Hawaiian Electric Industries Inc. (HE) announced second-quarter 2011 operating earnings of 28 cents per share, missing both the Zacks Consensus Estimate of 33 cents and the year-ago earnings of 31 cents. Hawaiian Electric missed the mark owing to higher operating expenses, which were partially offset by higher sales.
Operating Statistics
Total revenue of the company at the end of the second quarter was $794.3 million versus $655.7 million in the year-ago quarter, reflecting a growth of 21.1%. The results also came higher than the Zacks Consensus Estimate of $713 million. Hawaiian Electric’s reported net income of $27.1 million compared with $29.3 million in the year-ago quarter.
Segment Net Income
Electric Utility:
Segment net income decreased to $17.0 million in the reported quarter compared with $17.6 million in the year-ago quarter. The fall resulted primarily from higher planned operations and maintenance expenses, a billing adjustment, lower fuel efficiency savings and lower allowance for funds used during construction.
These were partially offset by higher rates for Maui County and Hawaii Island utilities; lower depreciation expense from the change in depreciation rates and methods for Hawaii Island and Maui County utilities; and write-down of investment in the combined heat and power system.
Banking:
Hawaiian Electric’s Banking segment recorded a net income of $15.2 million in the reported quarter, compared with a net income of $13.9 million in the year-ago quarter. The increase resulted from a lower provision for loan losses following continued improvement in credit quality and portfolio mix; and higher non-interest income from a non-recurring insurance gain; and higher fee income. These were partially offset by higher non-interest expense.
Net interest margin was 4.07% in the second quarter of 2011, down from 4.22% in the second quarter of 2010. The decline in net interest margin was attributable primarily to lower deferred loan fees associated with lower loan prepayments, as well as lower yields on newly originated assets.
Holding and Other:
Net loss from this segment was $5.1 million in the reported quarter compared with a net loss of $4.5 million in the year-ago quarter.
Financial Update
Total cash and cash equivalents as of June 30, 2011, were $266.7 million versus $330.7 million as of December 31, 2010. Cash generated from operations during the first six month of 2011 totaled $55.2 million versus cash generated from operations of $78.2 million in the year-ago period.
Long-term debt decreased to $1.0 billion at the end of the second-quarter 2011 compared to $1.1 billion at fiscal 2010 end. The company also declared a regular quarterly cash dividend of 31 cents per share, payable on September 13, 2011, to shareholders of record at the close of business on August 15, 2011.
Our View
Based in Honolulu, Hawaii, Hawaiian Electric, through its subsidiaries, primarily engages in electric utility and banking businesses primarily in the state of Hawaii.
Hawaiian Electric’s performance in the reported quarter was primarily driven by the results from the Banking segment. The Banking segment performed well in the reported quarter due to lower credit costs and better portfolio mix. However, the present weak Hawaiian economy and uncertainty regarding the sustainable strength of the Japanese economy continue to weigh on the stock’s valuation.
In the near-term we retain a short-term Zacks #2 Rank on the stock, which translates into a Buy rating. Over the longer term, however, we maintain our Neutral rating on the stock. This is in line with its peers like Ameren Corporation (AEE) and Dominion Resources Inc. (D).
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