Allegheny Energy (AYE) missed the Zacks Consensus EPS estimate of $0.44 by three cents in the second quarter of fiscal 2009. The company also fell short of the year-ago EPS by four cents due to lower industrial demand and output from coal-based units. Coal-based units utilized 14% lower capacity during the quarter compared to the prior-year period.
Headquartered in Greensburg, Pennsylvania, Allegheny Energy is engaged in both regulated electricity and natural gas distribution utility operations as well as in unregulated wholesale energy markets. The company operates through two business segments: the low margin Delivery & Services and the high margin Generation & Marketing.
The Delivery & Services unit consists of three regulated electric utilities, which operate electric transmission and distribution systems and a natural gas distribution system. This segment provides electricity to 1.6 million customers in Pennsylvania, Virginia, Maryland and West Virginia.
The Generation & Marketing division comprises unregulated power generation operations, which are conducted primarily through its subsidiary, Allegheny Energy Supply.
Quarterly revenue nosedived 15% year over year to $814.7 million due to dismal performance of its unregulated business covering the Generation & Marketing segment. However, this was partially offset by the regulated business comprising the Delivery and Services segment.
Delivery and Services top line rose 10.3%, boosted by higher generation rates in Pennsylvania and Maryland as well as increased recovery of purchased power costs in Virginia. On the other hand, Generation & Marketing segment top line shrunk 27.8% due to lower generation volumes, decreased power prices and higher O&M costs.
Following the industry trend, the company witnessed a steep fall in the retail sales in the industrial segment. Other utilities like American Electric Power Company Inc. (AEP), Constellation Energy Group (CEG) and Dominion Resources (D) also reported sharp drops in industrial volumes for the quarter.
Although the downtrend was across the board, Allegheny Energy’s industrial volume fell 17.6% year over year. This was due to lower usage per customer, which dipped by 18.5%. The trend percolated down the line and dragged down net income by 52.8% to $72.9 million. We maintain our Neutral recommendation on Allegheny Energy.
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