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FirstEnergy Beats Earnings, Sales Lag - Analyst Blog

By: Zacks.com
Posted: 5/7/2013 12:17:00 PM
Referenced Stocks: AEP;CMS;DTE;FE

Diversified energy company FirstEnergy Corp. ( FE ) announced first-quarter 2013 operating earnings of 76 cents per share, beating the Zacks Consensus Estimate by 7 cents. However, the results lagged the year-ago earnings of 82 cents by 7.3%.

Earnings in the reported quarter benefited from lower operating costs, higher distribution deliveries and lower general taxes. However, these benefits were offset by lower commodity margin, higher depreciation expense and reduced revenues from the regulated transmission business.

GAAP loss during the quarter was 47 cents per share versus earnings of 73 cents in the first quarter of 2012.

The difference between basic GAAP and operating earnings during the quarter was due to the impact of a few one-time items such as 18 cents for debt redemption, 4 cents for regulatory charges, 1 cent for trust securities impairment, 1 cent for mark to market adjustment, 1 cent for non-core asset sale impairments, 1 cent for plant closing costs and 3 cents for merger accounting.

Total Revenue

FirstEnergy generated total revenue of $3.73 billion in the first quarter versus $3.99 billion in the year-ago quarter. The 6.5% decline in revenue was primarily due to lower Electric sales in the reported quarter, which fell by 6.4%.

The top line of the company was 8.6% lower than the Zacks Consensus Estimate of $4.08 billion.

Highlights of the Release

Total electric distribution deliveries in the reported quarter increased 2.6% from the prior-year level. The colder winter benefited the results as heating-degree-days were 30% higher than the same period last year. Residential deliveries increased 6%, usage in the commercial sector increased 0.6%, while industrial usage increased 0.4%.

Total expenses in the reported quarter were $3.1 billion, down 5.21% from $3.24 billion  in the prior-year quarter. The decline in expenses was primarily due to a 12.6% reduction in fuel and purchased power expenses.

Interest expenses in the reported quarter increased by $10 million to $256 million, mainly due to higher debts compared to the prior year.

Financial Update

Cash in hand as of Mar 31, 2012, was $67 million versus $172 million as of Dec 31, 2012.

Cash from (used in) operating activities in the first quarter of 2013 was $50 million versus ($413 million) in the prior-year quarter.

Long-term debt and other long-term obligations as of Mar 31, 2013, were $15.8 billion versus $15.2 billion as of Dec 31, 2012.

During the quarter under review the company issued new debts worth $1.8 billion and redeemed old debts of nearly $1 billion. FirstEnergy utilized a portion of the fresh issue to redeem old debts and other development purposes.

Guidance

FirstEnergy reiterated its operating earnings per share expectation for 2013 in the range of $2.85 to $3.15. GAAP earnings for 2013 are expected in the range of $2.37 to $2.67 per share.

Other Company Releases   

American Electric Power Company Inc. ( AEP ) posted adjusted first quarter 2013 operating earnings of 80 cents per share, in line with the Zacks Consensus Estimate.

CMS Energy Corp . ( CMS ) reported first-quarter 2013 operating earnings of 53 cents per share, 15.2% higher than the Zacks Consensus Estimate of 46 cents.

DTE Energy Company ( DTE ) reported first quarter 2013 earnings per share of $1.34, easily beating the Zacks Consensus Estimate of $1.03.

Our View

FirstEnergy reported positive earnings surprises in the last three quarters. In the current quarter, a cold winter resulted in higher demand for electricity.

The company continues to upgrade and improve its infrastructure. We believe these investments will allow the company to increase the reliability of its services and cater to an expanding customer base. The total retail customer base at the end of the first quarter was 2.7 million, increasing 42% year over year.

Based in Akron, Ohio, FirstEnergy is engaged in the generation, transmission, and distribution of electricity, as well as energy management and other energy-related services. FirstEnergy currently has a Zacks Rank #3 (Hold).



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