Northeast Utilities’ (NU - Analyst Report) first quarter 2011 earnings of 69 cents per share rose 6 cents above the Zacks Consensus Estimate of 63 cents.
The rise in quarterly results was driven by a much colder weather in the first quarter of 2011, continued cost containment efforts, progress in building the infrastructure needed to serve New England’s energy customers, and the effect of electric distribution rate decisions received over the past 12 months.
Net revenues of $1.24 billion in the quarter were down 7.5% from $1.34 billion in the prior-year quarter. Revenues also lagged the Zacks Consensus Estimate of $1.33 billion.
Electric Sales Volumes and Expenses
Northeast Utilities' retail electric sales improved 3% from the comparative 2010 quarter to 8,705 Giga watt hours (GWh). On a weather-adjusted basis, electric sales decreased 2% in the quarter. Yankee Gas' natural gas sales increased 16.9% to 19.4 billion cubic feet (Bcf). On a weather-adjusted basis, Yankee Gas sales increased 3.2% year over year.
Total operating expense decreased 9.4% year over year to $1 billion in the quarter. Lower fuel and power cost coupled with lower depreciation costs led to the decline, offset by a rise in maintenance and other operating expenses.
In the first quarter, operating income showed a marginal rise of 0.3% to $227.4 million from the prior-year quarter.
Distribution & Generation: Earnings at the segment, comprising Electric and Gas Distribution earnings, totaled $782.2 million in the quarter, 63% higher than the year-ago earnings of $47.9 million. The increase was driven by higher retail sales, better distribution rates and colder weather, offset slightly by higher pension and health care costs.
Transmission: The Transmission segment’s quarterly earnings of $44.75 million, higher than $40.1 million earnings reported in the prior-year quarter, reflected higher level of transmission investment.
NU Parent & Other Companies: The segment recorded net expenses of $0.8 million in the quarter compared with net expenses of $1.8 million in the prior-year quarter.
As of March 31, 2011, Northeast Utilities had cash and cash equivalents of $15.4 million, almost half of $30.0 million at the end of March 31, 2010.
Cash generated from operations in the first quarter was $372.8 million, higher than $225.7 million in first quarter 2010. Capital expenditure increased to $236.7 million for the quarter, up from $203.5 million spent in the year-ago quarter.
Northeast Utilities reaffirmed its earnings guidance for 2011 within the $2.25 to $2.40 per share range, excluding nearly $0.20 per share of expenses related to the completion of its merger with NSTAR. Including merger expenses, Northeast Utilities now projects earnings of $2.05 - $2.20 per share.
Northeast Utilities’ guidance for 2011 reflects earnings at the Distribution & Generation segment of $1.25−$1.35 per share and Transmission segment earnings of $1.05−$1.10 per share. Earnings at the NU parent and other companies, including NU’s Competitive Business segment, is expected to record net expenses of $0.05 per share in 2011, excluding merger-related costs.
Going forward, we expect New England's largest utility company, Northeast Utilities, to gain from its combined operations with NSTAR, which should boost the company’s bottom line.
Northeast Utilities’ closest peer NiSource Inc. (NI - Analyst Report) posted in-line results for the first quarter 2011 with earnings totaling 72 cents or $202.3 million. Gross revenue of $2.14 billion in the quarter however, missed the Zacks Consensus Estimate of $ 2.39 billion but improved 4.3% year over year.
We maintain a Neutral recommendation on Northeast Utilities over the long term. The quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates upward pressure on the stock over the near term.