Diversified energy utility, DPL Inc. (DPL) reported third quarter 2010 earnings per share of 74 cents, matching the Zacks Consensus Estimate. The results of the company were higher than the 59 cents reported in the year-ago quarter.
The year-over-year increase was driven by warm weather, which boosted company retail sales. Favorable economic conditions also augured well for DPL to book earnings growth. The higher cost of inputs and operating and maintenance expenses had a marginal impact on earnings.
Revenues
Total revenue of DPL at the end of the third quarter was $516.9 million versus $407.3 million in the year-ago period, reflecting a growth of 26.9%. The growth in revenue was driven by higher Retail sales and RTO capacity revenues, somewhat offset by lower Wholesale sales volume.
Electricity volume sales rose 5.1% to 4.6 billion kWh from 4.4 billion kWh in the year-ago quarter, driven by improvements in the Retail sector, which improved 14.9%. The electricity volumes were somewhat hampered by lower Wholesale sector sales, which declined 31.7%.
Margins and Costs
Fuel costs increased 23.6% year over year to $104.3 million, mainly due to lower gains realized from coal and emission allowance sales and an increase in average fuel prices.
Purchased Power costs in the quarter increased 83% year over year. This increase was due to higher RTO charges and RTO capacity, along with an increase in average purchase price and higher purchased volumes.
Gross margin profit increased 13.8% to $293.6 million compared with $257.9 million in the year-ago quarter.
Interest charges during the quarter decreased by $2 million to $17.6 million from $19.6 million in the year-ago quarter due to interest savings related to the early payment in December 2009 of a portion of the $195 million 8.125% Notes.
Financial Position
DPL’s cash and cash equivalents totaled $139.1 million as of September 30, 2010, compared with $74.9 million as of December 31, 2009.
Capital expenditures for the first nine months of 2010 were $113.7 million versus $134.6 million in the first nine months of 2009. The company is planning to invest another $66.3 million in the fourth quarter taking the total capital investment to $180 million in fiscal 2010.
DPL presently expects to invest $760 million during the 2010 to 2012 period, which reflects a growth of $150 million from the previous capital expenditure plan. The increase in costs is due to high investments in transmission and distribution projects.
The company reduced its long-term debt level through the first nine months of 2010 to $926.4 million versus $1,223.5 million as of December 31, 2009.
Dividend and Share Repurchase
On October 27, 2010, the board of directors of DPL approved a new share repurchase plan to acquire up to $200 million of DPL common stock. The repurchase is scheduled to continue till December 31, 2013. However, the company retains the right to modify or terminate the plan without prior notice.
On the same day, the DPL board declared a quarterly dividend of 30.25 cents per share. The dividend is payable on December 1, 2010, to shareholders of record on November 15, 2010.
Guidance
DPL maintained its fiscal 2010 earnings guidance of $2.35 – $2.55 per share and also provided 2011 earnings guidance of $2.30 to $2.55 per share.
Our View
We appreciate the move of the company to enhance shareholder value through dividend payments and share repurchases. The company has performed well in the last nine months and we expect this momentum to continue in the coming quarter as well.
DPL currently retains a Zacks #3 Rank (short-term Hold rating). We maintain our log-term Neutral rating on the stock.
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