
) reported second quarter 2012 adjusted earnings per share of 77
cents, beating the Zacks Consensus Estimate of 72 cents. The
company's results also surpassed the year-ago quarterly earnings of
73 cents per share.
Earnings in the reported quarter were higher by 4 cents than the
year-ago period due to higher demand driven by warmer than normal
weather, focus on cost control, and improving economies in service
AMER ELEC PWR (AEP): Free Stock Analysis Report
FIRSTENERGY CP (FE): Free Stock Analysis Report
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Revenue of $3.6 billion was flat with both the Zacks Consensus
Estimate and the year-ago period.
The FirstEnergy-Allegheny merger is expected to provide significant
stimulus to its top line going forward. The company's continual
investment activities and successful execution of its retail
strategy through hedging or selling forward are expected to provide
a stable earnings stream. FirstEnergy also remains focused to
capitalize when economic recovery gains traction.
However, these positives are dampened by regulatory risks,
commodity price fluctuations, and weather irregularities in its
service territories which impacts power demand.
The company presently retains a short-term Zacks #3 Rank (Hold)
that corresponds with our long-term Neutral recommendation on the