Energy generation company NRG Energy Inc. (NRG) reported an adjusted net income of $2.53 per share in second-quarter 2011, way ahead of the Zacks Consensus Estimate of 38 cents. Results also compared favorably with 81 cents earned in the prior-year quarter. Net income in the quarter was $621 million, up from $210 million in the year-ago quarter.
Operational Results
Total revenue during the second quarter improved 6.8% year over year to $2.3 billion from $2.1 billion in the year-ago quarter. However, quarterly revenue was lower than the Zacks Consensus Estimate of $2.7 billion.
Total operating cost and expenses during the quarter increased 18.9% over the prior-year period to $2.0 billion, driven by cost escalations across the board.
Adjusted Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) were $517 million, down 25.4% from $693 million in the year-ago quarter, mainly due to higher costs. Operating income in the quarter declined 39.4% year over year to $269 million.
Segment Update
Reliant Energy: Adjusted EBITDA declined 9.7% year over year due to lower unit margins offset by increased volumes. Net income was $31 million compared to $277 million earned in the prior-year quarter.
Texas: EBITDA declined 37.3% year over year primarily due to lower energy margins, which stemmed from a combination of lower hedged prices and increased fuel costs. Net income of $203 million increased 29.3% from $157 million in the second quarter of 2010.
Northeast: EBITDA plummeted 53.5% year over year largely due to lower energy margins coupled with a $25 million decrease in capacity revenues driven by lower prices in New York and NEPOOL. This was partially offset by lower operating expenses. Net income was $19 million compared with a net loss of $2 million in the prior-year quarter.
South Central: EBITDA increased 85% year over year due to higher sales and reduced costs. Net income was $12 million compared to net income of $4 million in the year-ago quarter.
West: EBITDA surged 27.3% year over year on the back of increased merchant sales at El Segundo and partially offset by higher operating expenses. Net income increased to $12 million in the quarter from $8 million in the second quarter of 2010.
International: EBITDA was down drastically from $32 million in the prior-year quarter to $9 million in the recent quarter. Net income also dropped to $6 million from $21 million earned last year.
Thermal: EBITDA increased 66.7% year over year. Net income remained flat compared to last year posting a net loss of $2 million in both the comparable quarters.
Financials
The company ended the quarter with cash and cash equivalents of $1.94 billion, lower than $2.95 billion at 2010-end. Long-term debts and capital leases of the company as of June 30, 2011 were $8.9 billion versus $8.7 billion as of 2010-end.
Cash provided by operating activities in the first half of 2011 was $309 million compared with $605 million in the year-ago period.
Share Repurchases
As a result of the recent positive resolution of a federal tax audit, NRG’s restricted payment basket expanded significantly. Accordingly, the company increased its share repurchases by an additional $250 million, bringing the company’s total 2011 share repurchases to $430 million.
Of the $430 million slated, the company has already repurchased $130 million of shares during the first quarter of 2011 and expects to complete the remaining $300 million worth of share repurchases by year-end 2011.
Guidance for 2011
NRG Energy raised its 2011 adjusted EBITDA expectation to a range of $1.9 – $2.0 billion as the company’s Reliant retail business continues to benefit from favorable conditions.
The company narrowed its estimate for free cash flow, before growth investment, in the range of $1.0 billion to $1.1 billion from the previous range of $1.0 billion to $1.2 billion. Free cash flow after growth investment is expected in the range of $425 – $525 million, revised from the prior $450 – $650 million range.
NRG Energy now expects to invest $217 million for maintenance capital expenditures and $49 million for net environmental capital expenditures in relation to its existing assets.
Cash flow from operations has been revised to a range of $1.275 billion to $1.375 billion form $1.25 billion to $1.45 billion.
We maintain a Neutral recommendation on NRG Energy in the long term. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.
Based in Princeton, New Jersey, NRG Energy Inc. operates as a wholesale power generation company. The company is also involved in fuel and transportation services, selling energy and related products in the United States and internationally. It competes with AES Corporation (AES) and Calpine Corp. (CPN).
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