Before the bell, Ameren Corporation (AEE) reported its fourth quarter and fiscal 2010 results. In the reported quarter, the company with core earnings of 22 cents a share missed the Zacks Consensus Estimate of 23 cents by a penny.
The company’s results also came way below the year-ago quarterly earnings of 37 cents. Performance in the reported quarter was affected by lower realized power prices and higher fuel and related transportation costs.
On a reported basis, the company clocked earnings of 21 cents per share in the fourth quarter versus 34 cents in the year-ago period. The difference of a penny between the reported and core earnings per share in the reported quarter was due to the effect of the loss from net unrealized mark-to-market activity.
Fiscal 2010 core earnings came in at $2.75 per share, a penny short of the Zacks Consensus Estimate of $2.76. However, this came below fiscal 2009 earnings of $2.79 per share.
Ameren’s earning per share for fiscal 2010 on a reported basis came in at 58 cents versus $2.76 for fiscal 2009. The variance of $2.17 per share in fiscal 2010 between reported and core earnings came from Goodwill and other asset impairment charges ($2.19) and the impact of deferred tax for new federal healthcare laws (6 cents). This was partially offset by gain from net unrealized mark-to-market activity (8 cents).
Operational Performance
Net revenues in the quarter rose 1.3% from the year-ago quarter to $1.7 billion, along the way beating the Zacks Consensus Estimate of $1.6 billion. In the reported quarter Electricity revenue rose 4.1% to $1.4 billion. In the reported quarter volume sales of electricity to native load utility customers increased 1.2% year over year to 26.887 Gigawatt hour (GWh). However Gas revenue fell 9% to $325 million.
Fiscal 2010 revenue was $7.6 billion versus the Zacks Consensus Estimate of $7.5 billion. Full year revenue also outdid the $7.1 billion generated in fiscal 2009. In fiscal 2010 volume sales of electricity to native load utility customers increased 9% year over year to 111,887 GWh. Of this volume sales to industrial customers rose 16% while sales to residential and commercial customers rose 7%.
Fiscal 2010 Segment Performance
Ameren Missouri Segment: Segmental core earnings for 2010 were $367 million, compared to $241 million in 2009. The improvement in earnings was primarily due to an 8% increase in electricity sales volumes to native load customers.
The upside was due to favorable weather; the return to full capacity of the segment’s largest customer, an aluminum smelter plant, in March 2010; disciplined cost management; and a recovering economy. The impact of these positive factors was reduced by higher plant operations and maintenance expenses, primarily due to the spring refueling of the Callaway Nuclear Plant and increased scheduled outages at coal-fired plants.
Ameren Illinois Segment: Segmental core earnings for 2010 were $208 million, compared to $130 million in 2009. The increase in earnings was primarily due to a 9% increase in electricity volume sales. This was due to favorable weather, a recovering economy, higher delivery rates, and new transmission rates.
Merchant Generation Segment: Segmental earnings were $108 million, compared to $273 million in 2009. The decline in earnings was principally due to lower realized power prices, higher fuel and related transportation costs and rising depreciation expense. These were partially offset by aggressive cost control measures, which reduced non-fuel operations and maintenance expenses.
Financial Condition
Ameren reported cash and cash equivalents of $545 million at fiscal-end 2010, compared to cash and cash equivalents of $622 million at fiscal-end 2009. Long-term debt decreased slightly to $6.9 billion versus $7.1 billion at fiscal-end 2009. The company generated cash of approximately $1.8 billion from operating activities compared to approximately $2 billion generated in fiscal 2009.
Outlook
Ameren expects its fiscal 2011 earnings per share to be in the range of $2.20–$2.60. Of this, regulated utility earning is expected to be in the range $2.05–$2.30. Merchant Generation’s contribution is expected to be in the range of $0.15–$0.30.
Our bullish outlook for Ameren is supported by consistent performances across its solid base of stable utility operations in the Midwestern market, as well as its focus on cost minimization, the strong balance sheet, its above-industry average dividend yield and relatively cheap earnings-based valuation.
However, valuation continues to be restrained by merchant generation, its predominantly coal-based generation assets and pending regulatory cases. Ameren currently retains a short term Zacks #2 Rank (Buy rating) on the stock, along with a longer-term Neutral recommendation. The near-term opportunity for investors to accumulate the Ameren stock comes from its discounted valuation vis-à-vis forward earnings estimates versus peers like Pepco Holdings Inc. (POM) and CPFL Energia S.A. (CPL).
AMEREN CORP (AEE): Free Stock Analysis Report
CPFL ENERGI-ADR (CPL): Free Stock Analysis Report
PEPCO HLDGS (POM): Free Stock Analysis Report
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