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Diversified energy company FirstEnergy Corp. (FE - Analyst Report) announced second-quarter 2013 operating earnings of 59 cents per share, beating the Zacks Consensus Estimate by 7 cents. However, the results lagged the year-ago earnings by a penny.

Earnings in the reported quarter benefited from higher contract sales, customer expansion and lower fuel as well as operating and maintenance (O&M) expenses. However, these were offset by rising depreciation expense and general taxes.

GAAP loss during the quarter was 39 cents per share versus earnings of 45 cents in the second quarter of 2012. The difference between GAAP and operating earnings during the quarter was due to the impact of a few one-time items such as 4 cents for debt redemption, 2 cents for regulatory charges, 5 cents for trust securities impairment, 85 cents for plant closing costs and 2 cents for merger accounting.

Total Revenue

FirstEnergy generated total revenue of $3.5 billion in the second quarter versus $3.8 billion in the year-ago quarter. The 6.3% revenue shortfall was primarily due to lower Electric sales in the reported quarter, which dropped 6.0% year over year.

The top line of the company however outpaced the Zacks Consensus Estimate of $3.4 billion by 4.5%.

Highlights of the Release

FirstEnergy's total electric distribution deliveries in the reported quarter decreased 1% from the prior-year level. Residential deliveries increased 2.5% while usage in the commercial and industrial sectors decreased by 3.1% and 2.3%, respectively.

Total expenses in the reported quarter were $3.5 billion, up 8.4% from $3.2 billion in the prior-year quarter. The cost upturn resulted from a 6% year-over-year increase in depreciation expense.

Interest expenses in the reported quarter declined by $18 million year over year to $256 million.

Financial Update

FirstEnergy's cash in hand as of Jun 30, 2013, was $71 million versus $172 million as of Dec 31, 2012.

Cash from operating activities in the second quarter of 2013 was $443 million versus $475 million in the prior-year quarter.

Long-term debt and other long-term obligations as of Jun 30, 2013, were $15.4 billion versus $15.2 billion as of Dec 31, 2012.

During the quarter under review FirstEnergy issued new debts worth $445 million and redeemed debts of nearly $1,122 million.


FirstEnergy reiterated its operating earnings per share expectation for 2013 in the range of $2.85 to $3.15. GAAP earnings for 2013 are expected in the range of $1.39 to $1.69 per share.

Other Company Releases   

American Electric Power Company Inc. (AEP - Analyst Report) posted adjusted second quarter 2013 operating earnings of 73 cents per share, missing the Zacks Consensus Estimate by 4 cents.

CMS Energy Corp. (CMS - Analyst Report) reported second-quarter 2013 operating earnings of 29 cents per share, falling behind the Zacks Consensus Estimate of 35 cents.

DTE Energy Company (DTE - Analyst Report) reported second quarter 2013 earnings per share of 62 cents, lagging the Zacks Consensus Estimate by 21.5%.

Our View

FirstEnergy yet again registered a positive earnings surprise in the second quarter of 2013. The combination of asset modernization efforts along with consistent customer growth will offer the company a stable growth momentum. The total retail customer base at the end of the second quarter was 2.7 million, increasing 38% year over year.

Moreover, its strategy to increasingly shift to the retail sales channel will aid FirstEnergy to effectively tackle the low-price environment.  FirstEnergy currently has a Zacks Rank #3 (Hold).

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