DPL Beats

Diversified energy utility DPL Inc. (DPL - Analyst Report) beat the Zacks Consensus Estimate by 3 cents in the second quarter of fiscal 2009 with earnings of $0.37 per share. However, this was lower than the year-over-year EPS of $0.41.
 
Revenues were $17.6 million and $14.8 million short of the year-ago and the consensus estimate numbers, respectively. The deviation comes from lower retail sales volume and lower market prices. The downside was partially offset by higher average rates for retail sales, increased RTO capacity and other revenues, as well as increased wholesale sales volume.
 
As a result although electric sales volume fell in all the segments, retail revenues rose 1.5% year-over-year. Average price per kWh rose $0.59 cents to $8.87 in the quarter.
 
The effect of higher rates will be more pronounced from the third quarter since the Public Utilities Commission of Ohio (PUCO) has approved Dayton Power and Light Company’s (DP&L) electric security plan (ESP) in June 2009. The ESP has stipulated rates till the end of fiscal 2012. The ESP will increase the bill of an average residential customer with monthly consumption of 750kwh by approximately 1.8% in 2009 and by 2.7% in 2010.
 
Higher rates come at an opportune moment for DPL, which is planning to invest $500 million to upgrade its infrastructure during the period 2009 – 2011. At the end of the quarter the company’s debt-to-capitalization ratio stands at 0.44 with less than a million of long-term debt maturing this fiscal. Later in July it was also was able to repaid $105 million outstanding from its unsecured revolving credit borrowings. This took the war-chest of DPL’s revolving credit facilities to $205 million. Along with Positive outlook from Fitch and stable outlook from Moody’s and S&P, the company will sail smoothly through its expansion plans.
 
DPL has downgraded the upper range of its 2009 earnings guidance from $2.00 to $2.30 per share to $2.00 to $2.20 per share. This is in line with the Zacks Consensus Estimate of 2.18. Similarly the company expects its fiscal 2010 EPS in the range $2.35 to $2.60 per share, in-line with the Zacks Consensus Estimate of $2.46.
 
The utility’s fuel costs spiked by $7.5 million due to a 14% increase in average fuel prices and a $2.8 million reduction in gains realized on emission allowance sales. Fuel cost per net kWh rose 8% to $2.42. The company expects its fuel costs excluding the effect of emission allowance sales will be 15% – 20% higher in fiscal 2009. However the trend is expected to reverse in 2010 since PUCO recently approved a fuel recovery mechanism for DPL from 2010, which will enable the company to recover its fuel costs, primarily coal.
 
Dayton, Ohio-based DPL was nominated by Forbes to be among the 100 most trustworthy companies based on accounting and governance practices. The company sells electricity through its principal subsidiary DP&L. DPL owns approximately 900MW of natural gas and diesel peaking generation capacity and 2,800MW of coal-fired generation capacity. We maintain our Buy rating on DPL.