Integrys Energy Group Inc. (TEG), a diversified holding company providing products and services to regulated and non-regulated energy markets, through its subsidiaries, saw its bottom line rise in the third quarter of 2011 compared to the year-ago quarter.
The upsurge was fuelled by higher margins in the retail electric markets and lower operating expenses. Integrys’ adjusted earnings of 43 cents per share came in line with the Zacks Consensus Estimate and were 8 cents above 35 cents in the third quarter of 2010.
On a reported basis, the company clocked earnings of 47 cents versus 26 cents in the year-ago quarter. The variance of 4 cents between reported and adjusted earnings was due to the one-time item of non-cash gains related to derivative and inventory accounting.
Operating Results
Integrys Energy’s total revenue of $938.7 million was down marginally from $997.9 million in the prior-year quarter and also missed the Zacks Consensus Estimate of $1.1 billion. In the reported quarter the company witnessed higher unit margins and sales volumes in its retail electricity markets. However, this was offset by a decrease in regulated electric utility margins.
Total cost of fuel, natural gas and purchased power was $539.9 million versus $570.1 million in the year-ago period. Operating and maintenance expenses fell to $241.8 million versus $254.2 million year over year. As a result, third quarter operating income for Integrys Energy was $70.8 million, an 80.6% hike compared with $39.2 million in the year-ago period. Overall the company recorded a net income of $37.6 million versus $21.2 million in the year-ago period.
Financial Update
Cash and cash equivalents of Integrys Energy as of September 30, 2011, were $27.3 million, down from $179.0 million as of December 31, 2010. Long-term debt decreased to $2.1 billion versus $2.2 billion as of December 31, 2010.
Net cash generated from operating activities for the first nine months of 2011 was $633.5 million, down from $775.7 million in the corresponding period of last year. Capital expenditure for the nine-month period totaled $204.4 million compared with $187.1 million in the year-ago period.
Guidance
Following the lukewarm results for the third quarter, Integrys’ management narrowed down its adjusted earnings per share guidance range for 2011 to $3.27–$3.41 versus the earlier range of $3.30–$3.50 per share.
Our View
We maintain our long term ‘Neutral’ recommendation on Integrys, which shares the short term Zacks #3 Rank (Hold) with one of its peers – CMS Energy Corporation (CMS).
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