Public Service Enterprise Group Inc. (PEG) reported third-quarter 2014 operating earnings of 77 cents per share, surpassing the Zacks Consensus Estimate of 75 cents by 2.7%. Quarterly earnings also edged up from the year-ago figure by just a cent. The year-over-year gain reflects investments made by the company in its stable rate regulated business.
On a GAAP basis, quarterly earnings were 87 cents per share versus 77 cents per share a year ago.
Total Revenue
Revenues in the reported quarter missed the Zacks Consensus Estimate by 6.5% but increased to $2,641 million, up 3.4% from the year-ago figure of $2,554 million. This was despite lower electricity demand and less favorable weather conditions than the year-ago quarter.
During the reported quarter, Electric sales volume decreased 3.9% year over year to 11,531 million kilowatt-hours, while Gas sales volume shot up 70.6% to 912 million therms. Even though the economy showed several signs of revival, unfavorable weather conditions resulted in the decline of Electric sales volume. On the other hand, falling commodity prices contributed to the surging Gas sales.
Highlights of the Release
Operating income increased 4.8% year over year to $746 million. Total operating expenses were $1,895 million, up 2.9% year over year. The increase in total expenses was primarily due to a 7.7% increase in energy costs.
Interest expenses in the reported quarter remained flat at $100 million.
Segment Performance
PSE&G: Segment operating earnings were $200 million, up 19% from $168 million in the prior-year period. The results reflect the impact of the company’s capital expansion along with a fall in operating and financing costs.
PSEG Power: The segment generated operating earnings of $171 million, down 22.6% year over year. Lower energy and capacity prices, and mild weather conditions pulled down earnings.
PSEG Enterprise/Other: The segment generated operating earnings of $22 million as compared to an operating loss of $4 million in the previous-year quarter. Earnings increased on the back of lower taxes.
Financial Update
Long-term debt as of Sep 30, 2014 totaled $8.6 billion, up from $8.1 billion at 2013 end.
In the first nine months of 2014, net cash flows provided by operating activities were $2.5 billion versus $2.4 billion in the year-ago comparable period.
2014 Guidance
PSE&G’s operating earnings are expected to be in the range of $710–$745 million, up slightly from the previous guidance of $705–$745 million. Transmission and distribution revenues are expected to increase, which coupled with the expected reduced operating expenses, will deliver higher operating earnings for 2014.
Assuming normal weather conditions, PSEG Power's operating earnings are now expected to be in the $575–$610 million range from the previously forecasted range of $550–$610 million.
PSEG Enterprise/Other’s operating earnings are expected to remain in the range of $35–$40 million.
Based on the strong performance in the reported quarter, Public Service Enterprise now expects 2014 operating earnings per share to be in the range of $2.60–$2.75 per share as compared to the previously guided range of $2.55–$2.75.
Other Company Releases
CMS Energy Corp. (CMS) reported third-quarter 2014 earnings per share of 37 cents on an adjusted basis. Quarterly earnings lagged the Zacks Consensus Estimate of 41 cents by 9.8% and the year-ago figure of 48 cents by 22.9%. GAAP earnings came in at 34 cents per share versus 48 cents in the year ago quarter. The difference in the adjusted and GAAP earnings was due to restructuring costs of 3 cents per share.
PG&E Corporation’s (PCG) adjusted operating earnings per share of $1.73 in the third quarter of 2014 comfortably surpassed the Zacks Consensus Estimate of $1.15 by 50.4%. The reported figure also increased 96.6% from 88 cents a year ago.
The earnings upside was due to the final decision in the 2014 General Rate Case, which provided for incremental revenues retroactive to the beginning of the year. GAAP earnings during the quarter were $1.71 compared with 36 cents in the year-ago quarter. The variance between GAAP and pro forma earnings was due to a net 2 cent charge.
American Electric Power Company Inc. (AEP) reported third-quarter 2014 operating earnings of $1.01 per share, missing the Zacks Consensus Estimate of $1.03 by 1.9%. The quarterly figure also moved down from the year-ago profit of $1.10 per share by 8.2%. The weak performance was due to the mild summer.
The company’s plan to speed up spending and shift costs from future years into 2014 also affected the quarterly results negatively. On a GAAP basis, the utility’s third-quarter 2014 earnings were on par with the operating number. In the year-ago quarter, GAAP earnings were 89 cents per share taking into account a one-time charge of 21 cents.
Our View
Public Service Enterprise Group surpassed the Earnings Estimates but failed on the revenue front. However, its PSE&G division performed well in the reported quarter. The company continues to reap benefits from its diversified business model. Moreover, the company’s investment program will accelerate its growth process.
Public Service Enterprise Group currently holds a Zacks Rank #3 (Hold).
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