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Public Service Enterprise Group Inc. or PSEG (PEG - Analyst Report) reported third quarter 2013 earnings of 76 cents per share, in line with the Zacks Consensus Estimate. Earnings were up 1.33% year over year. The results reflect higher capacity prices and a greater level of investment.

Including a gain of 2 cents for NDT Fund Related Activity, a mark-to-market gain of 1 cent and an expense of 2 cents related to storm operation and maintenance, GAAP earnings per share reported by the company were 77 cents per share, up from 68 cents in the prior-year period.

Total Revenue

Revenue in the reported quarter was $2,554.0 million, up 6.3% from the year-ago figure of $2,402.0 million. Revenue was also above the Zacks Consensus Estimate by $46 million.

During the third quarter, Electric sales volume in the reported quarter declined 4.4% year over year to 12,000 million kwh, while gas sales volume was down 17.1% to 534 million therms.

Highlights of the Release

Total operating expenses were $1,842 million, up 1.9% from the year-ago level. The increase in total expenses was primarily due to a 15.2% rise in operation and maintenance expenses, partially offset by an 8.9% decline in energy costs.
 
The increase in operating expenses was offset by higher revenues, resulting in an operating income of $712 million, up approximately 20% year over year. The rise in expenses notwithstanding, operating income climbed a sharp 20% year over year on the back of a robust top line.

Segment Performance

PSEG Power: Segment operating earnings were $216.0 million in the quarter versus $217.0 million in the prior-year period. The results reflect higher PJM capacity prices, an improvement in the market price of energy and a decline in the supply cost of gas.

PSE&G: The segment generated operating earnings of $168.0 million, up 8.4% year over year. The results were driven by increased revenue associated with a greater level of investment.

PSEG Energy Holdings: Segment operating earnings were $1.0 million, down from the prior-year figure of $10.0 million. The results reflect the continued monetization of assets within Holdings’ portfolio and the absence of gains on an asset sale in the year-ago quarter.

Guidance

The company increased its operating earnings per share guidance for 2013 to a range of $2.40 to $2.55 versus its previous guidance of $2.25 to $2.50 per share. The company believes that it is on track to achieve its goal of double-digit earnings growth driven by increased investment in transmission and strong locational advantages.

At the Peer

Recently, American Electric Power Company Inc. (AEP - Analyst Report) reported third quarter 2013 operating earnings of $1.10 per share, beating the Zacks Consensus Estimate of $1.08 by 1.9%. The quarterly figure also improved 7.8% from the year-ago profit level of $1.02. This improved performance reflects positive returns from the investments made in the company’s regulated operations.

Our Take

Public Service Enterprise Group posted mixed results with the top line beating the Zacks Consensus Estimate while the bottom line coming in line with expectations. Despite the sluggish growth in electric demand, total revenue and earnings were up year over year driven by stepped-up transmission investment, higher PJM capacity prices and an improvement in market prices for energy.

Going forward, the company’s solid portfolio of regulated and non-regulated utility assets will help in maintaining a stable earnings base and substantial long-term growth potential. However, increasing cost of coal, higher pension & financial costs and power-price volatility keep us concerned.  The company currently has a Zacks Rank #3 (Hold).

Stocks that look better positioned are NRG Yield, Inc. (NYLD - Snapshot Report) and UNS Energy Corp. (UNS - Snapshot Report), both with a Zacks Rank #1 (Strong Buy).

 

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