Before the bell, Ameren Corporation (AEE) reported its second quarter 2011 results with pro forma earnings of 59 cents per share far below the prior-year figure of 73 cents per share. It missed the Zacks Consensus Estimate of 62 cents as well.
The downside reflects decrease in kilowatt-hour sales to regulated utility customers due to milder temperatures in the quarter, increased storm-related expenses, higher tax rates and lower capitalized financing costs.
The year-over-year earnings also declined due to a charge related to an April 2011 Missouri Public Service Commission requirement that certain revenues be flowed through the fuel adjustment clause. This was, however, partially offset by electric rate increases in Illinois and in Missouri, a gas delivery rate increase in Missouri, the absence of a Callaway energy center nuclear refueling and maintenance outage, and lower interest expense.
In the quarter under review, GAAP EPS was 57 cents compared with 64 cents per share in the second quarter of 2010. The variance of 2 cents between reported and pro forma earnings was due to a loss related to a net unrealized mark-to-market activity.
Operational Performance
In the reported quarter, net revenues increased by $56 million year over year to $1.8 billion. The reported revenue was $25 million above the Zacks Consensus Estimate. Volume sales of electricity to native load utility customers increased from 26.4 billion Kilowatt-hour (KWh) to 26.7 billion KWh.
In the reported quarter, operating income was $316 million versus $331 million in the prior-year period. The company generated pro forma earnings of $143 million, down from $173 million a year ago.
Segment Performance
Ameren Missouri Segment: The segment reported pro forma and GAAP earnings of $90 million compared with pro forma earnings of $114 million and GAAP earnings of $113 million in the year-earlier period.
Ameren Illinois Segment: Pro forma and GAAP earnings in the current quarter were $37 million versus pro forma and GAAP earnings of $46 million in the year-ago period. The downside reflects lower electricity sales and increased storm-related expenses, partially offset by increased electric delivery rates.
Merchant Generation Segment: The segment reported pro forma earnings of $20 million, up $3 million from the year-ago period driven by a decrease in financing costs. However, this was partially offset by lower margins due to higher transportation-related costs. GAAP earnings in the quarter were $15 million compared with a GAAP loss of $2 million in the year-ago period.
Financial Condition
Ameren reported cash and cash equivalents of $378 million at the end of the quarter compared with $506 million in the year-ago period. Long-term debt, net decreased minimally to $6.9 billion versus $7.0 billion at the end of second quarter 2011.
Guidance
The company was affected by a number of storms in the first half of 2011. However, employees and the management team were successful in effectively meeting their customers' expectations and were able to align spending with business conditions.
As a result, the company has narrowed its pro forma EPS guidance to $2.30 to $2.55 versus its prior expectation of $2.20 to $2.60 for 2011. The guidance also reflects the July 2011 Missouri electric rate case decision.
Including a planned charge of 23 cents per share for the Missouri Public Service Commission's disallowance of recovery of certain investments at the Taum Sauk energy center, the company expects GAAP earnings per share in the range of $2.07–$2.32 versus its previous expectation of $2.20–$2.60.
Peer Comparison
Recently, one of its competitors, Exelon Corporation (EXC) announced second-quarter 2011 operating earnings of $1.05 per share, up from 99 cents per share in the year-ago quarter and ahead of the Zacks Consensus Estimate of 97 cents.
Our Take
Ameren Corporation has been executing consistently across its solid base of stable utility operations in the Midwestern market. However, valuation continues to be restrained by merchant generation, its predominantly coal-based generation assets and pending regulatory cases. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
St. Louis-based Ameren Corporation is a holding company which operates in the generation and distribution of electricity and natural gas to residential, commercial, industrial and wholesale end markets in Missouri and Illinois.
Through its utility subsidiaries the company distributes electricity to 2.4 million customers and natural gas to approximately 1 million customers in Missouri and Illinois. Ameren operates in three segments: Missouri Regulated, Illinois Regulated and Non-rate-regulated Generation.
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