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Pinnacle West Capital Corp. (PNW - Analyst Report) reported adjusted earnings per share of $1.18 in the second quarter of 2013 compared with $1.12 in the year-ago quarter. Earnings also exceeded the Zacks Consensus Estimate of $1.14 by 3.5%.

A strong transmission performance, normal weather, and non-fuel rate increases primarily drove earnings in the second quarter.

Total Revenue

Quarterly revenue was $915.8 million, up 4.2% from the year-ago revenue of $878.6 million. Revenue also surpassed the Zacks Consensus Estimate by 2.8%.

Positive transmission rate changes effective from 2012 and Jun 2013 as well as a 1.3% year-over-year expansion in customer footprint propelled Pinnacle West’s top line.

Operational Highlights

During the quarter, retail electricity sales increased 5.5% year over year to $864 million. The increase was due to higher electricity consumption by business as well as residential customers.

On the cost side, fuel and purchased power costs climbed 4.9% to $277.6 million from the year-ago quarter. The company’s operations and maintenance (O&M) expenses also rose 6.05% year over year to $229.3 million due to amortization of certain retirement benefits in 2013.

Operating income rose 2.1% year over year to $259.8 million in the second quarter.

Financial Condition

As of Jun 30, 2013, Pinnacle West’s cash and cash equivalents were $27.8 million versus $26.2 million as of Dec 31, 2012.

Long-term debt as of Jun 30, 2013, was $2.8 billion compared with $3.2 billion as of Dec 31, 2012.

The company generated $454.3 million in cash from operations in the six months ending Jun 30, 2013 compared with $458.6 million in the six months ending Jun 30, 2012.


Pinnacle West increased its earnings estimates for 2013 to the range of $3.55-$3.70 from the prior range of $3.45-$3.60 per share. Retail customer growth is anticipated to be about 1.5%. Operating expenses are expected to increase in the range of $1.37 billion to $1.40 billion from the previous range of $1.34 billion to $1.37 billion.

Other Utility Company Releases

Xcel Energy Inc. (XEL - Analyst Report) posted earnings per share of 44 cents, exceeding the Zacks Consensus Estimate by 15.8%.

TECO Energy Inc. (TE - Analyst Report) reported second quarter 2013 earnings of 25 cents per share, missing the Zacks Consensus Estimate by 3.8%.

NextEra Energy Inc. (NEE - Analyst Report) reported pro forma earnings of $1.46 per share, beating the Zacks Consensus Estimate by 12.3%.

Our View

Pinnacle West yet again delivered favorable earnings surprises in the second quarter. An improving Arizona housing market and consistent customer additions will drive growth. The string of solar investments under the company’s AZ Sun solar program will boost Pinnacle West’s future profitability. The favorable desert climate of Arizona will encourage more such solar endeavors.

In addition, the company’s plans to bring online 275 miles of transmission services over the next ten years will drive its business. Pinnacle West presently carries a Zacks #2 Rank (Buy).

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