PG&E Corporation’s (PCG) operating earning per share of $1.02 in the second quarter of 2011 fell short by a penny versus both the Zacks Consensus Estimate of $1.03. However results comfortably surpassed the year-ago number of 91 cents.
The company during the reported quarter received the approval of the California Public Utilities Commission (CPUC) for its fiscal 2011 General Rate Case (GRC) and its Gas Transmission and Storage (GT&S) rate case. The settlement agreements stipulating higher rates and expense recovery retroactive to beginning of fiscal 2011 resulted in earnings per share rising by 24 cents quarter-over-quarter.
However this was partially offset by a scheduled nuclear refueling outage at the Diablo Canyon Power Plant (6 cents), lower gas transmission and storage revenues resulting from ongoing adverse market conditions (2 cents), earnings dilutive issuance of common stock (3 cents), and other factors (2 cents). Overall the variance in operating earnings came in at 11 cents higher year over year.
On a reported basis, the company clocked earnings of 91 cents compared with 86 cents in the year-ago quarter. In the reported quarter the 11-cent difference between the reported and adjusted earnings was due to charges related to gas pipeline safety-related improvement expenses.
The expenses were incurred to comply with the California Public Utilities Commission (CPUC) orders and National Transportation Safety Board (NTSB) recommendations in connection with an accident in San Bruno, California on the September 9, 2010 in its natural gas transmission pipeline.
Operating Statistics
PG&E’s revenue of $3.7 billion beat past the Zacks Consensus Estimate of $3.6 billion. Revenues also rose 14% versus $3.2 billion in the year-ago quarter. Electric revenues rose 14.9% year over year to $2.9 billion, while natural gas revenues rose 10.9% to $795 million. Earnings from operations were $406 million versus $353 million in the year-ago quarter. Overall net income came in at $362 million compared to $333 million in the year-ago quarter.
Outlook
San Francisco, California-based PG&E Corporation is the parent holding company of California’s largest regulated electric and gas utility, PG&E. The Utility generates revenues mainly through the sale and delivery of electricity and natural gas to customers. It engages in the business of electricity and natural gas distribution, electricity generation, procurement, and natural gas procurement, transportation, and storage.
PG&E Corporation’s supportive regulatory environment in California and forward looking rate cases ensure a steady stream of earnings and returns. Going forward, favorable decisions from regulators, long-term supply contracts, diversification into alternative power sources and infrastructure improvement programs bode well for the company.
These positives, however, will be partially offset by risks, including the present unfavorable macro backdrop, headwinds in the California economy, tepid demand for electricity, cost of pipeline safety-related work and power-price volatility.
Overall the company reaffirmed its fiscal 2011 operating earnings per share guidance range to $3.45–$3.60. However after incorporating the effects of costs associated with gas pipeline safety-related work, earnings on a reported basis is expected to be in the range of $2.46–$3.09.
Thus we would advise investors to be in the sidelines till the gas pipeline work is over. We are currently Neutral on the Zacks #3 Rank stock.
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