Edison Sweeps Past Estimate

Edison International’s (EIX - Analyst Report) second-quarter adjusted earnings of 78 cents per share swept past the Zacks Consensus EPS estimate by 25 cents. However, quarterly EPS fell a penny short of the year-ago profit on an adjusted basis.

Edison International is a California-based utility holding company operating through two principal subsidiaries: Southern California Edison Company, and Edison Mission Group.

Southern California Edison (SCE) is a public utility providing electricity to central, coastal and southern California (excluding Los Angeles). SCE is one of the largest electric utilities in the nation serving a population of 13 million through 4.9 million customer accounts in a 50,000 square mile service area.

Edison Mission Group (EMG) is a wholly owned unit of Edison International. EMG is the holding company for Edison International’s wholly owned subsidiaries, Edison Mission Energy (EME) and Edison Capital. EMG is an independent power producer with net generation capacity of nearly 18,000MW located both in the U.S. and abroad. In addition to power generation, EME is involved in price risk management and wholesale energy marketing and trading activities. Edison Capital holds investments in energy and infrastructure projects.

Quarterly adjusted earnings came from an additional 13 cents per share from SCE. SCE’s earnings were boosted by higher rates effective from the first quarter of 2009 and lower operating expenses. However, this was offset by an eanings drop of 15 cents per share at EMG. The downside is attributed to lower energy and natural gas prices resulting in lower income at Midwest Generation and gas-fired projects for EME. Edison Capital also suffered due to lower trading income.

On a GAAP basis, however, the company swung to a quarterly loss of 5 cents a share from a profit of 79 cents per share in the year-ago period. This was because of a charge of 81 cents per share resulting from completion of a global settlement with the Internal Revenue Service in May and the related termination of cross-border leveraged leases.

Edison International’s revenue fell 18.5% year over year to $2.8 billion. The downside was more prominent in electric utility revenue (80.2% of total revenues) which decreased 20.3% year over year.

Edison International reaffirmed its core earnings guidance of $2.90 – $3.20 per share for fiscal 2009. However, the company updated its 2009 GAAP earnings guidance from $1.98 – $2.51 to $2.18 – $2.48 to reflect the charge from its tax settlement.

Consistent performance through its solid base of stable utility operations, recent SCE rate hike, ongoing alternative energy projects, global tax settlement, balance sheet strength and a relatively cheap earnings-based valuation, partially offset by the stagnant economy, volatile gas prices and recovery of capital expansion costs support our Neutral outlook for Edison International.