Electricity and natural gas company Xcel Energy Inc.'s (XEL) operating earnings for the second quarter 2011 of 33 cents per share were 4 cents higher than the year-ago quarter and 1 cent ahead of the Zacks Consensus Estimate.
Earnings during the said quarter benefited from higher electric margins owing to interim rate hikes in Minnesota and North Dakota. The results were partially offset by higher operating and maintenance expenses, property taxes and depreciation expense and also due to low seasonal rates in Colorado implemented in June 2010.
Xcel Energy's GAAP earnings for the reported quarter were 33 cents per share versus 30 cents per share recorded in the year-ago quarter.
Total Revenue
Xcel Energy clocked total revenue of $2.44 billion in the reported quarter, up 5.7% from $2.30 billion in the year-ago period. The moderate year-over-year growth was due to higher contribution from the Natural Gas segment.
Reported quarter revenue was higher than the Zacks Consensus Estimate of $2.37 billion.
Segment-wise Revenue
Electric: The revenue from this segment increased 4.3% year over year to $2.12 billion from $2.04 billion in the year-ago period.
Revenues at this segment were largely impacted by the fluctuation in the price of natural gas, coal and uranium used in the generation of electricity. However, the fuel recovery mechanism, which allows the company to recover current expenses, came in handy; otherwise revenues and margins would have been affected by volatile input costs.
Natural Gas: Revenue at this segment increased by 16.9% to $291.5 million from $249.4 million in the year-ago period.
Other: Segment revenue in the reported quarter was $18.3 million versus $17.7 million in the year-ago period, reflecting a growth of 3.6%.
Quarterly Highlights
Total operating expenses rose 4.9% to $2.07 billion from $1.98 billion in the year-ago quarter. Higher expenses were mainly due to a 3.7% inflation in input costs incurred for the generation of electricity.
However, operating expenses, as a percentage of total revenue, decreased by 65 basis points year over year, which positively impacted the operating results of the company. Operating income accordingly increased by 10.5% year over year to $359.4 million from $325.3 million reported in the year-ago period.
Total interest charges at the end of the second quarter 2011 rose 3.5% to $146.3 million from $141.4 million at the end of the second quarter 2010. Expenses rose on account of higher long-term debt levels to fund investment in utility operations, partially mitigated by lower interest rates.
Financial Update
Long-term debts of the company as of June 30, 2011 were $9.3 billion versus $8.4 billion as of June 30, 2010.
Excel Energy from time to time issues debt and equity to refinance debts, fund operations and for other general corporate purposes. During the third quarter of 2011 the company plans to raise around $450 million through issue of bonds and unsecured notes.
The company may also issue $75 million of equity through the Dividend Reinvestment and Stock Purchase Plan and various benefit programs in 2011.
2011 Guidance
Xcel Energy reaffirmed its earnings guidance for 2011 in the range of $1.65–$1.75 per share. The guidance assumes normal weather pattern in 2011. The company guides weather-adjusted retail electric utility sales to grow 1% in 2011, while the weather-adjusted retail firm natural gas sales are expected to decline by 1% to 2% from 2010 levels.
Operating and maintenance expenses of the company are estimated to increase by 4%, while depreciation expense is projected to increase in a range of $50 million to $60 million in 2011.
Interest expenses are forecast to go up by $10 million, while the effective tax rate of the company is expected to be in the range of 34% to 36% in 2011.
Peer Update
Xcel Energy's competitor, American Electric Power Co. Inc. (AEP) is expected to announce its second quarter earnings on July 29, 2011. The Zacks Consensus revenue and earnings per share estimates, for the quarter, are $3.64 billion and 76 cents, respectively.
Our View
The company fulfilled our estimates, both for earnings and revenue, riding on the back of a robust performance at the Natural Gas segment. We appreciate Excel Energy’s move to increase shareholder value by increasing its quarterly dividend by 3%.
The company has retained its earnings per share expectation for 2011. We believe the approval of pending rate cases would have a positive impact on the company's earnings.
Xcel Energy currently retains a Zacks #4 Rank (short-term Sell rating). We maintain our long-tern Neutral rating on the stock.
Based in Minneapolis, Minnesota, Xcel Energy is a U.S. electricity and natural gas company, with operations in eight Western and Midwestern states.
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