Electricity and natural gas company Xcel Energy Inc.‘s (XEL) operating earnings for the first quarter 2011 of 42 cents per share were in line with both the Zacks Consensus Estimate and the year-ago quarter.
Earnings during the reported quarter benefited from a minor sales growth, cooler than normal temperatures, and interim rates in Minnesota and North Dakota. These positives were however offset by higher operating and maintenance expenses, property taxes and depreciation expenses.
Xcel Energy’s GAAP earnings for the reported quarter were 42 cents per share versus 36 cents per share recorded in the year-ago quarter. Ongoing and GAAP earnings matched in the first quarter of 2011.
Total Revenue
Xcel Energy’s total revenue for fist-quarter 2011 was $2.82 billion versus $2.81 billion reported in the year-ago period reflecting a growth of 0.3%. The marginal year-over-year growth in revenue was due to higher contribution from the Electric segment.
Reported quarter revenue was lower than the Zacks Consensus Estimate of $2.85 billion.
Segment-wise Revenue
Electric: The revenue contribution from this segment during the first quarter 2011 increased 1.0% to $2.02 billion from $1.99 billion in the year-ago period.
Revenues at this segment were largely impacted by the fluctuation in the price of natural gas, coal and uranium used in the generation of electricity. However, the fuel recovery mechanism, which allows the company to recover current expenses, came in handy; otherwise revenues and margins would have been affected by volatile input costs.
Natural Gas: Revenue at this segment decreased 3.1% to $765.3 million from $790.1 million in the year-ago period.
Other: Segment revenue in the reported quarter was $21.2 million versus $21.7 million in the year-ago period, reflecting a decline of 2.3%.
Quarterly Highlights
Total operating expenses incurred by Excel Energy during the first quarter decreased 0.6% to $2.38 billion from $2.4 billion in the year-ago quarter. The decrease in expenses was mainly due to a 6.0% fall in input costs used for generation of electricity.
Operating expenses, as a percentage of total revenue, also decreased by 77 basis points year over year, which positively impacted the operating results of the company. As a result operating income increased by 5.7% year over year to $426.7 million from $403.7 million reported in the year-ago period.
Total interest charges and financing cost at the end of the first quarter 2010 increased by 0.6% to $136.9 million from $136.1 million at the end of the first quarter of 2010. The expenses spurred on account of higher long-term debt levels to fund investment in utility operations, partially mitigated by lower interest rates.
Financial Update
Long-term debts of the company as of March 31, 2010 were $9.3 billion versus $7.9 billion as of March 31, 2010.
Excel Energy from time to time issues debt and equity to refinance debts, fund operations and for other general corporate purposes. During the second half of 2011 the company plans to raise around $400 million through issue of bonds and unsecured notes.
The company may also issue $75 million of equity through the Dividend Reinvestment and Stock Purchase Plan and various benefit programs in 2011.
Excel presently expects to spend $2 billion in 2011 on capital projects following its decision to scrap the 150 Megawatt (MW) Merricourt wind project, which had a projected investment budget of $400 million.
2011 Guidance
Xcel Energy reaffirmed its earnings guidance for 2011 in the range of $1.65–$1.75 per share. The guidance assumes normal weather pattern in 2011. The company guides weather-adjusted retail electric utility sales to grow 1% to 1.3% in 2011, while the weather-adjusted retail firm natural gas sales are expected to decline by 1% from 2010 levels.
Operating and maintenance expenses of the company are expected to increase by 4%, while depreciation expense is projected to increase in a range of $50 million to $60 million in 2011.
Interest expenses are forecast to go up by $10 million, while the effective tax rate of the company is expected to be in the range of 34% to 36% in 2011.
Peer Update
Xcel Energy’s competitor, American Electric Power Co. Inc. (AEP), announced operating earnings for the first quarter 2011 of 82 cents per share versus 76 cents per share in the year-ago quarter, reflecting a growth of 7.9%. The results of the company also surpassed the Zacks Consensus Estimate of 79 cents per share.
American Electric Power’s revenue during the reported quarter was $3.7 billion, ahead of the year-ago figure of $3.6 billion but fell short of the Zacks Consensus estimates of $3.8 billion.
Our View
We appreciate Excel Energy’s move to increase its renewable energy portfolio. Its wind generation capacity is expected to grow between 4,500MW and 5,000 MW by 2015 from the present level.
Equally appreciable is the decision taken by the company to fulfill its environmental obligation when it decided to discontinue its 150MW Merricourt wind farm project in southeastern North Dakota as it could endanger certain species of birds.
Xcel Energy currently retains a Zacks # 4 Rank (short-term Sell rating). We maintain our long-tern Neutral rating on the stock.
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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