Michigan-based CMS Energy Corporation (CMS) announced adjusted earnings for the third quarter 2011 of 53 cents per share, 2 cents above the Zacks Consensus Estimate and a penny above the year-ago figure.
The results reflect service restoration costs at the company's Michigan utility from a series of unusually severe summer storms. At the end of the third quarter 2011, the storm restoration costs were more than double the amount incurred in the prior-year period.
Operational Performance
Operating revenue in the quarter under review was $1.5 billion, up 1.5% year over year. However, results were below the Zacks Consensus Estimate by $64 million. Operating expense rose 2.1% year over year to $1.1 billion.
CMS Energy reported operating income of $316 million, down $3 million from the year-ago quarter. Overall, the company reported net income of $140 million, down from $146 million a year ago.
Financial Position
CMS Energy ended the reported quarter with cash and cash equivalents of $623 million, lower than $696 million at the end of the year-ago quarter. Total debt, capital and finance leases were $7.2 billion, up $151 million year over year.
Guidance
CMS Energy reaffirmed its guidance for fiscal 2011 adjusted earnings of $1.44 per share, an estimated 6% rise from fiscal 2010 adjusted earnings. This is consistent with the company's long-term plan of 5%–7% annual earnings growth.
Peer Comparison
Yesterday, one of CMS Energy’s competitors, American Electric Power Co. Inc. (AEP) also reported third quarter 2011 adjusted EPS of $1.17, beating the year-ago figure of $1.15 and the Zacks Consensus Estimate of $1.14. American Electric Power reported net revenue of $4.3 billion in the third quarter, below the Zacks Consensus Estimate of $4.78 billion but ahead of the year-ago revenue of $4.1 billion.
Our Take
CMS Energy’s regulated electric power operations in Michigan generate a relatively stable and growing earnings stream. Overthe long term, the company presents a strong growth story, given its favorable regulatory policies in Michigan, higher rates, a robust balance sheet, and incremental dividend.
But we believe these positives are embedded in the current target price, leaving little room for further upside in the near term. Also, we are concerned about the unfavorable macro backdrop, lower demand for electricity and pending regulatory cases. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
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 of Michigan’s Lower Peninsula. Enterprises, through its subsidiaries and equity investments, is engaged primarily in independent power production.
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