Allegheny Energy Inc. (AYE) reported adjusted earnings of 62 cents per share in fourth-quarter 2010, beating the Zacks Consensus Estimate of 45 cents by 17 cents. Results however fell short of the fourth-quarter 2009 adjusted earnings of 66 cents per share. On a reported basis, the company clocked earnings of 52 cents per share versus 64 cents in the year-ago quarter.
Fiscal 2010 adjusted earnings came in at $2.53 per share, easily beating the Zacks Consensus Estimate of $2.36 and fiscal 2009 earnings of $2.33 per share. On a reported basis, fiscal 2010 earnings came in at $2.42 versus $2.31 in fiscal 2009.
Operational Performance
Quarterly revenue at Allegheny Energy rose to $864.6 million from $861.1 million in the year-ago period. However, revenues came below the Zacks Consensus Estimate of $1.1 billion for the quarter. Fiscal 2010 revenue was $3.9 billion versus the Zacks Consensus Estimate of $4.1 billion. Full year revenue however outdid the $3.4 billion generated a year ago.
Segment Update
Regulated Operations: Quarterly segment revenue increased to $806 million versus $741.5 million year over year. Adjusted net income of $81.7 million was a substantial increase year over year versus $34.8 million.
Merchant Generation: Segment revenue in the quarter was $353.5 million versus $420.6 million in the year-ago quarter. Adjusted net income of $24.0 million was a substantial decrease versus $77.7 million year over year.
Financial Update
Allegheny Energy as of fiscal-end 2010 and 2009 had cash and cash equivalents of $503.7 million and $286.6 million, respectively. The company reported $816 million in cash from operating activities, compared to $799.6 million at the end of the year-ago period. Long-term debt increased to $4.7 billion from $4.4 billion at fiscal-end 2009.
Outlook
Allegheny Energy simultaneously with its earnings release announced that its ongoing merger proceedings (Initiated on February 10, 2010) with FirstEnergy Corporation (FE) have received the necessary approvals from the Virginia State Corporation Commission, the Public Service Commission of West Virginia and the Maryland Public Service Commission.
Allegheny Energy also has a comprehensive settlement with the majority of the parties related to the merger application pending before the Pennsylvania Public Utility Commission.
The merger has received approval from the Federal Energy Regulatory Commission and has smoothly sailed through the U.S. Department of Justice review process. Shareholders of both FirstEnergy and Allegheny Energy overwhelmingly approved proposals related to the merger. Allegheny Energy expects to complete the merger in the first quarter of 2011.
Allegheny Energy’s imminent merger with FirstEnergy is expected to be a strategic fit and earnings accretive to the combined entity. Post-merger FirstEnergy will have ten regulated electric distribution companies providing electricity services to more than 6 million customers in 7 states (Pennsylvania, Ohio, Maryland, New Jersey, New York, Virginia and West Virginia).
We maintain our “Neutral” recommendation on Allegheny Energy over the long term. The quantitative Zacks #2 Rank (short-term Hold rating) for the company indicates clear upward directional pressure on the shares over the near term.
ALLEGHENY ENGY (AYE): Free Stock Analysis Report
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