Integrys Energy Group Inc. (TEG) saw its bottom line dip in the second quarter of 2011 compared to the year-ago quarter and the Zacks Estimate. Integrys’ adjusted earnings of 38 cents per share for the second quarter 2011 were 10 cents below 48 cents in the second quarter of 2010. The company’s bottom line was also short of the Zacks Consensus Estimate of 47 cents by 9 cents.
The quarterly miss was mainly due to increased operation and maintenance costs and lower wholesale margins for Integrys Energy Services.
Operating Results
Integrys Energy’s total revenue of $1.011 billion was down marginally from $1.015 billion in the prior-year quarter. Decline in Non-regulated revenues led to the shortfall.
Lower revenues together with higher costs of operation at Integrys Energy during the quarter led most of the downside in the company’s bottom line results. Total cost of fuel, natural gas and purchased power was $305.2 million, up 21.6% year over year.
Operating and maintenance expenses rose 7.5%, while depreciation and amortization expense offset the increases by recording a decline of 8.3% compared to last year.
As a result, second quarter operating income for Integrys Energy was $67.5 million, a 50.4% decline compared with $136.2 million in the year-ago period. Interest expense in the quarter declined 12% to $32.2 million.
Financial Update
Cash and cash equivalents of Integrys Energy as of June 30, 2011, were $211.4 million, up from $179.0 million as of December 31, 2010. Long-term debt at year-end was $2.13 billion, down slightly from $2.16 billion as of December 31, 2010.
Net cash generated from operating activities for the first half of 2011 was $588.2 million, down from $725.4 million in the corresponding period of last year. Capital expenditure for the six-month period totaled $114.5 million compared with $122.8 million in the year-ago period.
Guidance
Following the disappointing results for the second quarter, Integrys’ management narrowed down its earnings guidance for 2011 to $3.30 – $3.50 per share. The company also adjusted its GAAP guidance in the range of $3.24 – $3.44 per share for 2011.
The latest company guidance assumes operational improvements and rate relief for certain utilities, the availability of generation units, and normal weather conditions for the rest of 2011.
Our View
We maintain our long term Neutral recommendation on Integrys shares. Integrys currently has a short term Zacks #3 Rank (Hold), in line with one of its peers Wisconsin Energy Corp. (WEC) who has the same rank.
Integrys Energy Group is a diversified holding company providing products and services in both regulated and non-regulated energy markets, through its subsidiaries.
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