Teco Energy Inc. (TE) announced third quarter 2012 earnings of 42 cents per share, marginally higher than the year-ago earnings of 40 cents per share. The earnings in the current quarter also beat the Zacks Consensus Estimate of 37 cents.
The earnings outperformance is attributable to improvement in Florida’s economic condition and successful cost management by the Tampa utility, partially offset by unfavorable weather.
Teco’s GAAP earnings stood at 20 cents per share versus 42 cents per share in the year-ago period. The difference of 22 cents was due to the loss incurred on divestiture of Guatemalan assets including book loss, transaction fees and charges associated with foreign tax credits.
Total Revenue
Teco Energy posted total revenue of $858.6 million in the third quarter of 2012, down 2.2% from $877.8 million in the year-ago quarter. This was due to a combined decline in performance in both the company’s regulated and unregulated business divisions.
Reported revenue missed the Zacks Consensus Estimate of $875 million.
Segmental Analysis
Peoples Gas generated revenue of $95.2 million compared with $93.9 million in the third quarter 2011. This was driven by higher sales to residential consumers due to a 1.3% increase in customer footprint and to industrial and commercial customers as well. This was backed by an improving macro-environment in Florida.
Teco Coal continued to witness a drop in sales volume in the reported quarter to 1.9 million tons from 2.1 million tons in the year-ago period. As a result, revenue slipped 2.4% to $186.0 million from $190.5 million in the year-ago quarter.
Revenue from Tampa Electric decreased 3% year over year to $574.9 million from last year’s $591.6 million due to the impact of diminished sales to residential and small commercial customers, soft weather and increase in depreciation as well as operation and maintenance expenses. This was partially tempered by increase in sales to industrial consumers.
Revenue from Other & Eliminations in the third quarter 2012 stood at $2.5 million versus $1.8 million in the prior-year quarter.
Operational Highlights
Total operating expenses declined in the third quarter by 3.0% to $675.5 million from $696.5 million in the year-ago quarter. This was backed by a fall in fuel costs by 7.6% and a marked decrease in the purchased power by 19.6%.
Total operating income was $183.1 million, marginally up from $181.3 million in the prior-year quarter. This was due to lower operating costs offsetting declining revenue.
Interest expenses declined 7.9% to $45.0 million from $48.9 million in the year-earlier period.
Financial Screening
Cash and cash equivalents as of September 30, 2012 were $234.6 million versus $44 million as of December 31, 2011.
Cash flow from operating activities during the quarter was $302.2 million compared with $284.8 million in the prior-year quarter.
Long-term debt as of September 30, 2012 was $2,981 million versus $2,687.3 million as of December 31, 2011.
Guidance
Teco Energy reiterated its earnings outlook for 2012 in the range of $1.10–$1.20 per share. It expects growth in customer counts to continue due to favorable economic scenario in Florida. The company estimates sales increase of 0.5% on an average.
People Gas is also projected to do good business owing to increasing consumer preference for natural gas from rather than petroleum and or other fuel products. For 2013, Teco Coal has 2.5 million tons thermal contracted at prices ranging from $75–$82 per ton.
Peer Update
Wisconsin Energy Inc. (WEC), a competitor of Teco Energy, posted third-quarter 2012 earnings per share of 67 cents, up 21.8% year over year from 55 cents per share a year ago. The reported quarter’s earnings also beat the Zacks Consensus Estimate of 57 cents per share.
Revenue in the third quarter of 2012 was $1.04 billion, down 1.28% from $1.05 billion in the year-ago quarter. Revenue also fell behind the Zacks Consensus Estimate by $32.7 million.
Our View
Teco Energy reported a mixed performance in the quarter under review. The company expects its consumer count will surge, thanks to the better economic environment in Florida, however we expect profitability to be minimal as the company’s operations are exposed to severe risks from adverse weather conditions.
Teco Energy is involved in regulated utility operations. Through its subsidiaries, it generates, transmits, distributes, purchases and sells electric energy in Florida and Guatemala. The company holds a short term Zacks #5 Rank (Strong Sell rating).
TECO ENERGY (TE): Free Stock Analysis Report
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