Entergy Corp. (ETR) has provided a preliminary earnings update for the third quarter of 2013. The company expects operational earnings of $2.40 per share, up 23% year over year. The figure is also above the current Zacks Consensus Estimate by 20.6%.
The significant increase is expected on the heels of higher net revenue and a lower effective income tax rate, partially offset by higher non-fuel operation and maintenance and depreciation expenses.
In stark contrast to this favorable guidance, in July this year, the company reported second quarter operational earnings of $1.01 per share that came a penny below the Zacks Consensus Estimate and 52.1% short of the year-ago profit of $2.11 per share. The downside mainly reflected higher income tax expenses at the Utility and Parent & Other segments.
The company also indicated that earnings from Entergy Wholesale Commodities declined sequentially due to lower net revenue and higher decommissioning expense, partially offset by lower income taxes.
The company reaffirmed its guidance for 2013 in the range of $4.60 to $5.40.
On a reported basis, the company expects third quarter earnings of $1.33, down 31.8% year over year. This includes impairment charges related to the closing and decommissioning of the Vermont Yankee Nuclear Power Station, expenses associated with the implementation of the human capital management (“HCM”) strategic imperative and expenses associated with the proposed spin-off and merger of Entergy's electric transmission business with ITC Holdings Corp. (ITC).
During the third quarter, the company announced its intention to shut down the Vermont Yankee nuclear power plant in the fourth quarter of 2013. The crucial decision came in the wake of a shale gas induced supply glut that has lowered wholesale energy prices, high costs for running the plant relative to its size, and wholesale market design flaws that led to artificially low energy and capacity prices in the region.
In the third quarter of 2013, the company had expected an after-tax impairment charge of approximately $181 million. Going forward, it expects to incur charges in the range of $55 million to $60 million related to future severance and employee retention costs through the end of 2014.
The company is also progressing well on its HCM initiative. This has resulted in a new internal organization structure that has led to the elimination of 800 employees. The company expects one-time costs associated with this phase of HCM in the range of $145 million to $185 million. It expects the majority of these expenses to be incurred by the end of 2013. However, going forward, it expects total savings from HCM in the range of $200.0 million to $250.0 million by 2016 due to workforce reduction, lower compensation and benefits, and lower contractor fees.
The company is expected to release its third quarter results on Oct 29, 2013. The Zacks Consensus Estimate for the third quarter and full year 2013 are currently at $1.99 per share and $4.96 per share, respectively.
Entergy is well positioned due to its geographically-diverse mix of regulated and merchant operations. The initiatives taken by the company will help in achieving its growth objectives. The company presently has a short-term Zacks Rank #2 (Buy). Other stocks that are worth considering in the space are Alliant Energy Corporation (LNT) and Brookfield Infrastructure Partners L.P. (BIP), both with a Zacks Rank #2 (Buy).
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