Teco Misses by a Penny - Analyst Blog

Teco Energy Inc. ( TE ) announced first quarter 2012 earnings of 24 cents per share, flat with the year-ago quarter. Earnings in the current quarter fell short the Zacks Consensus Estimate of 25 cents.

The modest earnings performance can be attributed to margin expansion from Teco Coal, offset by lower customer demand at the electric and natural gas segments due to warmer winter weather.

Pro forma and GAAP earnings remained the same, owing to the absence of one-time items.

Total Revenue

Teco Energy posted revenue of $730.0 million in the first quarter of 2012, down 8.3% from $796.1 million in the year-ago quarter. This was due to a decline in electric sales from the company's unregulated division.

Reported revenue missed the Zacks Consensus Estimate of $775.0 million.

Segmental Analysis

Sales at Peoples Gas declined due to a 26.2% fall in weather-sensitive household customers, which was partially offset by a 12.4% surge in total thermal sales resulting from increase in gas transportation to power generation consumers.

Teco Coal 's sales volume in the reported quarter declined to 1.4 million ton from 2.1 million tons in the year-ago period. However, during the quarter the company experienced a growth in the sales price of per ton. The average selling price per ton was $96 in the first quarter compared with $81 in the prior year quarter.

On the international front, Teco Guatemala experienced marginal sales increase caused by increased prices and lower operating expenses which were partially compensated by lower contract and spot energy sales.

Lower revenue at Tampa Electric was due to weak residential demand, which declined 12.4% owing to a warmer winter, partially mitigated by higher industrial volume and energy sales of 3.4%.

Operational Highlights

Total operating expenses fell in the first quarter by 9.0% to $604.8 million from $665.2 million in the year-ago quarter. This was backed by a fall in fuel costs by 8.6% and a massive decline in cost of natural gas sold by 49.2%.

Total operating income slipped 4.3% to $125.2 million from $130.9 million in the prior-year quarter.

Interest expenses declined to $50.6 million from $52.8 million in the year-ago quarter owing to a lower debt level.

Financial Screening

Cash and cash equivalents as of March 31, 2012 were $59.0 million versus $44.0 million as of December 31, 2011.

Cash flow from operating activities during the quarter was $223.9 million compared with $229.9 million in the previous year quarter.

Long-term debt as of March 31, 2012 was $3923.2 million versus $4035.3 million as December 31, 2011.


Teco Energy increased earnings expectation at the lower-end to $1.30-$1.40 per share from $1.25-$1.40 per share in the year-ago quarter. This upward anticipation is buoyed by enhanced performance by the company's various regulated and unregulated business divisions.

Teco Coal forecasts sales volume to be between $7.0 million and $7.3 million. The average price is expected to be around $96 per ton over the rest of the year on account of rise in metallurgical sales.

The company anticipates cost of production in the range of $83 to $87 per ton.

Peer Update

Wisconsin Energy Corporation ( WEC ) announced first quarter 2012 earnings of 74 cents per share versus 72 cents in the year-ago quarter, indicating growth of 2.7%. Earnings in the reported quarter surpassed the Zacks Consensus Estimate.

Total revenue in the first quarter was $1.19 billion, down 10.5% from $1.33 billion in the year-ago quarter. Revenue missed the Zacks Consensus Estimate of $1.29 billion.

Our View

Despite modest earnings performance in the first quarter, we believe customer growth of 1% and 0.9% year over year at Tampa Electric and Peoples Gas, respectively, would act as positive catalysts to the company's growth.

On the flip side, inconsistent weather, a delayed recovery of Florida's economy and the possibility of lower coal demand in 2012 could act as inhibiting factors for the company.

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 #4 Rank which translates into a Sell rating. We recommend a Neutral rating in the long run.

TECO ENERGY (TE): Free Stock Analysis Report

WISC ENERGY CP (WEC): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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