Teco Energy Inc
) announced second quarter 2012 earnings of 34 cents per share,
lower than the year-ago earnings of 36 cents per share. The
earnings in the current quarter were also below the Zacks Consensus
Estimate of 37 cents.
The earnings underperformance was due to weather irregularities and
the current downturn in coal markets, partially offset by favorable
growth in the company's Florida utilities owing to an increased
Teco Energy posted total revenue of $788.4 million in the second
quarter of 2012, down 11% from $885.7 million in the year-ago
quarter. This was due to a combined decline in the company's
regulated electric and gas sales as well as in the unregulated
Reported revenue widely missed the Zacks Consensus Estimate of $893
Sales at Peoples Gas surged 26.1% to 513,231 therms from 406,961
therms in the year-ago quarter. This was driven by higher sales to
residential consumers due to customer additions and greater volume
sold to commercial and industrial users. However, aggregate revenue
from this segment declined owing to the depressed natural gas
prices in the US markets.
Teco Coal witnessed a decline in sales volume in the reported
quarter to 1.6 million tons from 2.1 million tons in the year-ago
period. This resulted in revenue to dip by 28% to $149.7 million
from $191.3 million in the year ago quarter.
On the international front, Teco Guatemala experienced electric
sales increase resulting from higher contract and spot energy sales
at the San Jose Power station compounded by decrease in operating
Sales volume at Tampa Electric dipped by 0.5% year over year due to
the impact of wet and soft weather in June, resulting in 7.3%
decline in revenue from this segment.
Total operating expenses declined in the second quarter by 12.2% to
$626.8 million from $714.6 million in the year-ago quarter. This
was backed by a fall in fuel costs by 14% and a marked decline in
the cost of natural gas sold by 33%.
Total operating income slipped to $161.6 million from $171.1
million in the prior-year quarter, reflecting a decrease of 6%.
This was due to fall in revenue outweighing the positive effect of
decline in operating costs.
Interest expenses declined marginally to $50.3 million from $51.3
million in the year-ago quarter.
Cash and cash equivalents as of June 30, 2012 were $117.4 million
versus $44.0 million as of December 31, 2011.
Cash flow from operating activities during the quarter was $81.5
million compared with $156.9 million in the prior-year quarter.
Long-term debt as of June 30, 2012 was $2,895.1 million versus
$2,687.3 million as of December 31, 2011.
Teco Energy lowered its earnings expectation to $1.20-$1.30 per
share from the prior forecast of $1.30-$1.40 per share. This
downward anticipation is due to the negative effect of mild weather
in the month of July.
However, under the new base rate system, the company's natural
gas business wing expects to earn returns near the middle of its
equity range as the new rates make People Gas less exposed to
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Teco Coal forecasts depressed sales volume for 2012 and projects
sales to be in the range of 6.0 million tons to 6.3 million tons
with an average selling price of $96 per ton.
The company anticipates cost of production to be in the range of
$83 per ton to $87 per ton.
Wisconsin Energy Inc
), a competitor of Teco Energy posted second-quarter 2012 earnings
per share of 51 cents, up 24.4% year over year from 41 cents per
share. The reported quarter's earnings also comfortably surpassed
the Zacks Consensus Estimate of 44 cents per share.
Revenue in the second quarter of 2012 was $944.7 million, down 4.7%
from $991.7 million in the year-ago quarter. Revenue also fell
short of Zacks Consensus Estimate by $44.3 million.
Teco Energy's lackluster financial performance in the second
quarter 2012 is a result of the ongoing depression in steam coal
markets. We believe this trend will rebound with the rise in demand
for metallurgical coal from the Asian markets. The positive
movement in the Florida economy will also attract strong customer
growth which would propel the company's development prospects.
However, the location of the state of Florida makes it prone to
natural disasters and extreme weather conditions. This can pose a
serious threat to the smooth functioning of Teco Energy's
Based in Tampa, Florida, the company is involved in regulated
utility operations. Through its subsidiaries it generates,
transmits, distributes, purchases and sells electric energy in
Florida and Guatemala.
Teco Energy Inc. holds a Zacks #3 Rank which translates into a
short-term Hold rating. We recommend a Neutral rating in the long