Northeast Utilities Posts Mixed 3Q - Analyst Blog


Northeast Utilities ( NU ) reported third-quarter 2012 pro forma earnings per share of 70 cents, beating both the Zacks Consensus Estimate of 65 cents and year-ago quarterly figure of 51 cents a share.

On a GAAP basis, the company's quarterly earnings per share were 66 cents versus 51 cents in the prior-year quarter. The variance between pro forma and GAAP earnings were due to after-tax charges of 4 cents related to the merger with NSTAR.

Total Revenue

Northeast Utilities reported quarterly operating revenue of $1,861.5 million, up from $1,114.9 million in the year-ago quarter. The year-over-year revenue ramp reflected strong performance from the transmission segment due to the merger with NSTAR. However, the company's quarterly revenue missed the Zacks Consensus Estimate of $1,947.0 million.

Electric and Natural Gas Sales Volumes

Northeast Utilities' overall retail electric sales in the third quarter of 2012 increased to 15,502 Gigawatt hours ("GWh") from 15,302 GWh in the year-ago quarter. The company's quarterly natural gas sales marginally increased to 10,696 million cubic feet ("MMcf") from 10,688 MMcf in the prior-year quarter.

Segmental Earnings

Electric Transmission: This segment's quarterly earnings of $71.1 million improved markedly by 71.3% from $41.5 million in the prior-year quarter. Improvement in earnings reflected a streak of profitable investments in transmission system undertaken by the company including Greater Springfield Reliability Project and positive impacts related to merger with high-profile NSTAR.  

Electric Distribution and Generation: Earnings from this segment totaled $150.7 million in third-quarter 2012 compared with $58 million in the prior-year quarter. This earnings upside was due to a rise in retail sales and addition of results from NSTAR Electric distribution; partially offset by higher pension costs, increase in health care benefits related expenses and depreciation costs, and temperature deviations.    

Electric Utility Subsidiaries: Connecticut Light and Power Company 's ("CL&P") quarterly earnings were $73.5 million, up from $65.1 million in the year-ago quarter due to a rise in transmission earnings.

NSTAR Electric reported earnings of $106.5 million in the third quarter of 2012. In the second and third quarter of 2012, the company reported total earnings of $162.0 million.

In the third quarter of 2012, Public Service Company of New Hampshire earned $27.2 million compared with $25.7 million in the year-ago quarter. Growth in quarterly earnings was driven by improved transmission earnings.

Western Massachusetts Electric Company 's ("WMECO") quarterly earnings were $14.1 million, up from $8.4 million in the third quarter of 2011 due to an increase in transmission earnings.

Natural Gas Distribution: This segment consists of Yankee Gas Services Company and NSTAR Gas Company. Previously, this segment had only Yankee Gas Services Company. In the quarter under review, this segment reported a loss of $4.4 million compared with a loss of $3.0 million in the prior-year quarter.

NU parent and other businesses: This segment's quarterly earnings were $3.1 million versus a loss of $5.9 million in the year-ago quarter. Increase in earnings was primarily driven by a decline in interest expenses and positive results related to addition with NSTAR Communications, Inc.

Operational Highlights

On the cost side, Northeast Utilities' total operating expenses increased to $1.4 billion at the end of September 2012 from $0.9 billion at the end of the prior-year quarter. Higher fuel and power costs, operations and maintenance expenses, and depreciation costs were primarily responsible for the cost hike.

The company's operating income in the current quarter totaled $412.9 million compared with $203.8 million in third-quarter 2011.

Northeast Utilities' quarterly interest expenses increased to $90.4 million from $63.9 million in the year-ago quarter, indicating rising long-term debt.

Financial Update

As of September 30, 2012, Northeast Utilities had cash and cash equivalents of $73.4 million versus $6.6 million as of December 31, 2011.

In the first nine months of 2012, the company's cash flow from operating activities was $796.0 million compared with $888.4 million in the year-ago comparable period.

Long-term debt as of September 30, 2012 was $6.7 billion, up from $4.6 billion as of December 31, 2011.

Dividend Update

The board of shareholders trustees of Northeast Utilities announced a regular common dividend of 34 cents, payable on December 31, 2012, to the shareholders of record as of November 30, 2012.

Full-year 2012 Guidance

Northeast Utilities reported its full-year 2012 recurring earnings guidance in the range of $2.25 to $2.30 per share.

Peer Comparison

Northeast Utilities' closest peer NiSource Inc. ( NI ) posted its third-quarter 2012 pro forma earnings per share of 5 cents, beating the Zacks Consensus Estimate by a penny. However, quarterly earnings were lower than the year-ago figure of 11 cents per share due to increase in operating as well as interest expenses.

The company's total revenue in the quarter under review declined to $961.9 million from $1,023.8 million in the year-ago quarter. Reported revenue lagged the Zacks Consensus Estimate of $1,076.0 million.

Our View

Northeast Utilities reported mixed results in the third quarter of 2012. The company's earnings per share surpassed the Zacks Consensus Estimate whereas revenue fell short of estimate.  

Northeast Utilities strongly pursues organic and inorganic growth strategy. As a result of merger with NSTAR, the company has experienced positive operating and financial impacts in the third quarter of 2012. We believe this merger continues to help the company to increase its scale of operations and a wide customer base, which will, in turn, subsequently enable it to achieve higher end of earnings growth in the near future.

In case of the organic growth plans, Northeast Utilities intends to invest $1.7 billion under its full-year 2012 infrastructure spending programs for expansion and development of several major projects. We believe these projects will provide the company attractive earnings and cash flow growth over the forthcoming years.

However, we are cautious about natural calamities, stringent regulations, over-reliance on transmission and distribution businesses, and risks associated with delay and cancellation of several important projects.

Like most of the utility providers of the Southeast and Mid-Atlantic states, and New England of the U.S., Northeast Utilities' fourth-quarter and full-year 2012 financial and operating results may be affected by Hurricane Sandy.        

Northeast Utilities currently has short-term Zacks #3 Rank (Hold rating).

Hartford, Connecticut and Boston, Massachusetts-based Northeast Utilities is a public utility holding company, which provides energy delivery services to residential, commercial and industrial customers in Connecticut, New Hampshire and Massachusetts. The company engages in the purchase, delivery, and sale of electricity. With a market capitalization of $12.41 billion, Northeast has 6,063 full time employees.

NISOURCE INC (NI): Free Stock Analysis Report

NORTHEAST UTIL (NU): 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: NI , NU

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