North Carolina-based power utility company Progress Energy Inc. (PGN) reported third-quarter 2011 operating earnings of $1.16 per share, falling short of the Zacks Consensus Estimate of $1.24 and year-ago earnings of $1.23.
The bottom-line miss in the quarter emanated mainly from less favorable weather than in 2010 and disallowance of replacement-power costs in the Carolinas, offset in part by lower O&M, lower amortization expense in Florida and lower interest costs.
In the third quarter, both Progress Energy Carolinas and Progress Energy Florida contributed 68 cents each to operating earnings per share. After-tax expenses from Corporate and Other Business were 20 cents in the reported quarter.
Total Revenue
Progress Energy’s total revenue of $2,747 million lagged the Zacks Consensus Estimate of $3,130 million and the year-ago revenues of $2,962 million. The decline in total revenue was driven by a 5.8% decline in revenues from Progress Energy Carolinas and an 8.4% decline in Progress Energy Florida’s revenues.
Operating Highlights
Total electricity sales in the third quarter totaled 28.0 billion kilowatt hours (KWh), down 2.6% from 28.8 billion KWh in the year-ago quarter. Progress Energy Carolinas’ electricity sales totaled 16.0 billion KWh, down 2.0% year over year, while Progress Energy Florida sold 12.0 billion KWh, down 3.4% year over year.
Total energy supply in the reported quarter was 29.6 billion KWh, down 0.8 billion KWh from 30.4 billion KWh last year, with Progress Energy Carolinas contributing 16.6 billion KWh (56% of total supply) and Progress Energy Florida the remaining 12.9 billion KWh (44% of total supply).
Operating expenses during the third quarter improved 6.9% year over year to $2.1 billion. This was driven by a 9.7% decline in the cost of fuel used for electric generation, a 16.5% decline in cost of power purchased, and a 12.9% decline in depreciation, amortization and accretion expense, offset partially by a 2.7% rise in operation and maintenance expense.
Despite the outstanding cost performance, operating income during the quarter decreased 8.4% year over year to $690 million on account of poor electric sales recorded in the quarter.
Financial Update
Cash and cash equivalents as of September 30, 2011, were $103 million compared with $611 million as of December 31, 2010. Net long-term debt of the company as of September 30, 2011 was $11.717 billion down marginally from $11.864 billion as of December 31, 2010.
Outlook
Progress Energy reiterated its operating earnings per share guidance of $3.00 to $3.20 per share for 2011. The earnings guidance excludes the impact, if any, from discontinued operations, the effects of certain identified gains and charges and any merger and integration costs from the company’s proposed strategic combination with Duke Energy Corporation (DUK).
Progress Energy said it sees modest growth and signs of recovery in the Carolinas and Florida. Going forward, the company remains focused on operational excellence, cost discipline and managing the business effectively as it speeds up approvals and integration planning associated with its pending merger with Duke Energy.
Our View
Progress Energy is one of the nation’s larger pure-play electricity utilities with a solid opportunity for rate-base growth in the long-term. Progress Energy currently has a Zacks #3 Rank (short term Hold rating). This supports our Neutral recommendation on the stock.
