Electricity and natural gas company Xcel Energy Inc.‘s (XEL) operating earnings for the first quarter of 2012 of 41 cents per share was down 4 cents from the year-ago quarter. It modestly surpassed the Zacks Consensus Estimate by 4 cents.
Earnings during the quarter declined, factored by a fall in demand for natural gas and electric sales due to warmer weather conditions. A surge in depreciation, property taxes and interest expenses also negatively impacted earnings in the current quarter. The results were partially offset by lower effective tax rate.
The company’s GAAP earnings were posted at 38 cents per share compared to 42 cents per share in the year-ago period.
The disparity between GAAP and pro forma earnings can be attributed to a net loss 3 cents from miscellaneous costs.
Total Revenue
Revenue performed less impressively, declining by 8.4% to $2,578.0 million in the reported quarter from $2,817.0 million in the year-ago period. The descent in year-over-year growth was due to lower contributions from the Natural Gas and Electric segments.
Reported quarter revenue fell short of Zacks Consensus Estimate of $2,832.0 million.
Segment-wise Revenue
Electric: Revenue from this segment plummeted by 4.5% year over year to $1,937.0 million from $2,030.0 million in the prior-year’s first quarter. Sales in this segment were largely impacted by weak customer demand and price fluctuations.
Natural Gas: Revenue in this segment also registered a decline by 18.8% to $621.0 million from $765.3 million in the year-ago period.
Other: Segment revenue in the reported quarter was $20.2 million versus $21.2 million in the year-ago period, reflecting a drop of 4.7%.
Quarterly Highlights
Total operating expenses tumbled by 8% to $2,198 million from $2,390 million in the year-ago quarter. The major contributor to this fall includes a 23% down-swing in cost of natural gas sold and transportation with a fall of 7.2% in fuel purchases.
Operating income accordingly decreased by 10.7% year over year to $381.0 million compared to $427.0 million reported in the year-ago period.
Total interest charges at the end of the first quarter of 2012 swelled by 5.3% to $152.0 million, in contrast to $144.3 million at the end of the first quarter 2011. Expenses rose on account of higher long-term debt levels to fund investment in utility operations. It was partially moderated by lower interest rates.
Financial Update
Long-term debts of the company as of March 31, 2012 were $8.6 billion.
Xcel Energy from time to time issues debt and equity to refinance debts, fund operations and for other general corporate purposes. During fiscal 2012, the company might issue two series of bonds aggregating $1,550 million and $100 million of bonds in the first half of 2012 by SPS (Southwestern Public Service Company).
Another bond of $100 million is to be issued by NPS Wisconsin (Nevada Power Company) for the next half year of 2012, which is to be utilized for various purposes.
Guidance
Xcel Energy earnings expectation lies in the bottom line range of $1.75 to $1.85 per share in 2012. The guidance assumes normal weather pattern in 2012. Revenue from rider recovery projects are anticipated to be $35 to $45 million higher from 2011 levels. The company guidance states that weather-adjusted retail electric utility and natural gas sales are projected to remain flat.
Operating and maintenance expenses of the company are estimated to increase by 1%, while depreciation expense is projected to increase in a range of $50 million to $60 million over 2011 levels increase.
Interest expenses are forecast to rise approximately to $10.0 million.
Peer Update
American Electric Power Co. Inc. (AEP), which competes with Xcel Energy Inc., announced its first quarter 2012 adjusted earnings per share of 80 cents, at par with the Zacks Consensus projection.
American Electric Power net revenue was $3,625 million in the first quarter, below the Zacks Consensus Estimate of $3,684 million and the year-ago quarter revenue of $3,730 million.
Our View
The first quarter performances of the company were lower than expectations, to accommodate the lower results the company presently projects its earnings per share to be lower end of its projected range for 2012.
We believe rate cases coming into effect in the next quarter would have a favorable effect impact on the company’s earnings. Also, the company has undertaken various cost management programs, which would likely reduce negative impacts of temperature fluctuations.
However, increasing operating expenses and price fluctuations are most likely to aggravate on account of temperature volatility and continued investment in utility operations.
Xcel Energy currently retains a Zacks #4 Rank, which translates into a short-term Sell rating. We have a Neutral recommendation in the long term.
Based in Minneapolis, Minnesota, Xcel Energy is a U.S. electricity and natural gas company, with operations in eight Western and Midwestern states.
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