Hawaiian Electric Industries Inc. (HE), a Honolulu-based utility engaged in electric utility and banking operations primarily in the state of Hawaii, announced third-quarter 2011 operating earnings of 50 cents per share. Third quarter earnings reflected a positive earnings surprise of 16% compared to the Zacks Consensus Estimate of 43 cents and a 43% growth from the year-ago earnings of 35 cents.
Operating Statistics
Hawaiian Electric’s third quarter revenue totaled $886.4 million versus $694.5 million in the year-ago quarter, an increase of 27.6%. The company’s reported net income in the quarter was $48.4 million compared with $32.4 million in the year-ago quarter.
Segmental Synopsis
Electric Utility:
Third quarter segment net income improved $16.0 million to $38.0 million mainly from regulatory action and continued cost management. These increases were partially offset by lower kilowatt-hour sales at the Hawaii Island and Maui County utilities.
Kilowatt-hour sales for Hawaii Island and Maui County were down 0.5% and 3.0%, respectively, primarily due to increased customer conservation.
Segment operating and maintenance expenses were flat in the third quarter, compared with the year-ago comparable period. During the third quarter, higher bad debt expense of $4 million from two large commercial accounts and $2 million higher maintenance expense were largely offset by $3 million on account of lower administrative and general expense and by $2 million for lower claims reserves.
Banking:
Hawaiian Electric’s Banking segment recorded a net income of $15.5 million in the reported quarter, compared with a net income of $15.3 million in the year-ago quarter. The increase resulted from a lower provision for loan losses following continued improvement in credit quality and portfolio mix, partially offset by higher non-interest expense.
The third-quarter 2011 marked the growth of loans for the fourth consecutive quarter with an increase in loans of $40 million. Loan growth was driven primarily by home equity and commercial loans which more than offset the decline in residential mortgages resulting from the low interest rate environment.
Net interest margin was 4.11% in the third quarter of 2011, down from 4.31% in the third quarter of 2010. The decline in net interest margin was attributable primarily to higher yields on earning assets in 2010 and the recognition of deferred loan fees from the refinancing wave in the second half of 2010.
Holding and Other:
Net loss from this segment was $5.0 million in the reported quarter compared with a net loss of $4.8 million in the year-ago quarter.
Financial Update
Total cash and cash equivalents as of September 30, 2011, were $283.5 million versus $330.7 million as of December 31, 2010. Cash generated from operations during the nine months ended September 30, 2011 totaled $101.1 million versus cash generated from operations of $176.9 million in the year-ago comparable period.
Long-term debt decreased to $1.340 billion at the end of the third-quarter 2011 compared to $1.364 billion at fiscal 2010 end. The company also declared a regular quarterly cash dividend of 31 cents per share, payable on December 13, 2011, to shareholders of record as on November 21, 2011.
Our View
Hawaiian Electric’s performance in the reported quarter was driven by improvement in the electric utility segment as well as continued solid performance from the Banking segment. The company continues to remain focused on managing costs at its utility operations.
In the near-term we retain a short-term Zacks #4 Rank on the stock (short term Sell rating). Over the longer term, however, we maintain our Neutral rating on the stock. Based on short term ratings, the company ranks below its closest peers – Constellation Energy Group Inc. (CEG) and Dominion Resources Inc. (D), both of which share the Zacks #3 Rank.
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