CenterPoint Energy Inc. (CNP) in the third quarter 2011 posted adjusted earnings of 38 cents per share, beating the Zacks Consensus Estimate and the year-ago quarterly earnings of 29 cents each.
On a reported basis the company clocked earnings of $2.27 per share versus 29 cents in the year-ago quarter. In the reported quarter the variance of $1.89 between reported and adjusted earnings per share came from the final resolution of appeals regarding the 2004 true-up order of the Texas Public Utility Commission issued in connection with the restructuring of the Texas electric industry.
Operational Results
CenterPoint Energy’s total revenues for the reported quarter fell 1.4% to $1.9 billion year over year. Revenue also fell behind the Zacks Consensus Estimate of $2.2 billion. Operating income however rose 9.2% to $357 million versus $327 million in the year-ago quarter. Overall, net income was $973 million in the reported quarter versus $123 million in the year-ago quarter.
Segment Results
Electric Transmission & Distribution
The electric transmission & distribution segment reported an operating income of $244 million for the third quarter of 2011. Of this $213 million came from the regulated electric transmission & distribution utility operations (TDU) and $31 million related to securitization bonds. Operating income was $212 million, consisting of $178 million from the TDU and $34 million related to securitization bonds.
Operating income for the TDU benefited from increased usage primarily due to warmer weather, higher metered customers and lower depreciation and amortization expense. These gains were partially offset by higher operation and maintenance expenses primarily related to increased labor, benefits and transmission expenses.
Natural Gas Distribution
The natural gas distribution segment reported an operating loss of $2 million for the third quarter of 2011 compared to a loss of $4 million in third quarter 2010. Operating loss improved year over year due to lower operation and maintenance expenses.
Interstate Pipelines
The interstate pipelines segment reported an operating income of $60 million for the third quarter of 2011 compared to $68 million in third quarter 2010. The decline was due to lower revenues primarily related to an expired backhaul contract, restructured contracts with natural gas distribution affiliates and lower off-system sales. These were partially offset by increased ancillary services and lower operation and maintenance expenses.
Field Services
The field services segment reported an operating income of $61 million for the third quarter of 2011 compared to $40 million in the year-ago quarter. Operating income benefited from higher gathering volumes in the Haynesville and Fayetteville shales, revenues attributable to throughput volume commitments and lower operation and maintenance expenses. These gains were partially offset by lower prices received from sales of retained gas and higher depreciation and amortization expenses.
Competitive Natural Gas Sales and Services
The competitive natural gas sales and services segment reported an operating loss of $10 million for the third quarter of 2011 compared to operating income of $7 million in the year-ago quarter.
The third quarter of 2011 included gains of $6 million resulting from mark-to-market accounting for derivatives associated with certain forward natural gas purchases and sales used to lock in economic margins compared to gains of $19 million for the same period of 2010. The third quarter of 2011 also included a $7 million write-down of natural gas inventory compared to a $6 million write-down in the same period in 2010.
Financial Condition
CenterPoint Energy reported cash and cash equivalents of $103 million at the end of the reported quarter from $199 million at the end of the fiscal 2010. In the first nine months of 2011 the company generated $1.4 billion of cash from operating activities, compared to $983 million in the year-ago period. Long-term debt decreased to $8.5 billion from $9 billion at fiscal-end 2010.
Outlook
CenterPoint Energy expects earnings for fiscal 2011 to be at the high end of its guidance range of $1.04–$1.14 per share.
CenterPoint Energy with its balanced portfolio of electric and natural gas businesses, provides a diversified risk profile, along with stable earnings and cash flow. Going forward, our bullish outlook for the company is supported by stable regulated operations, higher rates, ongoing infrastructure development projects, a strong balance sheet and a high dividend yield.
However, this is partially offset by pending regulatory cases, tepid economy, lower demand for electricity, falling wholesale natural gas prices and a significant presence in a hurricane prone section of the U.S.
We continue to retain our long-term Neutral stance on CenterPoint Energy in the absence of any positive triggers. In the near-term we assign a Zacks #3 Rank (short-term 'Hold' recommendation) for the stock, in line with peers like Dominion Resources Inc. (D) and American Electric Power Co., Inc. (AEP).
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