Diversified energy utility, DPL Inc. (DPL) reported fourth quarter 2010 earnings per share of 62 cents, beating the Zacks Consensus Estimate of 53 cents. The results of the company were higher than 43 cents reported in the year-ago quarter.
For full-year 2010, DPL’s earnings came in at $2.50 per share, above the Zacks Consensus estimate of $2.43 and the year-ago earnings of $2.01.
The year-over-year increase was driven by favorable weather, which boosted company retail sales. Stabilizing economic conditions also augured well for DPL. The higher cost of inputs and operating and maintenance expenses had a marginal impact on earnings.
Total revenue of DPL for the fourth quarter was $469.5 million versus $405.4 million in the year-ago period, reflecting a growth of 15.8%. Quarterly revenues also outperformed the Zacks Consensus of $247 million.
Full-year revenues reached $1.9 billion, a growth of 19% from $1.6 billion in 2009 and up 11.8% (positive surprise) from the Zacks Consensus estimate of $1.7 billion. The growth in revenue was driven by higher average retail and wholesale rates, higher retail sales volume, and increased RTO capacity and other revenues, partially offset by lower wholesale sales volume.
Electricity volume sales rose 7.3% to 4.1 billion kWh from 4.4 billion kWh in the year-ago quarter, driven by improvements in the Retail sector, where electric sales improved 4%. The electricity volumes were somewhat hampered by lower Wholesale sector sales, which declined 39%.
Full-year electric sales volumes increased 3.4% year over year to 17.2 billion kWh, driven by a 6% rise in Retail electric sales offset by a 9.6% decline in Wholesale electric sales.
Margins and Costs
Fuel costs in the quarter declined 2% year over year to $86.8 million, while purchased power costs rose 45% to $104.7 million.
Fuel and Purchased Power costs increased 16% and 49%, respectively, for 2010 compared to 2009. The increase in fuel costs was primarily due to lower gains realized from coal and emission allowance sales and an increase in average fuel prices.
Purchased power costs rose mainly due to higher RTO capacity and charges, along with an increase in average market prices, partially offset by lower purchased power volume.
Gross profit in the quarter increased 13.7% to $278.0 million compared with $244.5 million in the year-ago quarter. Full-year gross profits summed $1.1 billion compared with $998.3 million in 2009.
Total operating expenses in the quarter were $153.5 million, up 8.3% year over year, on account of rising operation and maintenance expense and general taxes offset by lower depreciation and amortization expenses. Total operating expense for the full-year also showed a 6.5% rise, driven by the same factors as in the fourth quarter.
Interest charges during the quarter decreased by $4.7 million to $17.6 million from $22.3 million in the year-ago quarter. Interest expense decreased 15% to $70.6 million in 2010 compared to 2009, primarily resulting from interest savings related to the redemption of $227 million of debt in 2009.
Financial Position
DPL’s cash and cash equivalents totaled $124.0 million as of December 31, 2010, compared with $74.9 million as of December 31, 2009, the increase being primarily attributed to $464.2 million of cash generated from operating activities.
However, the increase was partially offset by $152.7 million of capital expenditures, $139.7 million of dividends paid on common stock, net purchases of $69.3 million of short-term investments and $56.4 million of common stock repurchases.
Construction expenditures were $152.7 million in 2010 compared to $172.3 million in 2009.
Dividend and Share Repurchase
On October 27, 2010, the board of directors of DPL approved a new share repurchase plan to acquire up to $200 million of DPL common stock. The repurchase is scheduled to continue until December 31, 2013. However, the company retains the right to modify or terminate the plan without prior notice.
Through December 31, 2010, DPL repurchased 2.04 million shares of common stock under this plan at an average price of $25.75. The company also increased its quarterly dividend by 10% in 2010.
Guidance
DPL maintained its fiscal 2011 earnings guidance of $2.30 – $2.55 per share.
For the period 2011 through 2013, DPL is projecting an expenditure of $770 million on capital projects.
Our View
We appreciate the move of the company to enhance shareholder value through dividend payments and share repurchases. The company has performed well in the four quarters of 2010 and we expect this momentum to continue in 2011.
One of DPL’s peers Duke Energy Corporation (DUK) also reported its fourth quarter and full-year 2010 earnings on February 17, 2011. The company’s quarterly earnings were marginally shy of the Zacks estimate, while earnings for the full-year matched estimates. The company’s sales, however, comfortably topped the Zacks Consensus estimates for both the periods.
We maintain our log-term Neutral rating on the stock. DPL currently retains a Zacks #4 Rank (short-term Sell rating).
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