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TECO Energy, Inc. (TE - Analyst Report) announced first-quarter 2014 operating earnings of 23 cents per share, surpassing the Zacks Consensus Estimate by a penny. Earnings were 21.1% higher than the year-ago figure.

Earnings were driven by the improvement in economic conditions in its service territories, which resulted in customer and demand growth. Rate case settlement in Tampa Electric also helped the cause.

Total Revenue

Total revenues at TECO Energy at the end of the first quarter were $684.1 million, marginally short of the Zacks Consensus Estimate of $685 million.

Total revenues in the reported quarter were 3.5% higher than year-ago revenues of $661.1 million. The upside was driven by the company’s regulated operations.

Operational Highlights

Total operating expenses in the first quarter increased 2.5% year over year to $571 million. The increase in operating expenses was primarily due to an 8.5% rise in Fuel and Purchased Power expenses.

Interest expenses in the quarter were $42.5 million, marginally lower than $43 million in the year-ago quarter.

In the reported quarter, a 1.8% and 1.6% increase in electric and gas customers led to the higher top line.

Segment Details

Tampa Electric: Segment net income was $45.2 million, up 42.1% from $31.8 million in the year-ago quarter. The upside can be attributed to base rate settlement, higher energy sales due to favorable weather and lower interest expense. However, this growth was partially offset by higher depreciation expenses.

Peoples Gas: Segment net income was up 5.8% year over year to $14.6 million due to customer growth of 1.6% in the reported quarter and increase in therm sales due to a harsh winter.

TECO Coal: Segment loss was $1.6 million compared with an income $3.0 million during the prior-year period. The decline was primarily due to lower average selling price per ton of coal from the year-ago period.

Parent & Other: In the first quarter, the cost from continuing operations was $11.2 million versus a cost of $7.4 million in the same period of 2013.

Financial Update

Cash and cash equivalents of the company as of Mar 31, 2014, were $137 million, down from $185.2 million as of Dec 31, 2013.

Capital expenditure in the reported quarter was $136.3 million, up from $103.3 million spent in the first quarter of 2013.

Cash flow from operating activities in the first quarter was $186.9 million, up from $157.9 million during the prior-year period.

Guidance

TECO Energy reiterated its consolidated earnings per share guidance for 2014 in the band of 95 cents to $1.05.

Peoples Gas maintained its expectation 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 customer switching from other sources of fuel to natural gas.

Tampa Electric expects to earn in the mid range of its authorized allowed ROE of 9.25% to 11.25%.This primarily is expected to be driven by the September rate case settlement and base revenues of $50.0 million in 2014.

TECO Coal has 90% of its expected sales contracted and priced for 2014. The company expects 2014 sales to be at the high end of the 5.5 million to 6.0 million ton range provided earlier.

Other Company Releases

CMS Energy Corporation (CMS - Analyst Report) posted first-quarter 2014 earnings per share of 75 cents, beating the Zacks Consensus Estimate of 64 cents by 17.2%.

Entergy Corp. (ETR - Analyst Report) reported first-quarter earnings of $2.29 per share, beating the Zacks Consensus Estimate by 8.5%

DTE Energy Company (DTE - Analyst Report) reported first-quarter 2014 operating earnings per share of $1.69, beating the Zacks Consensus Estimate of $1.41 by 19.8%.

Our View

The company was able to beat our earnings expectation in the reported quarter, thanks to the colder weather, which increased usage and created fresh demand. In addition, improvement in economic conditions drove demand for utility services.

However, the results in the quarter were impacted by an increase in input costs and softness in coal prices. If these conditions prevail in the upcoming quarters, the company will fail to realize the full benefits of an improving economy.

TECO Energy currently holds a Zacks Rank #3 (Hold).

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