Before the bell, Ameren Corporation (AEE) reported third quarter 2011 results with pro forma earnings of 1.57 per share, comfortably surpassing the prior-year figure of $1.40 per share and the Zacks Consensus Estimate of $1.29 per share.
The results were driven by electric rate increase at Illinois and Missouri, lower non-fuel operations and maintenance expenses, warmer weather and lower interest expense. The positives were, however, partially offset by reduced margins in the merchant generation segment due to lower realized power prices and higher fuel and transportation-related expenses.
In the quarter under review, GAAP EPS was $1.18 compared with a loss per share of 70 cents in the third quarter of 2010. The variation of 39 cents per share between GAAP and pro forma earnings was due to regulatory disallowance (23 cents), goodwill, impairment & other charges (9 cents) and net unrealized mark-to-market activity loss (7 cents).
Operational Performance
In the reported quarter, net revenues increased a nominal $1 million year over year to $2.3 billion. The reported revenue was $83 million above the Zacks Consensus Estimate. Volume sales of electricity to native load utility customers increased from 31.3 billion Kilowatt-hour (KWh) to 31.6 billion KWh.
In the reported quarter, operating income was $550 million versus $89 million in the prior-year period. The company generated pro forma earnings of $381 million, up from $333 million a year ago.
Segment Performance
Ameren Missouri: The segment reported pro forma earnings of $248 million compared with $221 million in the year-ago quarter. The upside was driven by Missouri electric rate increase effective from late July 2011, lower non-fuel operations and maintenance expenses and warmer weather.
However, these were partially offset by a decrease in kilowatt hour sales to native load customers and lower capitalized financing expenses. The company reported GAAP earnings of $190 million versus $223 million in the third quarter of 2010.
Ameren Illinois: The company generated pro forma net income of $99 million versus $90 million a year ago driven by Illinois electric rate increases effective in 2010, an increase in kilowatt hour sales to native load customers and lower financing expenses. The company reported GAAP earnings of $98 million compared with $90 million in the year-ago quarter.
Merchant Generation: The segment reported pro forma earnings of $24 million, down $10 million from the year-ago period due to lower realized power prices and higher fuel and transportation-related expenses. These were partially offset by lower interest expense. GAAP loss was $9 million compared with a GAAP loss of $470 million in the year-ago period.
Financial Condition
Ameren reported cash and cash equivalents of $522 million at the end of the quarter compared with $608 million in the year-ago period. Long-term debt, net decreased minimally to $6.7 billion versus $6.9 billion at the end of third quarter 2011.
Guidance
The company increased its pro forma EPS guidance to $2.50 to $2.60 from its previous expectation of $2.30 to $2.55 per share. The increase reflects current quarter performance and disciplined cost management.
Including the charge related to the Taum Sauk Energy Center of 23 cents and the planned closure of the Meredosia and Hutsonville energy centers of 9 cents, GAAP guidance is expected to be in the range of $2.18 to $2.28 versus its prior expectation of $2.07 to $2.32.
Peer Comparison
Recently, one of its competitors, CenterPoint Energy Inc. (CNP), posted third quarter 2011 adjusted earnings of 38 cents per share, beating the Zacks Consensus Estimate and the year-ago quarterly earnings of 29 cents each.
Our Take
Ameren’s stable and regulated electric power operations in the Midwest generate a relatively stable and growing earnings stream. Future growth will be driven by focus on cost minimization and the strong balance sheet.
However, valuation continues to be restrained by merchant generation, its predominantly coal-based generation assets 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.
St. Louis-based Ameren Corporation is a holding company which operates in the generation and distribution of electricity and natural gas to residential, commercial, industrial and wholesale end markets in Missouri and Illinois. Through its utility subsidiaries the company distributes electricity to 2.4 million customers and natural gas to approximately 1 million customers in Missouri and Illinois. Ameren operates in three segments: Missouri Regulated, Illinois Regulated and Non-rate-regulated Generation.
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