Integrys Energy Misses Estimates - Analyst Blog


Integrys Energy Group, Inc. ( TEG ) reported first quarter 2012 pro forma earnings of $1.55 per share compared with $1.57 in the year-ago quarter. Quarterly earnings decreased due to a mild winter and decline in Electric Utility segment margins. This was partially offset by implementation of decoupling mechanism by the company. The earnings missed the Zacks Consensus Estimate of $1.57.

Company's GAAP earnings were $1.25 per share in the reported quarter compared with $1.56 in first quarter 2011. The variance between quarterly GAAP and pro forma earnings was due to a 3 cents gain from discontinued operations and a non-cash 33 cents loss for derivative and inventory accounting activities.

Total Revenue

Integrys Energy's total quarterly revenue of $1.25 billion was down from $1.63 billion reported in the prior-year quarter. This decline in revenue was due to lower sales from utility and non-regulated segment. However, it was partially offset by rate increase at the Peoples Gas Light and Coke Company. Reported revenue missed the Zacks Consensus Estimate of $1.72 billion.

Operating Results

Integrys Energy's retail electric sales volume in the first quarter 2012 was 2,918.9 million kilowatt-hours ("Kwh") versus 2,952.5 million Kwh in the comparable year-ago period. Quarterly retail natural gas sales volume was 43.8 billion cubic feet ("Bcf") compared with 48.5 Bcf in the year-ago quarter. Wholesale electric sales volume in the first quarter 2012 was 88.9 million Kwh versus 72.6 million Kwh in the year-ago quarter.

In the reported quarter, Integrys Energy's fuel, natural gas and power costs decreased by 28.5% to $472.3 million from $660.7 million in the year-ago quarter.

Operating and maintenance costs were $261 million in the first quarter 2012, dipping 1.4% year over year from $264.6 million in the year-ago period.

Operating income decreased to $151.6 million in the first quarter 2012 from $208.7 million in the year-ago quarter due to decline in total revenue, partially offset by cost control.

Financial Update

Cash and cash equivalents were $42.3 million as of March 31, 2012 compared with $28.1 million as of December 31, 2011.

As of March 31, 2012, long-term debt was $1.85 billion versus $1.87 billion as of December 31, 2011.

Net cash generated from operating activities was $225.8 million as of March 31, 2012 compared with $395.5 million as of March 31, 2011.

As of March 31, 2012, capital expenditure was $123 million versus $51.2 million in the year-ago period.

Guidance for 2012

Integrys Energy Group expects pro forma earnings in 2012 to be in the band of $3.35 - $3.55 per share. The company estimates GAAP earnings in fiscal 2012 to be in the range of $3.38 - $3.58 per share. This takes into account normal weather conditions in current fiscal, operational improvement assumptions and availability of generation units. However, it excludes the impact of inventory accounting activities and derivatives. 

Peer Comparison

Integrys Energy Group's peer CMS Energy Corporation ( CMS ) reported adjusted earnings of 37 cents per share in first quarter 2012 compared with 51 cents in the year-ago quarter. The quarterly earnings missed the Zacks Consensus Estimate of 39 cents.

CMS Energy's revenue in the reported quarter grossed $1.74 billion versus $2.18 billion in the year-ago comparable period. The reported revenue fell short of the Zacks Consensus Estimate of $2.06 billion.

Our Take

Integrys Energy's results in the first quarter failed to meet our expectations primarily due to a mild winter.

We view Integrys Energy as a well managed and high-quality energy provider in high-growth areas such as Illinois, Michigan, Minnesota, and Wisconsin. At the same time, the company is frequently investing on infrastructural development, implementation of new technologies associated with electricity generation, transmission and distribution and to meet fuel expenses for electricity generation.

We believe that these initiatives will ensure smooth, uninterrupted and hassle-free power supply to the consumers and make way for the company's future earnings and revenue growth in the near-term.

But at the same time, we are concerned about the chances of customers switching to alternate energy sources and fluctuating energy prices. 

Integrys Energy Group. Inc. currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. We have a long-term neutral recommendation on the stock.

Chicago, Illinois-based Integrys Energy Group, Inc. is a diversified holding company providing products and services in both regulated and non-regulated energy markets through its subsidiaries.

CMS ENERGY (CMS): Free Stock Analysis Report
INTEGRYS ENERGY (TEG): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: CMS , TEG

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