Zacks_Analysts' Blog : Northeast Utilities Tops EPS Ests - Analyst Blog

Northeast Utilities’ (NU) third quarter 2010 earnings of 57 cents per share beat the Zacks Consensus Estimate of 54 cents by 3 cents. Results were also above 37 cents in the prior-year quarter. Net income in the quarter was $100.5 million, up 56% from $64.8 million in the prior-year quarter.

The improvement was primarily driven by higher electric sales, cost management and results of distribution rate cases that became effective on July 1, 2010.

Net revenues of $1.2 billion in the quarter were down 5% from $1.3 billion in the prior-year quarter. Results also lagged the Zacks Consensus Estimate of $1.5 billion.

Northeast Utilities' retail electric sales improved 6.5% year over year to 9.4 terawatt hour (TWh). On a weather-adjusted basis, electric sales decreased 4.4% in the quarter. Yankee Gas' natural gas sales increased 9.9% to 6.0 billion cubic feet (Bcf). On a weather-adjusted basis, however, Yankee Gas sales increased 10.4% year over year.



Total operating expense decreased 9% year over year to $1 billion in the quarter. Lower fuel cost and operating expense coupled with lower maintenance and depreciation costs led to the decline. Operating income increased 23% to $199.6 million from the prior-year quarter.

Segment Earnings

 

Distribution & Generation:  Earnings at the segment, comprising Electric and Gas Distribution earnings, totaled $55.7 million in the quarter, much higher than the year-ago earnings of $22.5 million.

 

Transmission: The Transmission segment’s quarterly earnings of $45.2 million, higher than $42.8 million earnings reported in the prior-year quarter, reflecting continued investment in transmission facilities.

Competitive Businesses: The segment, which comprises NU Enterprises Inc. ("NUEI"), earned $0.1 million in the quarter, down from $0.3 million in the prior-year quarter due to reduced benefits from marking the remaining wholesale obligations of NUEI to market.

 

NU Parent & Other Companies:  The segment had net after-tax expenses of $0.5 million compared with net expenses of $0.8 million in the prior-year quarter.

Financial Update

Northeast Utilities ended the reported quarter with cash and cash equivalents of $41.2 million, higher than $27 million at the end of fourth quarter 2009. Long-term debt at quarter-end totaled $4.6 billion, higher than $4.5 billion at fourth quarter 2009 end.

Cash from operations in the first nine months of 2010 was $843.6 million, lower than $761.1 million in the same period last year. Capital expenditure increased to $677.6 million in the first nine months of 2010, up from $634.4 million in the year-ago period.

Guidance

 

Northeast Utilities raised its full-year 2010 earnings guidance to $2.10 to $2.20 per share from $1.95 to $2.05 per share. The new expectation takes into consideration the strong performance during the reported quarter.

The guidance reflects its Distribution & Generation segment earnings of $1.10−$1.20, Transmission segment earnings of $1.00, Competitive Business segment earnings of 5 cents and NU Parent and other expenses of roughly 5 cents per share.

Based on cost containment measures and investment in New England’s high-voltage electric transmission grid, we expect the company to post solid results in the upcoming quarters as well. The company also remains focused on enhancing shareholder value.

We maintain a Neutral recommendation on Northeast Utilities over the long term. The quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates upward pressure on the stock over the near term.