CenterPoint Energy Inc. (CNP) in the first quarter of 2011 posted adjusted earnings of 34 cents per share, in line with the Zacks Consensus Estimate and 2 cents higher than the year-ago quarterly earnings of 32 cents.
On a reported basis the company clocked earnings of 35 cents per share versus 29 cents in the year-ago quarter. In the reported quarter the variance of a penny between reported and adjusted earnings per share came from the gain of a nickel on marketable securities, which was partially offset by loss of 4 cents from indexed debt securities.
Operational Results
CenterPoint Energy’s total revenue for the reported quarter slid 14.4% to $2.6 billion year over year. Revenues scored were behind the Zacks Consensus Estimate of $2.7 billion.
Operating income however rose 2% to $364 million versus $357 million in the year-ago quarter. Overall, net income was $148 million in the reported quarter versus $114 million in the year-ago quarter.
Segment Results
Electric Transmission & Distribution
The electric transmission & distribution segment reported operating income of $101 million for the first quarter of 2011. Of this, $68 million came from the regulated electric transmission & distribution utility operations (TDU) and $33 million related to securitization bonds.
Operating income was $107 million, consisting of $71 million from the TDU and $36 million related to securitization bonds. Operating income form the TDU got boosted by higher quantum of metered customers. This was however more than offset by higher operation and maintenance expenses primarily associated with system reliability programs.
Natural Gas Distribution
The natural gas distribution segment reported operating income of $142 million for the first quarter of 2011 compared to $139 million year over year. The increase in operating income resulted primarily from lower bad debt expense. This was partially offset by increases in other operating expenses.
The quarter under dissection witnessed reduced throughput owing to a milder weather. This was however mitigated by weather hedges, weather normalization adjustment mechanisms and increased throughput to large volume customers.
Interstate Pipelines
The Interstate Pipelines segment reported operating income of $76 million for the first quarter of 2011 compared to $72 million year over year. Operating income rose due to higher revenues, which were boosted by firm contracts, new power plant transportation contracts and lower operation and maintenance expenses. This was however partially offset by reduced revenues from ancillary services.
Field Services
The Field services segment reported operating income of $36 million in the reported quarter compared to $23 million in the year-ago quarter. Revenue growth from higher gathering volumes was partially offset by increased operation and maintenance expenses based on facility expansions.
Competitive Natural Gas Sales and Services
The Competitive Natural Gas Sales and Services segment reported operating income of $10 million for the first quarter of 2011 compared to $15 million in the year-ago quarter.
Operating income included charges of $2 million resulting from mark-to-market accounting for derivatives associated with certain forward natural gas purchases and sales used to lock in economic margins, compared to gains of $3 million in the year-ago quarter.
Financial Condition
CenterPoint Energy reported cash and cash equivalents of $95 million at the end of the reported quarter from $199 million at the end of the fiscal 2010. In the reported quarter the company generated $627 million in cash from operating activities, compared to $435 million at the end of the reported quarter. Long-term debt decreased to $8.7 billion from $9 billion at fiscal-end 2010.
Outlook
CenterPoint Energy reaffirmed its earnings guidance for fiscal 2011 in the range of $1.04–$1.14 per share.
CenterPoint Energy with its balanced portfolio of electric and natural gas businesses, provides a diversified risk profile, along with stable earnings and cash flow. Going forward, our bullish outlook for the company is supported by stable regulated operations, higher rates, ongoing infrastructure development projects, a strong balance sheet and a high dividend yield.
However, this is partially offset by pending regulatory cases, tepid economy, lower demand for electricity, falling wholesale natural gas prices and a significant presence in a hurricane prone section of the U.S.
We continue to retain our long-term Neutral stance on CenterPoint Energy in the absence of any positive triggers. In the near-term however we assign a Zacks #4 Rank (short-term ‘Sell’ recommendation) to the stock, in line with peers like Dominion Resources Inc. (D) and Xcel Energy Inc. (XEL).
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