Diversified energy company FirstEnergy Corp. (FE) announced its second-quarter 2011 operating earnings of 65 cents per share, falling short of the Zacks Consensus Estimate of 74 cents per share and year-ago earnings of 82 cents per share.
The 17 cent year-over-year decline mainly issued from headwinds like higher maintenance costs of the generation fleet, lower commodity margin from FirstEnergy Solutions due to unplanned outages and higher financing costs.
GAAP earnings during the quarter were 43 cents per share versus 87 cents per share reported in the second quarter of 2010. The difference between basic GAAP and operating earnings was due to the impact of the following one-time items – 1 cent for trust securities impairment, 3 cents from merger costs, 1 cent for regulatory charges, 1 cent related to non-core assets sales, 3 cents for mark – to-market adjustments, 8 cents for merger accounting and 5 cents for litigation costs.
Total Revenue
FirstEnergy generated total revenue of $4,060 million in the second quarter versus $3,139 million in the year-ago quarter, reflecting a growth of 29.3%. The year-over-year growth in revenue came on the back of higher Electricity Sales which clocked a growth of 25.6% from the year-ago quarter.
Revenues generated by the company exceeded the Zacks Consensus Estimate of $3,594 million.
Quarterly Highlights
FirstEnergy achieved a nuclear capacity factor of nearly 75.0% in the second quarter of 2011 versus 72.0% in the year-ago quarter.
Total expense during the quarter under review was $3.57 billion, up 36.8% from the year-ago quarter of $2.61 billion. The rise in expenses was attributable to an increase in fuel expenses, higher operating & maintenance expenses and more purchased power during the reported quarter.
Total expenses grew at a higher trajectory than revenue growth, thus impacting the operating income of the company. As a consequence, operating income suffered a 7.6% fall year over year to $486 million from $526 million in the second quarter 2010.
Interest expenses, at the end of the second quarter 2011, shot up 28.2% to $265 million from $207 million at the end of the prior-year period.
Financial Update
Cash and cash equivalents as of June 30, 2011 were $0.5 billion versus $1.01 billion as of December 31, 2010.
Cash flows provided by operating activities during the second quarter 2011 was $540 million versus $352 million in the second quarter of 2010.
Long-term debt and other long-term obligations as of June 30, 2011, were $16.5 billion versus $12.6 billion as of December 31, 2010. During the reported quarter the company issued new long-term debts worth $286 million.
Peer Comparison
Dominion Resources Inc. (D), which competes with FirstEnergy, announced its operating earnings for the second quarter 2011 of 59 cents per share, below the year-ago figure of 72 cents but in line with the Zacks Consensus Estimate.
Dominion reported revenues of $3.34 billion in the quarter under review, down 8% year over year and also lagged the Zacks Consensus Estimate of $3.39 billion.
Guidance
FirstEnergy narrowed its earnings expectation for 2011 to a band of $3.30 to $3.50 per share from the prior range of $3.20 to $3.50 per share.
As per the revised guidance, FirstEnergy’s earnings from the second half of 2011 are expected to be in the range of $1.94 to $2.14 per share. The company expects to earn 60% of it in the third quarter and 40% in the final quarter of the year.
Our View
The company seems to be on track to realize synergies from its merger with Allegheny Energy, achieving savings of $132 million or 63% till June 2011, of the targeted annual savings of $210 million.
FirstEnergy currently retains a Zacks #3 Rank (short-term Hold rating).
Based in Akron, Ohio, FirstEnergy involves in the generation, transmission, and distribution of electricity, and is also engaged in energy management and other energy-related services.
