Consolidated Edison Inc. (ED) in the third quarter of 2010 with adjusted EPS of $1.32 beat both the Zacks Consensus EPS estimate of $1.22 and year-ago adjusted EPS of $1.16.
The 2 cent EPS variation year-over-year on the reported basis reflects the differences, where Con Edison of New York benefited from 39 cents per share as higher rates authorized higher recovery of costs and 1 cent from lower interest expense. This was partially offset by 14 cents from increased operations and maintenance expense, 5 cents from depreciation and 7 cents from miscellaneous items. The net effect was a 14 cents spike in EPS year-over-year while Orange and Rockland utilities chipped in with another 2 cents rise.
However, the good has been undone by Competitive Energy businesses, where EPS shrunk year over year by 14 cents from net mark-to-market effects. The variance of 14 cents cropped from 8 cents loss per share in the reported quarter along with 6 cents gain per share in the year-ago quarter.
As a result, on a reported basis the company clocked EPS of $1.24, a spike of only 2 cents compared with $1.22 in the year-ago quarter.
The bottom line results also reflect the dilutive effect of a higher-weighted average number of common shares outstanding of 283 million compared to 275 million shares in the prior-year quarter.
Operating Statistics
On the revenue front, Consolidated Edison witnessed a 6.2% rise year-over-year to $3.71 billion from $3.49 billion in the year-ago quarter. Reported quarterly revenue also beat the Zacks Consensus Estimate of $3.66 billion by $43 million. The upside came from all the segments – Electricity, Gas and Stream. However, non-utility revenues decreased to $573 million from $600 million in the year-ago quarter.
Overall, Consolidated Edison’s earnings from ongoing operations, which exclude the net mark-to-market effects of the competitive energy businesses, were $372 million compared with $319 million in the year-ago quarter. The company reported a quarterly net income of $350 million compared with $336 million in the year-ago quarter.
Financial Condition
Consolidated Edison reported $971 million in cash from operating activities at the end of the reported period, from $1.5 billion in the year-ago period. The company reported $198 million of cash and cash equivalents at the end of the reported period from $75 million in the year-ago period. Long-term debt increased to $10.7 billion as compared to $9.9 billion at fiscal-end 2009.
Outlook
New York City-based Consolidated Edison is a diversified utility holding company with subsidiaries engaged in both regulated and unregulated businesses. Consolidated Edison’s regulated businesses operate through two subsidiaries — Consolidated Edison Company of New York (Con Edison of New York) and Orange and Rockland Utilities (O&R).
Con Edison of New York is a regulated utility that provides electricity to roughly 3.3 million customers, natural gas to 1.1 million customers, and steam services to about 1,850 customers, primarily in New York City and Westchester County. O&R serves nearly 400,000 electric and gas customers in southeastern New York State, northern New Jersey, and northeastern Pennsylvania.
Consolidated Edison’s unregulated businesses referred to as competitive energy businesses operate through three subsidiaries: Consolidated Edison Development (engaged in infrastructure development), Consolidated Edison Energy (supplies energy in the wholesale market), and Consolidated Edison Solutions (provides retail energy).
Consolidated Edison raised its EPS guidance range to $3.40 – $3.50 from earlier guidance range of $3.25 – $3.45. The bullishness stems from successful cost control efforts by the Con Edison Company of New York and strong performance at the competitive energy businesses.
Consolidated Edison’s future growth will largely depend on rate increases of its utility subsidiaries. We are currently Neutral on the Zacks #3 Rank (Hold) stock.
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