Pepco Holdings, Inc. (POM) reported third-quarter 2014 results on Oct 31. Adjusted earnings of 46 cents per share surpassed the Zacks Consensus Estimate of 42 cents by 9.5%.
Quarterly earnings rose 4.5% from 44 cents per share a year ago, primarily on the back of improved electricity distribution and benefits received from tax deductions associated with Pepco Energy Services’ energy efficiency projects.
On a GAAP basis, the company’s earnings were 31 cents per share compared with 44 cents per share in the prior-year quarter. The variance between GAAP and adjusted earnings was due to the combined impact of an incremental merger-related transaction cost of 1 cent, a 1 cent incremental merger-related integration cost and a 13 cent impairment loss related to Pepco Energy Services’ long-lived assets.
The earnings beat left Pepco shareholders largely unmoved. Shares of Pepco Holdings edged up 0.2% following its third-quarter earnings release to close at $27.36 yesterday.
Total Revenues
In third-quarter 2014, Pepco Holdings' total revenues decreased 2.3% to $1,313 million from $1,344 million in the prior-year quarter. The milder summer temperature in its service territories impacted electric sales, as cooling degree days in the reported quarter decreased 4% from the prior year.
Total revenues were lower than the Zacks Consensus Estimate of $1,347 million by 2.5%.
Operational Highlights
In the quarter under review, Pepco Holdings’ total operating expenses increased 3.4% year over year to $1,147 million. Higher other services cost of sales and other operation and maintenance expenses led to the spike in operating expenses.
Operating income in the reported quarter was $166 million, down 29.4% from $235 million a year ago.
Pepco Holdings incurred $68 million of interest expenses in the reported quarter, in line with the prior-year period.
In the reported quarter, the total regulated Transmission and Distribution( T&D) electric sales volume was 12,780 Gigawatt hour (GWh), down from the prior-year figure of 13,335GWh by 4.2%.The reduction in sales volume was primarily due to the milder summer impacting power demand.
Pepco Holdings’ total regulated gas sales volume was 2,224 thousand cubic feet in the reported quarter, in line with the prior year. The decline in demand from Transportation and Other was offset by better sales volume to Commercial and Industrial customers.
Update on Merger
During the third quarter, Pepco Holdings shareholders gave their approval for the merger with Exelon Corporation (EXC). In October, the merger deal received the go-ahead from the Virginia State Corporation Commission.
Financials
As of Sep 30, 2014, Pepco Holdings had cash and cash equivalents of $257 million compared with $23 million as of Dec 31, 2013.
Long-term debt as of Sep 30, 2014 was $4,691 million compared with $4,053 million as of Dec 31, 2013.
Guidance
Pepco Holdings narrowed its 2014 earnings guidance to the range of $1.17–$1.27 per share from its earlier expectation of $1.12–$1.27 per share.
In Oct 2014, Pepco Holdings’ Power Delivery unit updated its capital expenditure forecast through 2019. Total Power Delivery capital expenditure for the five-year period is expected to be $6.6 billion, with $4.6 billion planned for distribution capital expenditures and $2 billion planned for transmission capital expenditures.
Other Company Releases
CMS Energy Corporation (CMS) reported third-quarter earnings of 37 cents per share, missing the Zacks Consensus Estimate of 41 cents by 9.8%.
Pinnacle West Capital Corp. (PNW) reported third-quarter earnings per share of $2.20, outpacing the Zacks Consensus Estimate by 1.4%
Our View
Pepco Holdings currently has a Zacks Rank #3 (Hold).
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