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Northeast Utilities Misses on Earnings & Revs

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Northeast Utilities (NU - Analyst Report) announced third-quarter 2013 adjusted earnings of 69 cents per share, missing the Zacks Consensus Estimate by 5.5%. Reported earnings edged down 1.4% year over year due to higher operating expenses and an increase in shares outstanding.

On a GAAP basis, the company reported earnings of 66 cents per share, flat with the year-ago figure. The difference between GAAP and pro forma earnings was due to an after-tax integration charges of 3 cents associated with the NSTAR merger.

Revenues

Northeast Utilities' operating revenues of $1,892.6 million lagged behind the Zacks Consensus Estimate by $1.4 million. Quarterly revenues edged up 1.7% year over year due to an improvement in retail natural gas distribution volumes.

Segmental Highlights

The company’s earnings from Electric Transmission, and The Connecticut Light and Power Company segments decreased 17.6% and 11.7% respectively, year over year. Natural Gas Distribution’s loss more than doubled from the year-ago quarter.

The negatives were partially offset by an improvement in earnings from the company’s Electric Distribution and Generation (up 4.1% year over year), Public Service Company of New Hampshire (up 4.4%), Western Massachusetts Electric Company (up 6.4%) and NU Parent and Other Businesses (up 41.9%) divisions. In addition, NSTAR Electric reported flat results in the quarter.

Operational Highlights

Northeast Utilities’ total operating expenses climbed 3.1% year over year, on the back of higher purchased power, fuel and transmission costs, and depreciation expenses.

An increase in operating revenues less than offset the rise in total operating expenses, thereby resulting in an operating income of $399.3 million, down 3.3% year over year.

In the quarter under review, Northeast Utilities' overall retail electricity distribution volume dropped 1.6% year over year to 15,247 Gigawatt hours. The company’s natural gas distribution volume was 11,173 million cubic feet, up 4.5% year over year.

Financial Update

As of Sep 30, 2013, Northeast Utilities had cash balance of $57.9 million compared with $45.7 million as of Dec 31, 2012.

Long-term debt as of Sep 30, 2013 was $7,444.2 million versus $7,200.2 million as of Dec 31, 2012.

Net cash flows provided by operating activities during the first nine months of 2013 were $1,177 million, significantly higher than $796 million reported in the year-ago comparable period.

In the first nine months of 2013, the company invested $1,073.8 million under the capital expenditure program.

Guidance

Northeast Utilities affirmed its full-year 2013 earnings guidance in the range of $2.45 - $2.60 per share.

Other Company Releases

American Electric Power Company Inc. (AEP - Analyst Report) reported third-quarter operating earnings of $1.10 per share, beating the Zacks Consensus Estimate of $1.08 by 1.9%.

Entergy Corp. (ETR - Analyst Report) posted operational earnings of $2.41 per share, surpassing the Zacks Consensus Estimate of $2.29 by 5.2%.

Exelon Corporation (EXC - Analyst Report) announced third-quarter 2013 pro forma earnings of 78 cents per share, surpassing the Zacks Consensus Estimate by 12 cents.

Our View

Although, Northeast Utilities’ top and bottom line missed the Zacks Consensus Estimate due to increased operating expenses, the company intends to utilize cost control measures in the near term. These initiatives will likely enable the company to improve its future margins.

Despite NSTAR Electric division’s flat performance, the NSTAR-merger provided significant upside to Northeast Utilities’ year-to-date results in terms of improvement in NSTAR Gas’s performance. We expect the merger to continue to help the company to improve its scale of operations, thereby enabling them to serve more number of customers going forward.

Northeast Utilities’ Greater Springfield Reliability project will likely contribute significantly in 2013 as it will be online by this year.

Northeast Utilities currently has a Zacks Rank #2 (Buy).

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