Before the bell, Edison International (EIX) reported third quarter 2011 results. In the reported quarter, the company clocked pro forma earnings of $1.31 per share above the Zacks Consensus Estimate of 1.27 per share. However, earnings came in below the year-ago quarterly pro forma earnings of $1.46 per share.
During the reported quarter, GAAP earnings per share matched the pro forms earnings. However, GAAP earnings were $1.56 per share in the prior-year period.
Revenue Update
Edison International's revenue was $4 billion, lower than the Zacks Consensus Estimate by $444 million. The top line came above the prior-year figure of $3.8 billion. In the reported quarter, Electric Utility revenues increased 9.3% year over year to approximately $3.4 billion, while Competitive power generation revenues were down 13.7% to $596 million. Operating income in the reported quarter was $810 million compared with $862 million in the prior-year period.
Segment Results
Southern California Edison: Quarterly pro forma earnings at the segment were $1.25 per share versus $1.21 per share in the year-ago quarter. The upside reflects rate base growth and lower income taxes.
Edison Mission Group (EMG): The segment reported pro forma earnings per share of 10 cents versus 37 cents in the year-ago quarter. The results reflect lower capacity revenues, realized energy prices, merchant coal plant generation, and trading income, as well as lower capacity factors from renewable projects.
EdisonInternational's parent company and other: The segment reported loss per share of 4 cents compared with pro forma earnings per share of 1 cent in the prior-year period. This reflects the absence of income tax benefits in the current quarter.
Financial Details
In the reported quarter the company generated cash and cash equivalents of $1.4 million versus $2 million at the end of the prior-year period. Long-term debt increased to $13.0 billion compared with approximately $12.1 billion at the end of the third quarter of 2010.
Guidance
Based on the performance, the company increased its pro forma earnings per share guidance to a band of $2.90 to $3.00. Including non-core items of $0.01, the company also increased its GAAP earnings forecast to $2.89 to $2.99 in 2011.
Our Take
With a strong portfolio of regulated utility assets and well-managed merchant energy operations, Edison International presents a lower risk profile compared to its utility-only peers. Key drivers of growth for the company include consistent performance of its stable utility operations, California's supportive regulatory environment, ongoing alternative energy projects, and steep growth in the rate base.
However, several factors continue to weigh on Edison International, including a tepid economy, volatile gas prices, imminent expiry of its cheap rail transport contract and the recovery of capital expansion costs. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
In the near term, we would advise investors to accumulate its short-term Zacks #2 Rank (Buy rating) peer The AES Corporation (AES).
California-based Edison International is a utility holding company operating through its principal subsidiaries: Southern California Edison Company, Edison Mission Energy, and Edison Capital.
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