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ALLETE Inc. (ALE - Snapshot Report) reported second-quarter 2013 earnings of 35 cents per share, missing the Zacks Consensus Estimate by 5 cents as well as the year-ago figure by 10.3%. The decline in earnings was primarily due to an increase in share counts and higher depreciation and interest expenses.

Total Revenue

ALLETE posted revenues of $235.6 million, surpassing the Zacks Consensus Estimate by $1.6 million. Quarterly revenues increased 9% year over year driven by increased revenues from the renewable energy investments and year-over-year rise in total electricity sales.

Operational Highlights

ALLETE's sales from the regulated utility operations stood at $215.8 million, up 9.5% year over year. This was mainly driven by an increase in sales at the residential, commercial, municipal and industrial divisions and a rise in the other power suppliers’ sales.

In the quarter under review, total electricity sale volume rose 2.5% year over year to 3,223 million Kilowatt-hours.

Total operating expenses were $211.2 million in the second quarter, up 9.4% year over year. A rise in costs of fuel and purchased power, operating and maintenance expenses as well as depreciation expenses led to the cost escalation.

ALLETE's operating income jumped 4.7% year over year to $24.4 million. Profit increased in consequence of a substantial increase in the top line despite strong cost pressure.

The company's interest expenses were $12.8 million versus $10.1 million in the year-ago quarter.

Financial Update

ALLETE's cash and cash equivalents as of Jun 30, 2013 were $145 million versus $80.8 million as of Dec 31, 2012.

Long-term debt as of Jun 30, 2013 was $1,064.7 million compared with $933.6 million at year-end 2012.


ALLETE reiterated its full year 2013 earnings expectation of $2.58 - $2.78 per share taking into consideration strong industrial demand, higher cost recovery revenue, increased operating and maintenance expenses, depreciation and interest expenses, rise in federal production tax credits and dilution from equity issuances in the range 10 - 15 cents per share.

Other Company Releases

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

Exelon Corporation (EXC - Analyst Report) announced second-quarter operating earnings of 53 cents per share, missing the Zacks Consensus Estimate by a penny.

Entergy Corporation (ETR - Analyst Report) reported second quarter operational earnings of $1.01 per share, beating the Zacks Consensus Estimate by 3 cents.

Our View

ALLETE expects energy demand in the region to increase in the near term primarily due to the commencement of numerous large-scale industrial projects. We believe the improvement and diversification of the generation capacity will enable the company to meet higher demand, which will subsequently improve its future performance. The company has also taken an initiative, known as EnergyForward, to meet up Minnesota's renewable energy standard of 25% renewable energy by 2025.

Duluth, Minn.-based ALLETE Inc. is a multi-service provider and has operations in Florida, North Dakota and Wisconsin. It has a wide array of businesses, starting from the supply of electricity and water utility to automobile auction. The company currently has a Zacks Rank #4 (Sell).

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