Diversified energy company FirstEnergy Corp. (FE) announced its third-quarter 2010 operating earnings of $1.28 per share, which surpassed the Zacks Consensus Estimate of $1.09. The results of the company were 17 cents higher than the year-ago earnings of $1.11 per share.
The GAAP earnings of the company during the quarter were 59 cents per share versus 77 cents per share reported in the third quarter of 2009.
The difference between the GAAP and operating earnings during the reported quarter was due to the impact of a few one-time items such as 2 cents from regulatory charges, 60 cents impact from lake plant charges, 4 cents related to merger costs and 3 cents for derivative mark-to-market adjustments.
Total Revenue
FirstEnergy generated total revenue of $3,693 million in the third quarter versus $3,408 million in the year-ago quarter. The year-over-year growth in revenue was driven by solid performance from Unregulated Business, which reflected a growth of 40.7% from the year-ago quarter.
The results of the company were lower than the Zacks Consensus Estimate of $4,259 million.
Operational Update
Total expense of the company during the quarter under review was $3.3 billion, up 12.2% from the year-ago quarter results of $2.9 billion. The rise in expenses was mainly due to increased coal consumption along with higher coal transportation costs and fuel surcharges.
Higher expenses incurred during the quarter impacted the operating income of the company, which reduced to $415 million from $487 million in the year-ago quarter, reflecting a decline of 14.8%.
Net interest expenses reduced by 41.4% in the third quarter to $208 million from $355 million in the prior-year period. The decrease in interest expenses was due to the interest rate swap agreements implemented in the second quarter of 2010.
Total electric distribution deliveries increased 12% from the third quarter of 2009 due to a 19.1% increase in use of electricity in the residential sectors, followed by an 11% growth in industrial sector.
Financial Update
Cash on hand as of September 30, 2010, was $0.6 billion versus $0.8 billion as of September 30, 2009.
Cash from operating activities for the first nine months of 2010 was $2.07 billion versus $1.46 billion in the comparable period in 2009.
Long-term debt and other long-term obligations as of September 30, 2010, were $12.1 billion versus $11.6 billion as of September 30, 2010. During the quarter under review, FirstEnergy issued new debts worth $251 million versus new issue of $2,472 million in the year-earlier quarter.
Dividend
On September 22, 2010, the board of directors of FirstEnergy announced a dividend of 55 cents per share. The dividend is payable on December 1, 2010, to shareholders of record on November 5, 2010.
Guidance
FirstEnergy maintains its 2010 operating earnings guidance in the range of $3.60–$3.70 per share. The GAAP earnings guidance for 2010 is in the range of $2.62–$2.72 per share.
The company projects capital expenditure of $1,778 million for 2010 and $1,420 million for 2011.
Free cash flow for 2011 is estimated to range between $500 and $600 million.
Our View
FirstEnergy currently retains a Zacks #4 Rank (short-term Sell rating).
Based in Akron, Ohio, FirstEnergy involves in the generation, transmission, and distribution of electricity, as well as energy management and other energy-related services.
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