Integrys Energy Group (TEG) reported fourth quarter 2010 adjusted earnings of 82 cents per share, exceeding the Zacks Consensus Estimate of 78 cents and the year-ago earnings of 51 cents. Adjusted earnings were $64.2 million compared with $39.5 million in the prior-year quarter, implying a growth of 62.5%.
Integrys also had a very successful 2010 with adjusted earnings coming in at $3.13 per share, up 17.7% from $2.66 earned in 2009 and ahead of the Zacks Consensus Estimate of $3.09. Full year adjusted net earnings improved 19.5% to $243.8 million compared with $204.0 million in 2009.
Operating Results
Total revenue for Integrys Energy in the quarter was $1.29 billion, down 17.8% from $1.57 billion in the prior-year quarter and below the Zacks Consensus Estimate of $1.59 billion. Decline in Non-regulated revenues led to the shortfall, accompanied by a slight decline in Utility revenues.
Revenue for the full year at Integrys dipped 30.7% to $5.20 billion from $7.50 billion in 2009. Revenue for the year was also short of the Zacks Consensus Estimate of $6.39 billion.
Total cost of fuel, natural gas and purchased power in the quarter was $787.7 million, down 27% year over year. Costs for the year dipped 41% from full-year 2009 levels to $3.31 billion.
Integrys Energy reported operating income of $133.3 million in the fourth quarter compared with $66.3 million in the year-ago period. Full-year 2010 operating income was $428.1 million, up $338.9 million from 2009.
Interest expense in the quarter declined 9.2% to $36.7 million, while it declined 10.3% to $147.9 million for the full-year 2010.
Segment Results
Adjusted earnings at the Regulated Electric utility segment in the reported quarter increased to $11.0 million from $5.8 million in the prior-year quarter. The improvement was mainly driven by an increase in margins on account of pick-up in retail electric rates at both regulated electric utilities and lower fuel and purchased power costs at Wisconsin Public Service Corporation during the fourth quarter of 2010.
Fourth quarter earnings at the Regulated Natural Gas Utility segment increased 38.5% to $40.3 million from $29.1 million a year-ago quarter, due to rate increases at some of the natural gas utilities, partially offset by higher operating expenses.
Earnings at the Electric Transmission Investment segment were $11.6 million, down $0.5 million from $12.1 million in the prior-year period.
Adjusted earnings at Integrys Energy Services were $6.9 million, an improvement of $4.2 million, mainly owing to higher realized margins in the retail electric markets where Integrys Energy Services still continue to operate based on its revised strategy.
Adjusted loss related to the Holding Company and Other segment was $5.6 million, an improvement from a loss of $10.2 million in the prior-year period, largely driven by intercompany income from fees, including asset usage fees and credit agreement fees, charged as per intercompany agreements related to services provided to the regulated natural gas, regulated electric and Integrys Energy Services segments.
Financial Update
Cash and cash equivalents of Integrys Energy as of December 31, 2010, were $179.0 million, four times more than $44.5 million as on December 31, 2009. Long-term debt at year-end was $2.16 billion, down 9.6% from $2.39 billion at the end of fiscal 2009.
Net cash generated from operating activities as of December 31, 2010, was $725.2 million, down from $1.6 billion in the corresponding period of last year. Capital expenditure for 2010 totaled $258.8 million compared with $444.2 million in 2009.
Guidance
Management expects adjusted earnings in the range of $3.24 – $3.57 per share and GAAP earnings in a range of $3.28 – $3.61 per share for 2011.
Management expects long-term earnings per share to grow at a rate of 4% to 6% on an average annualized basis between 2011 and 2015.
Our View
We believe Integrys’ long-term earnings target holds good for the company based on the solid performance in the fourth quarter. Overall, the company continues to progress well on its operational and restructuring strategies.
We maintain our long term ‘Neutral’ recommendation on Integrys shares. However, the company has a short term Zacks #4 Rank (Sell), in contrast to one of its peers Wisconsin Energy Corp. (WEC) who has a short term Zacks #3 Rank (Hold).
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