CenterPoint Energy Inc. (CNP) in the second quarter of 2011 posted adjusted earnings of 24 cents per share, a penny ahead of the Zacks Consensus Estimate. Results compare favorably with 20 cents earned in the year ago quarter.
Solid results at Electric Transmission & Distribution, Natural Gas Distribution, Field Services and Competitive Natural Gas Sales and Services aided the company to post a strong second quarter.
Adjusting for mark-to-market gains — natural gas derivative contracts of $3 million or 1 cent a share and ZENS-related mark-to-market gains — marketable securities of $12 million or 3 cents a share, the company reported net income of $119 million or 28 cents per share, compared with $81 million or 20 cents in second quarter 2010.
Operational Results
CenterPoint Energy’s total revenue for the reported quarter increased 4.6% year over year to $1.837 billion in the quarter under review. Higher revenues from Electric Transmission & Distribution, Competitive Natural Gas Sales and Services and Field Services led to the overall climb. Revenues scored were behind the Zacks Consensus Estimate of $1.915 billion.
Expenses escalated 2.7% year over year to $1.5 billion largely due to higher operation and maintenance costs.
Operating income totaled $303 million, improving 15% over prior year quarter.
Segment Results
Electric Transmission & Distribution
Segment posted revenue growth of 7.8% year over year to gross $606 million in the quarter.
Operating income was $185 million for the second quarter of 2011, up 17% year over year. Of this, $153 million came from the regulated electric transmission & distribution utility operations (TDU) and $32 million related to securitization bonds.
Operating income form the TDU got boosted by higher quantum of metered customers, higher usage, higher transmission revenues and lower depreciation and amortization expense. These positives were somewhat muted by higher operation and maintenance expenses.
Natural Gas Distribution
Segment revenue was $452 million, down 2.8% over the year ago quarter.
Operating income was $13 million for the second quarter of 2011, surging 30% year over year. The increase in operating income resulted primarily from higher usage, rate changes, and increase in metered customers, partially offset by increases in operation
Interstate Pipelines
Segment revenue declined 4% year over year to $142 million.
Operating income for the quarter was of $60 million, down 10% year over year. Lower revenues from natural gas distribution affiliates, lower off-system sales and higher operation and maintenance expenses, partially offset by higher revenues from ancillary services induced the year over year decline.
Field Services
Segment revenue surged 22.5 4% year over year to $98 million.
Operating income was $39 million, up 26% year over year. The improvement stemmed form increased revenues from higher gathering volumes, partially offset by lower prices and higher operation and maintenance and depreciation expenses.
Competitive Natural Gas Sales and Services
Segment revenue improved 4.6% over prior year quarter to $586 million.
Operating income in the quarter was $3 million, reversing the loss of $6 million in the year ago quarter.
Financial Update
CenterPoint Energy ended the quarter with cash and cash equivalents of $190 million, down from $199 million at the end of the fiscal 2010.
Long-term debt declined to $8.5 billion at quarter end from $9 billion at fiscal-end 2010.
During the first half of 2011, the company generated $1.1 billion in cash from operating activities, compared to $0.8 billion in the year ago period.
Dividend Update
The board of directors declared a dividend of 19.75 cents per share. The dividend will be paid on September 9, to shareholders of record on August 16.
Looking Ahead
CenterPoint Energy reaffirmed its earnings guidance for fiscal 2011 in the range of $1.04–$1.14 per share.
Peer Comparison
Dominion Resource Inc. (D),which competes withCenterPoint, reported second quarter 2011 operating earnings of 59 cents, in line with the Zacks Consensus estimate and at the higher end of the company’s guidance of 50 cents to 60 cents per share. Results were, however, 18% below the year-ago earnings of 72 cents.
The year-over-year decline was largely due to lower merchant generation margins, higher scheduled outage costs and interest expense, and normal weather in the regulated electric service territory. However, higher rate adjustment clause earnings and contributions from producer services as well as lower share count due to buyback were partial offset.
Xcel Energy Inc. (XEL), another peer of CenterPoint, reported operating earnings for the second quarter 2011 of 33 cents per share, 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.
Our Take
CenterPoint Energy with its balanced portfolio of electric and natural gas businesses, provides a diversified risk profile, along with stable earnings and cash flow. Going forward, our bullish outlook for the company is supported by stable regulated operations, higher rates, ongoing infrastructure development projects, a strong balance sheet and a high dividend yield.
However, pending regulatory cases, significant presence in a hurricane prone section of the U.S. and swings in weather keeps us on the sidelines.
We continue to retain our long-term Neutral stance on CenterPoint Energy. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.
CENTERPOINT EGY (CNP): Free Stock Analysis Report
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