Pepco Holdings Inc. (POM) reported third quarter 2010 earnings from continuing operations of 52 cents per share, 12 cents above the Zacks Consensus Estimate of 40 cents, climbing 49% from 35 cents earned last year.
The improvement in earnings was driven by strong Power Delivery results, helped by infrastructure investments, regulatory outcomes, and the impact of hot summer weather on electric distribution sales. Higher transmission revenues, lower interest expense and favorable income tax adjustments also contributed to the increase in earnings.
Operational Performance
Pepco’s net revenues of $2.07 billion fell short of the Zacks Consensus Estimate of $2.17 billion. However, revenues improved marginally (1.0%) from $2.05 billion in the year-ago quarter. By segment, operating revenues in the quarter improved 12% at Power Delivery segment, while it dipped 25% at Pepco Energy Services and 9% at the Other segment.
In the quarter, Power Delivery regulated transmission & distribution electric sales rose 8.1% to 14,816 gigawatt hours (GWh), as a result of a 36% rise in cooling degree days. Weather-adjusted electric sales were 13,956 GWh, up 1% compared with 13,782 GWh a year ago. Power Delivery Gas Sales fell 33% to 2 billion cubic feet (Bcf) in the quarter. Retail electric sale at Pepco Energy Services dipped 38.5% to 2,840 GWh.
Pepco’s total operating expenses in the third quarter increased 2.2% to $1.9 billion, on account of higher other operation and maintenance costs (up 7%) and a rise in depreciation and amortization expenses (up 11.8%), offset slightly by lower fuel and purchased energy (down 8.5%).
Pepco’s weighted average shares outstanding in the quarter increased to 224 million from 221 million in the same period last year.
Financials and Other
As of September 30, 2010, Pepco Holdings had cash and cash equivalents of $28 million and long-term debt of $3.6 billion. Total long-term liabilities at quarter-end were $4.0 billion compared with $4.9 billion at year-end 2009. Total shareholders’ equity at quarter-end was $4.2 billion.
During the third quarter, Pepco progressed significantly in executing its business plan, installing advanced meters in the District of Columbia and moving ahead on the PJM Interconnection MAPP transmission project. The company completed the sale of Conectiv Energy’s wholesale generation business and the liquidation of all of Conectiv Energy’s remaining assets and businesses.
The company used the sales proceeds to pay down debt, which helped lower interest expense and strengthen the company’s balance sheet.
Outlook
Pepco Holdings raised its 2010 earnings guidance range to $1.00 to $1.10 per share from 80 cents to 95 cents projected earlier, based on strong Power Delivery operating performance so far this year. Pepco Holdings reaffirmed its 2011 earnings outlook range of $1.10 to $1.30 per share. This guidance range excludes the results of discontinued operations and the impact of any special or extraordinary items.
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