Michigan-based CMS Energy Corporation (CMS) announced adjusted earnings of 40 cents per share for the second quarter of 2012, beating the Zacks Consensus Estimate of 38 cents. The results were also higher than the year-ago earnings of 26 cents per share. On a reported basis, the company recorded earnings of 37 cents per share versus 38 cents in the year-ago quarter.
In the reported quarter, the variance of 3 cents between earnings on a reported and adjusted basis is attributable to the effect of a voluntary employee separation program that was implemented in the same period. The program trimmed the company's workforce by 3%, pushing the company's overall workforce reduction since 2009 to 7%.
Operational Performance
Operating revenue of CMS Energy in the quarter under review grossed $1.33 billion, down 2.3% year over year. Results were also lower than the Zacks Consensus Estimate by $214 million.
Operating expenses in the quarter fell to $1.07 billion from $1.16 billion year over year. CMS Energy reported operating income of $260 million versus $207 million in the year-ago quarter. Overall, the company reported net income of $100 million, flat with the year-ago quarter.
Financial Position
CMS Energy ended the quarter with cash and cash equivalents of $187 million compared with $161 million at the end of 2011. Total debt, capital and finance leases narrowed to $6.89 billion from $7.09 billion at the end of 2011. In the first half of 2012, the company generated cash flow from operations of $943 million compared with $1.22 billion at the end of the year-ago period.
Guidance
CMS Energy reaffirmed its guidance for fiscal 2012 adjusted earnings in the range of $1.52–$1.55 per share. This is consistent with the company's long-term plan of 5%–7% annual earnings growth.
Our Take
Jackson, Michigan-based CMS Energy is the holding company of Consumers Energy Company (Consumers) and CMS Enterprises Company (Enterprises). Consumers is an electric and gas utility company that provides electricity and natural gas to Michigan’s residents, and serves customers in all 68 counties in Michigan’s Lower Peninsula region. Enterprises, through its subsidiaries and equity investments, is engaged primarily in independent power production.
CMS Energy’s regulated electric power operations in Michigan generate a relatively stable and growing earnings stream. Over the long term, the company presents a robust growth story, given its favorable regulatory policies in Michigan, higher rates, a robust balance sheet and incremental dividend. The company is also focused on investing $6.6 billion to improve its infrastructural base over the next five years. The company presently retains a short-term Zacks #3 Rank (Hold).
In the longer run, we are concerned about the unfavorable macro backdrop, lower demand for electricity and pending regulatory cases. Therefore, we maintain our long-term Neutral recommendation on the stock. This is in line with its peers like American Electric Power Company (AEP) and Ameren Corporation (AEE).
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