Pinnacle West Capital Corp.
) adjusted earnings of $1.12 cents per share in the second quarter
of 2012 outpaced the Zacks Consensus Estimate by 8 cents. Earnings
exhibited a significant improvement of 43.5% from 78 cents earned
in the year-ago quarter. Adjusted earnings of $123.1 million
improved 43% year over year.
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A combination of hotter-than-normal weather, lower
infrastructure-related costs, higher transmission revenues and
lower fuel costs and improved mark-to-market valuations of fuel
contracts aided Pinnacle West to deliver strong numbers. However,
higher operations and maintenance expenses and lower retail
electricity sale curbed the positives.
Adjusting for loss from discontinued real estate and energy
services businesses of $0.8 million or 1 cent a share, the company
reported net income of $122.3 million or $1.11 per share, compared
with $86.7 million or 79 cents per share reported in the year-ago
Pinnacle West reported revenue of $878.6 million in the quarter,
increasing 9.8% from the year-ago revenue of $799.8 million.
Revenues surpassed the Zacks Consensus Estimate of $861 million. An
increase in Regulated Electricity segment revenue was largely
responsible for the overall improvement.
Total regulated electricity delivered in the quarter increased 7.5%
to 8,291 Gwh from 7,711 Gwh last year.
During the quarter, retail electricity sales increased 8% to 7,255
Gwh from 6,714 Gwh last year. The increase was due to higher
electricity consumption by business as well as residential
Also, average electric customer growth in the quarter was 0.9%,
compared with 0.3% in the year-ago comparable period.
On the cost side, fuel and purchased power costs at the Regulated
Electricity segment increased 8.5% in the quarter, while the
company's operations and maintenance (O&M) expenses increased
Depreciation & amortization expenses decreased 5.6% in the
quarter. These factors were largely responsible for a 7.3%
year-over-year overall increase in operating expense.
The magnitude of increase in expenses more than offset the
magnitude of revenue improvement, thereby driving operating income
to grow 21.6% in the quarter.
As of June 30, 2012, Pinnacle West's cash and cash equivalents
slumped 66% to $11.2 million from the 2011-end level of $33.6
Long-term debt of $3.4 billion increased 11.7% from the 2011-end
The company generated $458.6 billion in cash from operations in the
first half of 2012, declining 5.1% over the prior-year period.
Capital expenditure increased 9.7% year over year to $424.8
Pinnacle West expects retail customers to increase approximately
Total electricity gross margin to be in a range of $2.13 to $2.18
Operating expenses in a range of $1.33 to $1.36 billion and
interest expense between $180 to $190 million.
Based on the combination of all these factors, the company expects
adjusted earnings in a range of $3.35 to $3.50 per share.
UniSource Energy Corporation
) reported second quarter 2012 net income of 64 cents, exceeding
the Zacks Consensus Estimate by 3 cents.
NV Energy Inc.
) reported second quarter 2012 earnings of 29 cents, exceeding the
Zacks Consensus Estimate by 11 cents.
We retain our Neutral recommendation on Pinnacle West Capital. The
quantitative Zacks #2 Rank (short-term Buy rating) for the company
indicates slight upward boost on the stock over the near term.