Michigan-based CMS Energy Corp. (CMS) delivered adjusted earnings of 21 cents per share in its fourth quarter 2010, a penny ahead of the Zacks Consensus Estimate. Results were, however, 45% behind 38 cents earned in the year-ago quarter. Adjusted earnings, at $55 million, were 39% lower than $91 million in the fourth quarter 2009.
Including loss from asset sale of $24 million or 10 cents a share and loss from discontinued operation of $6 million or 2 cents a share, CMS Energy reported net income of $25 million or 9 cent a share, substantially higher than $6 million or 2 cents per share in the year-ago quarter.
Net income in the comparable quarter last year included loss from asset sale of $3 million or 2 cents a share, loss from discontinued operation of $3 million or 1 cent a share and Big Rock refund of $79 million or 33 cents a share.
Full year 2010 adjusted earnings of $1.36 per share, in line with the Zacks Consensus Estimate, were 10 cents ahead of 2009 earnings. Results were almost in line with $1.35 guided for 2010. Adjusted earnings were $345 million, up 15% year over year.
CMS Energy delivered strong results on the heels of an impressive performance at Consumers Energy that is completely driven by a utility-focused business strategy.
Including gain form asset sale of $8 million or 3 cents per share, loss from discontinued operation of $23 million or 8 cents per share and downsizing program costs of $6 million or 3 cents per share, net income reported in 2010 was $324 million or $1.28 per share, much ahead of $218 million or 91 cents in 2009.
Operational Performance
Operating revenue of CMS Energy in the quarter under review grossed $1.7 billion, up 4.3% year over year. Results were in line with the Zacks Consensus Estimate. Fiscal 2010 operating revenue was $6.4 billion, falling nominally behind the Zacks Consensus Estimate of $6.5 billion, though 3.7% ahead of 2009 revenue.
Operating expense in the quarter incresed 1.3% year over year, while full year operating expense declined 1% form the 2009 level.
CMS Energy reported operating income of $158 million in the fourth quarter 2010, 46% higher than $108 million in the year-ago quarter. Fiscal 2010 operating income came in 40% above the preceding year.
Financial Position
CMS Energy ended 2010 with cash and cash equivalents of $247 million, substantially higher than $90 million as of 2009 end.
Total debt and capital and finance leases at 2010 end increased to $7.2 billion, up 9% from 2009 end.
The company generated cash flow from operations of $959 million in 2010, higher than $848 million in 2009.
Looking Forward
CMS Energy projects adjusted earnings to be $1.44 per share in 2011, up 6% over the prior year and within its long-term earnings growth range of 5% to 7%.
The company also intends capital investment of more than $6 billionin its Consumers Energy operations over the next five years.
Peer Comparison
American Electric Power Company Inc. (AEP), which competes with CMS Energy, reported its fourth quarter ongoing earnings of 38 cents a share, marginally below the Zacks Consensus Estimate of 39 cents and way below the year-ago quarterly earnings of 50 cents. Fiscal 2010 ongoing earnings came in at $3.03 per share, easily beating the Zacks Consensus Estimate of $2.90. However, this came below fiscal 2009 earnings of $2.97 per share.
DTE Energy Co. (DTE), another of CMS Energy’s peers, reported its fourth-quarter 2010 operating earnings of 88 cents per share, surpassing the Zacks Consensus Estimate of 85 cents and 72 cents reported in the year-ago quarter.
DTE Energy’s 2010 operating earnings were $3.60 per share compared with $3.30 per share reported in 2009. The results of the company were a penny higher than the Zacks Consensus Estimate.
Another competitor of CMS Energy, Xcel Energy Inc. (XEL) reported its operating earnings for the fourth quarter 2010 of 29 cents per share, lagging year-ago results of 37 cents and the Zacks Consensus Estimate of 31 cents. Fiscal 2010 earnings were $1.62 per share, higher than $1.50 in 2009. The results, however, were behind the Zacks Consensus Estimate by 2 cents.
Our Take
CMS Energy, in an effort to strengthen its business, restructured the company and reduced its workforce by 5%, and at the same time signed new five-year union contracts addressing legacy pension and health care costs for the welfare of the workforce.
The company remains focused on returning value to its shareholders, hiking its dividend twice in 2010. The annualized dividend now totals 84 cents per share, an increase of 68% from 2009.
CMS Energy, striving to offer uninterrupted, low-cost electricity supply, signed a contract to upgrade the Ludington Pumped Storage Plant, in which the company has a 51% stake. CMS Energy will invest $400 million over the next ten years, thereby increasing the output by 300 megawatts to approximately 2,200 megawatts.
We maintain our “Neutral” rating on CMS Energy. The quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates upward pressure on the shares over the near term.
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