Before the bell, Entergy Corporation (ETR) reported its second quarter 2011 operating EPS of $1.76, which is in line with the Zacks Consensus Estimate. Earnings however, comfortably beat the year-ago quarterly EPS of $1.71.
Operating earnings per share in the reported quarter were higher than the year-ago period by 5 cents. Of these Utility EPS was 21 cents higher due primarily to higher sales volume, higher rates (at Arkansas, Texas and New Orleans), and lower interest expense.
Earnings nosedived at Entergy Wholesale Commodities by 27 cents primarily due to lower net revenue stemming from decreased pricing. Lastly, Parent & Other segment clocked earnings of a penny resulting in a year-over-year difference of 11 cents. The upside came from lower income tax expense.
On a reported basis, including one-time items, earnings came in at $1.76 for the reported quarter compared to $1.65 in the year-ago quarter.
Operational Results
Revenue in the reported quarter fell 2.1% year-over-year to $2.8 billion, also falling short of the Zacks Consensus Estimate of $2.9 billion. Of this Electricity revenue was down 0.1%, Natural Gas was down 7.2% while Competitive Businesses were down 9.0%.
On an operational basis earnings were $315.6 million compared with $325.7 million in the year-ago quarter, while on a reported basis Entergy’s earnings came in at $315.6 million compared with $315.3 million in the year-ago quarter.
Segmental Results
Utility
Utility’s quarterly earnings both on reported and operational bases were $248.4 million compared to $225.8 million in the year-ago quarter. Higher earnings stemmed from higher net revenue due to increased sales volume, effect of higher rates (at Arkansas, Texas and New Orleans), and lower interest expense resulting from refinancing of long-term debt at lower interest rates.
In the reported quarter, residential sales, on a weather-adjusted basis, decreased 0.5% year-over-year. Commercial and governmental sales, on a weather-adjusted basis, increased 0.3% while industrial sales increased 2.8%.
In the reported quarter retail sales grew 1.1% year over year on a weather-adjusted basis. Results were however, mixed across its service areas. Entergy Texas produced the strongest sales growth, including a 15.1% increase in industrial sales. Entergy Arkansas sales were down slightly due to lower industrial sales.
Overall residential sales increased 3.7% as compared to the second quarter of 2010, but were slightly below last year on a weather-adjusted basis, reflecting an increase in the number of customers but a decrease in the usage per customer. Industrial sales growth, however, was affected due to paper, wood segments and small industrials.
Entergy Wholesale Commodities
Entergy Wholesale Commodities’ earnings were $64.9 million both on reported and operational bases, compared to as-reported earnings of $103.9 million and operational earnings of $118.3 million in the year-ago quarter.
Entergy Wholesale Commodities’ operational earnings declined largely as a result of lower net revenue with decreased pricing. A higher effective income tax rate resulting from changes in Michigan tax law in May 2011 also contributed to the Entergy Wholesale Commodities’ earnings decline.
Parent & Other
Parent & Other clocked as-reported and operational earnings of $2.3 million compared to a loss of $14.4 million on an as-reported basis and a loss of $18.5 million on an operational basis in the second quarter of 2010. The upside came from lower income tax expense. Income tax expense was lower due to the reversal of a tax reserve.
Financial Condition
Entergy in the reported quarter generated $654.1 million from operating activities compared to $793.6 million in the year-ago quarter. Cash and cash equivalents at the end of the reported period were $529.9 million versus $1.3 billion at fiscal-end 2010. Long-term debt increased to $12.1 billion compared to slightly above $11.3 billion at fiscal-end 2010.
Guidance
Entergy affirmed its fiscal 2011 earnings guidance in the range of $6.35−$6.85 per share on both as-reported and operational bases.
New Orleans-based Entergy Corp. is primarily engaged in electric power production and retail distribution of power. With 30,000MW of generating capacity, it distributes electricity to 2.7 million customers in Arkansas, Louisiana, Mississippi and Texas.
In the near-term, however, we retain our long-term Neutral stance on Entergy in the absence of any positive triggers, which is supported by a Zacks #3 Rank (short-term Hold recommendation) for the stock. The near-term cautious stance is also shared by its peers like The AES Corporation (AES) and Ameren Corporation (AEE).
