Ameren Corporation (AEE) released second quarter earnings of 73 cents, sweeping past the Zacks Consensus estimate of 50 on strong electricity sales and disciplined cost management. Earnings, however, were 2 cents short of the year-ago quarterly earnings of 75 cents.
Operational Performance
Net revenues in the quarter rose 1.2% from the year-ago quarter to $1.7 billion, with both Electric revenues and Gas revenues also jumping up 1.2% to $1.53 billion and $171 million, respectively. Quarterly revenues were, however, short of the Zacks Consensus Estimate of $1.9 billion.
Sales of electricity to native load utility customers increased 9% year over year in the reported quarter, driven by a recovering economy, the return to full capacity (in March 2010) of a large customer’s aluminum smelter plant and warmer summer weather.
Kilowatt-hour sales to industrial customers rose 26% and 17% excluding sales to the smelter plant. Sales to residential customers rose 4%, and sales to commercial customers rose 1%. Merchant generation revenues and margins in the quarter declined versus the last year, as a result of lower realized power prices and higher fuel and related transportation costs.
Overall, operating expense based on revenue grew by 81 basis points. However, the company displayed efficient cost management across all business segments, resulting in a decline in operations and maintenance expenses. This decline was achieved despite a scheduled refueling and maintenance outage at the Callaway Nuclear Plant. In addition, financing costs declined reflecting increased regulatory recovery of such costs.
These positive cost factors were offset by higher depreciation and amortization expenses due to higher infrastructure investment and an increase in the average number of common shares outstanding.
Missouri Regulated Segment
Segmental core earnings in the second quarter of 2010 were $114 million compared to $80 million in the second quarter of 2009. This was due to a 9% increase in electricity sales to native load customers as a result of warmer summer weather, a recovering economy and the return to full capacity of the segment’s largest customer, the Noranda Aluminum smelter plant. Additionally, the company benefitted from lower financing costs and reduced non-plant operations and maintenance expenses.
Illinois Regulated Segment
Segmental earnings in the quarter were $46 million compared to $17 million in the year-ago quarter. This was due to a 9% increase in electricity sales as a result of a recovering economy and warmer summer weather. Earnings also benefited from significantly lower storm-related costs, aggressive cost management and increased electric delivery rates.
Merchant Generation Segment
Segmental earnings were $17 million, a decline from $73 million in the same quarter of the previous year. This decline was largely due to lower realized power prices and higher fuel and related transportation costs, as well as higher financing and depreciation expense.
Financial Condition
Ameren reported cash and cash equivalents of $506 million, compared to cash and cash equivalents of $622 million as of December 31, 2010. Long-term debt remained at $7.0 billion. The company generated cash of approximately $772 million from operating activities compared to $871 million in the same period of fiscal 2009.
Outlook
Ameren raised its fiscal 2010 EPS guidance to a $2.50 to $2.80 per share range from the previous guidance of $2.20 to $2.60 per share, reflects solid year-to-date results and continued disciplined cost management. We are bullish on the stock based on its consistently solid performance. Going forward, the growth momentum will be maintained by higher rates, a strong balance sheet and a relatively cheap earnings-based valuation.
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