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Energy utility TECO Energy Inc. (TE - Analyst Report) announced third-quarter 2013 operating earnings of 30 cents per share, below the Zacks Consensus Estimate of 32 cents. Earnings were also 28.6% below the year-ago figure. The decline reflects lower energy sales and higher operations and maintenance expenses.

Operational Highlights

Total revenue at TECO Energy at the end of the third quarter was $765.9 million, missing the Zacks Consensus Estimate of $817.0 million. The top line declined 10.8% year over year. The decline reflects lower sales to residential, commercial and industrial customers.

Total operating expenses declined 7.4% year over year to $625.4 million due to lower fuel and purchased power costs.

Segment Details

Tampa Electric: Segment net income was $68.7 million, down from $73.5 million in the year-ago quarter. The decline reflects lower energy sales, higher depreciation and operations and maintenance expenses and lower earnings on assets recovered through the Environmental Cost Recovery Clause due to a Florida Public Service Commission rule revising the return on investment calculation with effect from Jan 1, 2013. However, these negatives were partially offset by lower interest expense.

Peoples Gas: Segment net income was down 22.9% year over year to $5.4 million. The significant decline reflects higher non-fuel operations and maintenance expense partially offset by lower interest expense.

TECO Coal: Segment loss was $1.4 million compared to a profit of $1.5 million during the prior-year period.

Financial Update

Cash and cash equivalents of the company as of Sep 30, 2013, were $152.8 million, down from $200.5 million as of Dec 31, 2012.

Capital expenditure in the reported quarter was $121.3 million, up from $114.3 million spent in the third quarter of 2012.  

Cash flow from operating activities during the quarter was $62.8 million, up from $44.0 million during the prior-year period.


TECO Energy maintained its 2013 earnings per share expectation in the range of 90 cents to $1.00.

Peoples Gas expects to earn above the mid-point of its allowed return on equity (ROE) range of 9.75% to 11.75%. The segment expects to benefit from moderate customer growth and customer switching from other sources of fuel to natural gas.

Tampa Electric expects the year-to-date trend of customer growth to continue but cautioned that sales growth will be lower than the increase in customer count. This is primarily due to lower average customer usage.

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 View

TECO Energy’s top and bottom line failed to meet the Zacks Consensus Estimate. Also, revenue and earnings declined year over year. The downside reflects lower electric and gas sales. Going forward, regulatory hurdles for underground coal mines, fluctuating commodity prices, and fluctuations in energy demand due to a variance in weather conditions are matters of concern.

However, the approval of Tampa Electric’s base rate request provides strong visibility to the company’s earnings stream over the next four years. TECO Energy currently has a Zacks Rank #3 (Hold).

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

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