Before the bell, Edison International (EIX) reported its first quarter 2011 results. In the reported quarter, the company clocked core earnings of 62 cents per share in-line with the Zacks Consensus Estimate. However, this came in below the year-ago quarterly core earnings of 82 cents per share.
The downside in earnings year over year was due to lower results at Edison Mission Group (EMG) which more than offset higher earnings at Southern California Edison (SCE).
On a reported basis, including one-time items, earnings came in at 61 cents for the reported quarter versus 72 cents in the year-ago quarter. The variance of a penny in the reported quarter between core and reported earnings were due to losses from discontinued operations.
Revenue Update
Edison International's revenue fell 1% to $2.78 billion versus $2.81 billion in the year-ago quarter. Revenues were also short of the Zacks Consensus Estimate of $3.13 billion. In the reported quarter, Electric Utility revenues increased 3.3% to approximately $2.23 billion, while Competitive power generation revenues fell 15.3% to $552 million.
Segment Results
Southern California Edison (SCE) segment’s quarterly core earnings were 68 cents per share versus 62 cents in the year-ago quarter. The increase in core earnings was primarily due to rate base growth.
On a GAAP basis earnings came in at 68 cents per share compared to 50 cents in the year-ago quarter. However, year-ago quarterly earnings were affected by a charge of 12 cents per share related to federal health care legislation.
Edison Mission Group (EMG) segment digested a core loss of 6 cents per share versus earnings of 22 cents in the year-ago quarter. The steep decline was due to lower generation, realized energy prices and trading revenue.
In addition, the segmental earnings in the year-ago quarter were also boosted by income from two projects of 6 cents per share. On a GAAP basis losses came in at 6 cents per share compared to earnings of 24 cents in the year-ago quarter.
Edison International's parent company and other segment reported loss per share of a penny compared with a loss of 2 cents in the year-ago quarter. This was mainly due to higher income tax expense.
Financial Condition
Edison International in the reported quarter generated $718 million from operating activities compared to $599 million in the year-ago quarter. Cash and cash equivalents at the end of the reported period were $1.3 billion versus $1.4 billion at the end of the year-ago period. Long-term debt increased to $12.5 billion compared to approximately $12.4 billion at the end of the year-ago period.
Outlook
Based in Rosemead, California, Edison International engages in the supply of electric energy in central, coastal and southern California. The company operates through its two principal subsidiaries: Southern California Edison Company, and Edison Mission Group.
Southern California Edison is a public utility providing electricity primarily to central, coastal, and southern California (excluding Los Angeles). It also has a presence in Nevada and Arizona.
Edison Mission Group is a holding company with subsidiaries engaged in the business of developing, acquiring, owning or leasing, operating and selling energy and capacity from independent power production facilities. It also engages in hedging and energy trading activities in competitive power markets
Edison International’s consistent performance through its solid base of stable utility operations, recent SCE rate hike, ongoing alternative energy projects, balance sheet strength, and a relatively cheap earnings-based valuation, partially offset by stagnant economy, volatile gas prices, and recovery of capital expansion costs.
The company expects fiscal 2011 to witness strong earnings growth at SCE’s regulated utility assets. This however would be tempered by EMG’s merchant energy operations which faces weak power market fundamentals. The company reaffirmed its fiscal 2011 core earnings per share guidance range of $2.60 – $2.90.
Edison International currently retains a Zacks #3 Rank (short-term Hold rating). We maintain our long-term Neutral rating on the stock. The near-term cautious stance is shared by its peers like American Electric Power Company Inc. (AEP) and Ameren Corporation (AEE).
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