Energy utility Wisconsin Energy Corporation (WEC) reported operating earnings for the third quarter, 2010, of 95 cents per share versus 49 cents per share in the year-ago quarter, reflecting a growth of 93.9%. The results of the company were 9 cents higher than the Zacks Consensus Estimate of 86 cents per share.

The year-over-year earnings growth was driven by warm weather in the area where Wisconsin Energy operates and some additional income from the company’s Power the Future plan.

GAAP earnings of Wisconsin Energy for the third quarter of 2010 were 95 cents per share versus 50 cents recorded in the year-ago period.

Total Revenue

Wisconsin Energy’s total revenue in third-quarter 2010 was $973.2 million, compared with $815.5 million in the year-ago period, reflecting a growth of 19.3%. The year-over-year growth in revenue was driven by higher usage of air conditioner due to warm summer temperatures and high humidity.

The third-quarter revenue of the company was higher than the Zacks Consensus Estimate of $961 million.

Operational Update

During third-quarter 2010, the company experienced a growth in the customer base and a rise in demand for electricity across all customer groups it serves.

At the end of third-quarter 2010, the company catered to 3,600 more electric customers and 5,700 more natural gas customers over the prior period.

In the quarter under review, usage of power from residential users, large commercial & industrial consumers and small commercial & industrial users increased by 26.4%,11.0% and 6.0%, respectively, over the prior-year period.

Total operating expenses of Wisconsin Energy increased by 7.3% during the third quarter, 2010, to $825.4 million from $769.0 million in the year-ago quarter. The year-over-year increase was mainly due to higher costs of fuel and purchased power, which increased 267 basis points year over year.

However, following the preceding quarter trend, operating expenses, as a percentage of total revenue, declined by 948 basis points year over year, which benefited the operating results of the company. Operating income during the third quarter was $203.0 million versus $104.4 million in the third quarter of 2009, reflecting a growth of 94.4%.
 
Net interest expenses rose 36.7% in third-quarter 2010 to $52.5 million from $38.4 million in the prior-year period. The growth in expenses stemmed from an increase in debt levels over the past year.

Financial Update

Cash on hand at the end of third-quarter 2010 was $11.2 million, up $0.5 million from the year-ago period.

Cash from operating activities for the first nine months of 2010 was $653.7 million versus $433.7 million in the comparable period in 2009.

Capital expenditure during the quarter was $166.5 million, which reflected a decline of $21.5 million from $188 million in the year-ago period.

Long-term debt of Wisconsin Energy at the end of third-quarter 2010 reached $3.9 billion, up 8.4% from $3.6 billion a year ago.

Dividend

On October 14, 2010, the board of directors of Wisconsin Energy announced a quarterly dividend of 40 cents per share. The dividend will be payable on December 1, 2010, to shareholders of record at the close of business on November 12, 2010.

Guidance

Wisconsin Energy revised its earnings guidance for 2010 to a range of $3.75–$3.80 per share, up from the prior expected range of $3.70 –$3.75 per share.

Our Take

The hot and humid summer months helped spur earnings to some extent, but Wisconsin Energy is consistently showing strong performance across all customer segments for the last six months. The upward revision of earnings expectation also reflects management’s confidence in its operations.

Wisconsin Energy currently retains a Zacks #2 Rank (short-term Buy rating). We maintain a long-term Neutral rating on the stock.

Based in Milwaukee, Wisconsin, Wisconsin Energy, through its subsidiaries, generates and distributes electricity in the Southeastern, East Central, and Northern Wisconsin, as well as in the Upper Peninsula of Michigan. The company also distributes natural gas.

 
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