Energy utility TECO Energy Inc. (TE) announced its fourth-quarter 2010 operating earnings of 23 cents per share ($48.9 million), which missed the Zacks Consensus Estimate of 24 cents. The results of the company were also lower than 25 cents ($53.9 million) reported in the year-ago quarter.
GAAP earnings in the quarter were 26 cents per share versus 25 cents per share in the fourth quarter of 2009. The difference between the GAAP and operating earnings during the quarter was due to a $21 million net gain from the sale of the ownership interest in DECA II in Guatemala, and a $13.2 million charge related to the early retirement of TECO Energy debt.
Teco Energy’s operating earnings of 2010 were $1.28 per share ($275.5 million) compared with $1.08 per share ($230 million) reported in 2009. The results fell short of the Zacks Consensus Estimate, provided by 15 covering analysts, by 3 cents.
GAAP net income for the year was $1.11 per share versus $1.00 per share recorded in 2009. The difference between GAAP and operating earnings in 2010 was due to the impact of $36.5 million of net charges and gains in the year, excluded in GAAP earnings.
Total Revenue
Total revenue at TECO Energy at the end of the fourth quarter was $775.0 million versus $765.0 million in the year-ago period, reflecting a growth of 1.3%. The year-over-year revenue hike was particularly due to a higher contribution from its unregulated business that more than countered the 3.2% shortfall in its regulated operations.
Reported quarter revenue however missed the Zacks Consensus Estimate of $785 million.
Teco Energy’s total revenue for 2010 was $3,487.9 million versus $3,310.5 million reported in the prior fiscal year, reflecting a growth of 5.3%. The regulated business grew a tad 0.9%, but the major driver of revenues last fiscal was a sharp 23.3% growth in the unregulated business.
Fiscal year 2010 revenue also disappointed the Zacks expectation of $3,537 million.
Quarterly Highlights
TECO Energy experienced a marginal increase in mining related cost during the quarter, amounting to $107.6 million versus $106.1 million in the year-ago quarter.
The company also saw a slight year-over-year increase in total expenses during the quarter. However, as a percentage of total revenue, total expenses during the fourth quarter 2010 decreased by 95 basis points over the prior year.
The positive impact of the relative decline in total expenses was reflected in the year-over-year growth in income from operations. Operating income during the reported quarter upped 7.4% to $128.3 million from $119.4 million in the fourth quarter of 2009.
Interest charges during the quarter decreased marginally to $56.4 million from $57.0 million in the year-ago quarter owing to slightly lower long-term debt.
Annual Highlights
The company experienced a 2.3% growth in the sale of electricity compared with 2009 levels, mainly due to increase in sales in Residential and Industrial–Phosphate segments. The company’s average customers rose by 0.6% from the prior year.
The company’s gas sales inched up 0.2% over the prior year, boosted by increased sales in the Residential segment. The company also experienced a 0.2% growth in average customers from 2009 levels.
The cost of fuel, purchased power and cost of natural gas sold during the year was $1,213 million versus $1,330.2 million in fiscal 2009, reflecting an improvement of 8.0%.
Increased 2010 sales complimented with a reduction in input costs more than offset the 0.38% growth in total expenses. These positive factors ensured a growth of 19.8% in net income from 2009 levels.
Financial Update
TECO Energy continues to maintain a strong cash balance. Cash and cash equivalents of the company as of December 31, 2010, were $67.5 million versus $46.0 million as of December 31, 2009.
Capital expenditure of the company during the year was $489.7 million, reflecting a reduction of $150.1 million from the 2009 expenditure of $639.8 million.
Long-term debt of the company as of December 31, 2010, was $3.14 billion versus $3.2 billion as of December 31, 2009.
Dividend
On February 2, 2010, the board of directors of TECO Energy declared a quarterly dividend of 20.5 cents per share. The dividend is payable on February 28, 2011, to shareholders of record as of February 14, 2011.
Guidance
TECO Energy expects earnings per share for 2011 to range between $1.25 and $1.40.
TECO Coal has contracted more than 90% of its expected 2011 sales of 8.5–9.0 million tons, resulting in an average contracted selling price across all products of $87 per ton. The cost of production per ton of coal is expected between $74 and $78 during 2011.
At the Peer
NextEra Energy Inc. (NEE), which competes with Teco Energy, announced its operating earnings for the fourth quarter 2010 of 80 cents per share versus 79 cents per share in the year-ago quarter. NextEra also let down market optimism, booking earnings below the Zacks Consensus of 87 cents per share.
The 2010 operating earnings of the company were $4.30 per share compared with $4.05 per share reported in 2009. The results of the company lagged the Zacks Consensus Estimate by 4 cents.
Our View
We believe the increase in customer base resulted in higher sales during the year. However, it will be interesting to see whether the company can steadily add customers in 2011 as well.
Teco Energy currently retains a Zacks #3 Rank (short-term Hold rating). We provide a long-term Neutral rating on the stock.
Based in Tampa, Florida, TECO Energy is involved in the generation, purchase, transmission, distribution, and sale of electric energy in Florida.
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