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Mich.-based CMS Energy Corp. (CMS - Analyst Report) announced second-quarter 2013 earnings per share of 29 cents on both adjusted and GAAP basis, missing the Zacks Consensus Estimate of 35 cents. Earnings were also 27.5% lower year over year.

Operational Performance

Operating revenues of CMS Energy in the quarter under review grossed $1.41 billion, up 5.5% year over year. Results were also better than the Zacks Consensus Estimate of $1.37 billion.

Operating expense in the quarter rose 9.4% year over year to $1.17 billion. Higher revenues could not fully offset the increase in expenses, thereby resulting in a decline of 10.8% in operating income to $232 million.

Financial Position

CMS Energy ended the second quarter with cash and cash equivalents of $537 million, surging from $93 million as of Dec 31, 2012. Total debt, capital and finance leases rose to $7.0 billion, up 1.9% from the 2012 end level.

Business Highlights

The company intends to implement cost reduction initiatives that would prevent it from making any rate increases till 2014. The main aim is to provide customers with safe, reliable and affordable energy. It also plans to invest more than $1.5 billion in its utility operations in energy reliability, smart energy, renewable energy and customer service programs. Consumers Energy is on track to meet the 10% renewable energy standard in Michigan's energy reform law by 2015.

Recently, Consumers Energy filed for the approval of a certificate of necessity from the Michigan Public Service Commission (“MPSC”) for its 700 megawatt (“MW”) new natural gas-fired power plant in Genesee County. The estimated cost of the project is $750 million.

Consumers Energy has also entered into an agreement with General Electric Company (GE - Analyst Report). Per the contract, GE will supply 62 turbine units for CMS Energy’s Cross Winds Energy Park. Each turbine unit has a generation capacity of 1.7 MW, which amounts to an installed generation capacity of 105.4 MW. Construction of the Cross Winds Energy Park in Tuscola County is expected to begin later this year and come on line late in 2014.

Guidance

CMS Energy affirmed its guidance for full year 2013 adjusted earnings in the range of $1.63–$1.66 per share. This is consistent with the company's long-term plan of 5%–7% annual earnings growth.

Our Take

CMS Energy missed the bottom-line estimate while the top-line surpassed the consensus. Going forward, the company is committed to providing safe and affordable energy to its customers. It is also contributing to Michigan's economic growth through $7 billion of investment in operations through 2017. However, low electric sales growth in a tepid economy and pending regulatory cases keep us concerned. CMS Energy carries a Zacks Rank #3 (Hold).

However, stocks to look out for in the space are Companhia Paranaense de Energia (ELP - Analyst Report) and Integrys Energy Group, Inc. (TEG), both with a Zacks Rank #1 (Strong Buy).

 

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