Public Service Enterprise Group Inc. (PEG) or PSEG, reported fourth quarter operating per share earnings of 60 cents, missing the Zacks Consensus Estimate of 62 cents and declining from the year-ago earnings of 66 cents.
On a reported basis, including one-time items, earnings came in at 56 cents in the reported quarter compared with 69 cents in the year-ago quarter.
Fiscal 2010 operating earnings came in at $3.12 per share, falling short of the Zacks Consensus Estimate of $3.17. However, this was above fiscal 2009 earnings of $3.09 per share.
PSEG’s earning per share for fiscal 2010 on a reported basis came in at $3.08 versus $3.14 in fiscal 2009.
Operational Performance
Revenue fell 2.4% to $2.7 billion in the reported quarter from approximately $2.8 billion in the year-ago period. The top line also fell short of the Zacks Consensus Estimate of $3.7 billion.
Operating income was $591 million compared to $670 million in the year-ago period. Overall net income for the reported quarter was $282 million compared to $349 million for the year-ago period.
Fiscal 2010 revenue was $11.8 billion, lower than the Zacks Consensus Estimate of $13.2 billion. Full year revenue also came short versus slightly more than $12 billion generated in fiscal 2009.
Operating earnings for fiscal 2010 were $1.6 billion, in line with fiscal 2009. Net income of $1.6 billion also came in line for the two fiscals.
Segmental Operational Performance
PSEG Power: PSEG Power reported operating earnings of $212 million for the fourth quarter of 2010 versus $260 million in the year-ago period. However, earnings in the reported quarter were affected by the absence of contribution from the Texas generating assets.
Earlier, in January 2011, the company entered into an agreement to sell two 1,000 megawatt gas-fired combined cycle generating units in two separate transactions. Segmental earnings in the reported quarter benefited from higher pricing in the wholesale market. This was, however, offset by lower generation volumes of 5.7% in the quarter.
PSE&G: PSE&G reported operating earnings of $83 million versus $68 million in the year-ago quarter. The upside came from higher electricity and gas rates, and a reduction in operating and maintenance expenses. Also, the implementation of a gas weather normalization clause limited the impact of weather-related gas sales on earnings.
PSEG Energy Holdings: PSEG Energy Holdings reported operating earnings of $5 million compared to operating earnings of $12 million for the fourth quarter of 2009. The decline in operating earnings reflects a reduction in gains recorded on lease terminations and lower project earnings, and impairment of an asset. This was partially offset by lower interest expense.
Financial Condition
Public Service reported $2.2 billion in cash from operating activities in fiscal 2010 versus $1.9 billion in fiscal 2009. Cash and cash equivalents at the end of the reported period were $280 million compared with $350 million at prior-year end. Total debt increased to slightly above $9 billion compared with $8.7 billion at fiscal-end 2009.
Outlook
Public Service expects its fiscal 2011 earnings per share in the range of $2.50–$2.75. Going forward, the company’s robust portfolio of regulated and non-regulated utility assets, offers a steady base earnings and significant long-term growth prospects.
The company remains focused on operational excellence, financial strength and disciplined investment. Also, the company’s earnings growth will be driven by a low cost nuclear fleet, assumed rate relief and added generating capacities.
However, the increasing cost of coal, higher pension and financial costs, and power-price volatility are areas of concern. In the near term, we see shares of the company performing in line with the broader market and thus reiterate short-term Zacks #3 Rank (Hold rating) on the stock, along with a longer-term Neutral recommendation.
In the near term, we would advise investors to accumulate its short-term Zacks #2 Rank (Buy rating) peers like Ameren Corporation (AEE) and GenOn Energy Inc. (GEN).
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