Energy utility Wisconsin Energy Corporation (WEC) reported its operating earnings for the second-quarter 2010 of 74 cents per share versus 53 cents per share in the year-ago quarter, reflecting a growth of 39.6%. The results of the company were 5 cents higher than the Zacks Consensus Estimate of 69 cents per share.

The year-over-year earnings growth was driven by a return to normal weather and some additional income from the company’s Power the Future plan.

GAAP earnings of Wisconsin Energy for the second quarter of 2010 were 75 cents per share, versus 54 cents recorded in the year-ago period. The difference between GAAP and operating earnings, during the second quarter, was owing to a gain of 1 cent from discontinuing operations.

Total Revenue

Wisconsin Energy’s total revenue in second-quarter 2010 was $890.9 million, compared with $835.7 million in the year-ago period, reflecting a growth of 6.6%.

The second-quarter revenue of the company fell short of the Zacks Consensus Estimate of $970 million by $99.1 million.

Operational Update

At the end of second-quarter 2010, the company catered to 3,400 more electric customers and 4,900 more natural gas customers over the prior period.

Complementing the year-over-year growth in customer base during the quarter, the company also saw a rise in demand for electricity across all customer groups it serves. At the end of second-quarter 2010, usage of power from residential users, commercial & industrial consumers and small commercial & industrial users increased by 1.7%,14.3% and 4.7%, respectively, over the prior-year period.

Total operating expenses of Wisconsin Energy increased marginally by 0.3% during the second-quarter 2010 to $774.8 million from $772.4 million in the year-ago quarter. However, operating expenses as a percentage of total revenue declined year over year, which benefited the operating results of the company.

The positive impact of the relative decline in operating expenses as a percentage of revenue was reflected in the year-over-year growth in operating income. Operating income during the second quarter was $163.3 million versus $118.4 million in the second quarter of 2009, reflecting a growth of 37.9%.
 
Net interest expenses rose 33.1% in second-quarter 2010 to $53.0 million from $39.8 million in the prior-year period. The growth in expenses stemmed from an increase in debt levels over the past year.

Financial Update

Cash on hand at the end of second-quarter 2010 was $10.5 million, a decline of $2.0 million from the year-ago period.

Cash from operating activities for the first half of 2010 was $423.7 million, versus $232.4 million in the first half of 2009. The favorable base effect was due to a contribution to employee benefit plans during the first half of 2009.

Capital expenditure for the first half of 2010 was $379.1 million versus $365.1 million in the first half of 2009.

Long-term debt of Wisconsin Energy at the end of second-quarter 2010 reached $3.9 billion, up 3.2% from $3.8 billion a year ago.

Dividend

On July 22, 2010, the board of directors of Wisconsin Energy announced a quarterly dividend of 40 cents per share. The dividend will be payable on September 1, 2010, to shareholders of record at the close of business on August 13, 2010.

Guidance

Wisconsin Energy revised its earnings guidance for 2010 to a range of $3.70–$3.75 per share, up from the prior expected range of $3.65 –$3.75 per share.

Our Take

The upward revision in the earnings guidance on part of Wisconsin Energy foregrounds a gradual improvement across all segments of the company’s operations.

We believe Wisconsin Energy through its Power the Future investments will be able to reap more benefits for its consumers.

We retain a short-term Zacks #3 Rank (Hold) and a longer-term Neutral recommendation on the stock.

Based in Milwaukee, Wisconsin, Wisconsin Energy, through its subsidiaries, generates and distributes electricity in the Southeastern, East Central, and Northern Wisconsin, as well as in the Upper Peninsula of Michigan. The company also distributes natural gas.
 
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