Electricity and natural gas company Xcel Energy Inc. (XEL) reported its fourth quarter and fiscal 2011 year earnings. During the quarter, operating and GAAP earnings were 29 cents per share, a penny below the Zacks Consensus Estimate and both were in-line with the earnings of the year-ago period.
During fiscal 2011, the company reported pro forma and GAAP EPS of $1.72, above the Zacks Consensus Estimate of $1.69. However, in fiscal 2010 pro forma EPS was $1.61 and GAAP EPS was $1.62.
The earnings for fiscal 2011 met the company’s expectation and were in the upper half of its guidance range of $1.65-$1.75. The results reflect higher electric margins due to weather and rate increases in various states. However, these were partially offset by expected increases in operating and maintenance expenses, depreciation, interest expense and property taxes.
Total Revenue
Xcel Energy clocked total revenue of $2.57 billion in the reported quarter, a marginal increase of 0.05% year over year. Reported quarter revenue was, however, lower than the Zacks Consensus Estimate of $2.8 billion.
Revenue in the fiscal-year period was $10.7 billion, up 3.3% year over year but below the Zacks Consensus Estimate of $10.9 billion.
Segment-wise Revenue
Electric: Revenue from this segment increased to $2.0 billion from $1.9 billion in the year-ago period.
Segment sales were largely impacted by fluctuating natural gas, coal and uranium prices used in electricity generation. However, the fuel recovery mechanism, which allows the company to recover current expenses, offset the effect to some extent.
Natural Gas: Revenue at this segment decreased by 2.2% to $560.1 million from $572.4 million in the year-ago period.
Other: Segment revenue in the reported quarter was $19.5 million versus $19.9 million in the year-ago period, reflecting a nominal decline of 1.9%.
Quarterly Highlights
In fiscal 2011, the company exceeded its energy efficiency and conservation program targets. Despite severe weather across service territory during second half of 2011, the company provided excellent customer service and reliability.
Total operating expenses during the quarter declined by 0.9% to $2.22 billion from $2.24 billion in the year-ago quarter. During the fiscal year, total operating expenses were up 2.1% year over year to $8.9 billion due to capital investment in Xcel Energy’s utility business.
Despite the increase in operating expenses in fiscal 2011, the company believes that the recent decision of the D.C. Circuit Court to stay the Cross-State Air Pollution Rule will provide it more time to comply with the rule in a cost-effective manner in Texas. As a result, this will prevent its customers from being burdened by significant cost increases and avoid potential reliability concerns.
Electric fuel and purchased power expenses was $920.3 million, down 0.5% y/y. Operating income accordingly increased by 6.7% year over year to $344.0 million from $322.4 million reported in the year-ago period.
Total interest charges and financing costs at the end of the fourth quarter 2011 rose 4.8% to $145.8 million from $139.1 million at the end of the fourth quarter 2010. The increase reflects higher long-term debt levels necessary to fund investments in utility operations, which were partially offset by lower interest rates.
Financial Update
Long-term debts of the company as of December 31, 2011 were $8.8 billion while the debt-to-capital ratio at the end of the quarter was 54%.
During 2011, the company issued three series of bonds aggregating $700 million, which were utilized for various purposes.
2012 Guidance
Xcel Energy expects its 2012 earnings to be in the lower half of the guidance range of $1.75-$1.85 per share. The guidance assumes normal weather pattern in 2012.
The company guides weather-adjusted retail electric utility sales to grow in the range of 0.5% – 1% in 2012, while the weather-adjusted retail firm natural gas sales are expected to remain relatively flat year over year.
Operating and maintenance expenses of the company are estimated to increase approximately in the range of 1% – 3% year over year while depreciation expense is projected to increase in a range of $60 million – $70 million in 2012.
The company expects interest expense to be relatively flat in fiscal 2012.
At the Peer
One of the company’s peers, American Electric Power Company Inc. (AEP) reported its fourth quarter and fiscal 2011 results. In the reported quarter, the company clocked ongoing earnings of 40 cents per share, in line with the Zacks Consensus Estimate. Quarterly revenue at American Electric was $3.4 billion, flat versus the Zacks Consensus Estimate.
Our View
Xcel Energy offers a comprehensive portfolio of energy-related products and services in the United States, with operations in 8 Western and Midwestern states. We like the continued growth in Xcel’s renewable energy portfolio and the development of its transmission line projects. Furthermore, the company aims to improve regulatory recovery by adopting multi-year rate plans in all its jurisdictions. However, we do not find any near-term catalyst, thus leaving little room for further upside. Xcel Energy currently retains a Zacks # 3 Rank, which translates into a short-term Hold rating. We have a long-term neutral recommendation on the stock.
