PG&E Corporation’s (PCG) operating earning per share of 58 cents in the first quarter of fiscal 2011 fell short by a wide margin versus both the Zacks Consensus Estimate of 81 cents and the year-ago number of 79 cents.
The company till date is yet to receive the approval of the California Public Utilities Commission (CPUC) for its fiscal 2011 General Rate Case (GRC) and its Gas Transmission and Storage (GT&S) rate case. With settlement agreements in both cases pending the company has not yet recorded revenues.
This reduced earnings per share by 7 cents year over year. Earnings were also affected by higher storm and outage expenses (5 cents), higher litigation and regulatory matters (6 cents), lower gas transmission revenues (3 cents), higher environmental liability (1 cent), and the dilutive effect of higher shares outstanding (3 cents).
The cumulative effect was 25 cents lower earnings per share year over year. The downcast in earnings per share was partially offset (4 cents) by higher authorized revenues associated with electric transmission investments. Overall the variance in operating earnings came in at 21 cents lower year over year.
On a reported basis, the company clocked earnings of 50 cents compared with 67 cents in the year-ago quarter. In the reported quarter the 8-cent difference between the reported and adjusted earnings was due to charges related to gas pipeline safety-related improvement expenses.
The expenses were incurred to comply with the California Public Utilities Commission (CPUC) orders and National Transportation Safety Board (NTSB) recommendations in connection with an accident in San Bruno, California on the September 9, 2010 in its natural gas transmission pipeline.
Operating Statistics
PG&E’s revenue of $3.6 billion missed by a whisker the Zacks Consensus Estimate of $27 million. However revenues rose 3.5% versus $3.5 billion in the year-ago quarter. Electric revenues rose 4.3% year over year to $2.6 billion, while natural gas revenues rose 1.6% to $980 million.
Earnings from operations were $230 million versus $303 million in the year-ago quarter. Overall net income came in at $199 million compared to $258 million in the year-ago quarter.
Outlook
The near future looks bleak for the utility with unfavorable gas market conditions and higher-than-expected litigation expenses may continue to put downward pressure on earnings during 2011. Going forward, PG&E expects to incur higher costs to comply with the California Public Utilities Commission (CPUC) orders and National Transportation Safety Board (NTSB) recommendations in connection with gas pipeline safety-related work.
As a result the company revised downward its guidance for fiscal 2011 and suspended dividend payment for the ongoing fiscal. This is definitely going to be disastrous for the company as it operates in an industry where most of its peers traded as bond proxies. Some of its peers like American Electric Power Company Inc. (AEP) and Dominion Resources Inc. (D) have high dividend yields of 5% and 4.2%, respectively.
The company estimates its costs associated with gas pipeline safety-related work could come between $350 million and $550 million in fiscal 2011. Also tentative third-party liability could amount to anywhere up to $180 million in damages.
Overall the company trimmed its fiscal 2011 operating earnings per share guidance range to $3.45–$3.60 versus the previous guidance range of $3.65–$3.80 per share. However after incorporating the effects of costs associated with gas pipeline safety-related work and third party liabilities related to the San Bruno accident, earnings on a reported basis is expected to witness a further steep fall.
The company now expects its fiscal 2011 earnings per share on a reported basis to be in the range of $2.37–$3.08.
Thus we would advise investors to be in the sidelines unti the gas storm is over and dividend payment is resumed by the company. We are currently Neutral on the Zacks #3 Rank stock.
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