Diversified utilitycompany Northeast Utilities’ (NU) fourth quarter 2011 pro forma earnings of 74 cents per share beat the Zacks Consensus Estimate of 69 cents and were also higher than the year-ago quarter earnings of 69 cents per share.
The company also reported quarterly GAAP earnings of 64 cents, lower than the year-ago figure of 73 cents. The difference between quarterly GAAP and pro forma earnings was due to an after-tax charge associated with the storm fund reserve for the customers of Connecticut Light and Power Company (“CL&P”).
Northeast Utilities’ 2011 pro forma earnings were $2.38 per share compared with $2.16 per share in the previous year. Fiscal year 2011 pro forma earnings also surpassed the Zacks Consensus Estimate of $2.33.
Northeast Utilities’ fiscal 2011 GAAP earnings were $2.22 per share versus $2.19 in 2010. The variance between GAAP and pro forma earnings of fiscal 2011 was due to higher after-tax expenses associated with the NSTAR (NST) merger and after-tax charge related to the storm fund reserve to benefit the customers of CL&P.
Total Revenue
Northeast Utilities reported quarterly operating revenue of $1,068.0 million, down 11.3% from the year-ago quarter figure of $1,204.0 million. The quarterly revenue missed the Zacks Consensus Estimate of $1,333.0 million.
In 2011, the company reported operating revenue of $4,465.7 million, down 8.8% year over year from $4,898.2 million. The fiscal 2011 revenue lagged the Zacks Consensus Estimate of $4,974.0 million.
Electric Sales Volumes and Expenses
Northeast Utilities’ retail electric sales in the fourth quarter were down 4.5% from the comparable 2010 quarter to 7,895 Giga watt hours (“GWh”), due to milder weather in 2011 and the impact of outages as a result of the October snowstorm.
On a weather-adjusted basis, however, electric sales decreased 2.5% from the year-ago quarter. Yankee Gas’ natural gas sales decreased 8.5% to 12.7 billion cubic feet (“Bcf”). On a weather-adjusted basis, Yankee Gas sales showed an increase of 2.3% year over year.
Northeast Utilities’ operating income in fourth quarter 2011 totaled $184.9 million compared with $195.3 million in fourth quarter 2010.
On the cost side, Northeast Utilities’ results continued to be impressive given its continued cost control measures. Total operating expense dipped 12.4% year over year to $883.2 million in the quarter. Lower fuel and power cost coupled with lower amortization costs led to the decline, offset by a rise in depreciation, maintenance and other operating expenses.
Segment Earnings
Distribution & Generation: Earnings at the segment, comprising Electric and Gas Distribution earnings, totaled $65.2 million in the quarter, compared with $75.5 million in the fourth quarter of 2010.
The quarterly earnings dipped mainly due to lower earnings from the CL&P Company owing to storm-related charges, and higher health care, pension, operation, depreciation and tax expenses. These were partially offset by higher earnings generated from the Western Massachusetts Electric Company’s (“WMECO”) and Public Service Company of New Hampshire’s (“PSNH”) distribution and generation segments.
Yankee Gas Services Company reported earnings of $11 million in the fourth quarter of 2011, compared with $16.6 million in the fourth quarter of 2010 as a result of a decline in natural gas sales.
Transmission: The Transmission segment’s quarterly earnings of $71.2 million, increased 41% from $50.5 million earned in the prior-year quarter, reflecting a lower effective tax rate; partially offset by higher transmission costs related to infrastructure development.
NU Parent & Other Companies: The segment recorded net expenses of $5.2 million in the quarter compared with gains of $3.3 million in the prior-year quarter, including after-tax expenses associated with the NSTAR merger.
Financial Update
As of December 31, 2011, Northeast Utilities had cash and cash equivalents of $6.6 million compared with $23.4 million as of December 31, 2010.
Cash generated from operations for the twelve months ended December 31, 2011 was $970.4 million, lower than $1,093.5 million in the year-ago comparable period. Capital expenditure for the period increased to $1,076.7 million, up from $954.5 million spent in the comparable period last year.
Peer Comparison
Northeast Utilities’ closest peer NiSource Inc. (NI) posted net operating earnings of 32 cents per share in the fourth quarter of 2011, falling short of the Zacks Consensus Estimate of 35 cents and the year-ago quarter operating earnings of 33 cents per share.
Gross revenue during the quarter declined 13% year over year to $1,450.7 million from $1,667.6 million. The decline in revenue was mainly due to lower contribution from the Gas Distribution segment, which decreased 24.9%, offset by 4.1% growth in Electric Operations and 1.4% growth in the Gas Transportation and Storage segment. Reported quarter revenue missed the Zacks Consensus Estimate of $1,607 million.
Our View
We expect that Northeast Utilities will achieve good results from its continued cost – control efforts and increase in distribution rates. The company is also poised to benefit from combined operations with NSTAR, which should boost both its top and bottom lines.
We currently retain a Zacks #3 Rank on Northeast Utilities, which translates into a short-term Hold recommendation. Based in Hartford, Connecticut, Northeast Utilities engages in the energy delivery business for residential, commercial, and industrial customers.
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