PEG Beats Top and Bottom Lines

Public Service Enterprise Group Inc. (PEG - Analyst Report) or PSEG, reported second quarter 2011 operating earnings per share of 59 cents, comfortably beating the Zacks Consensus Estimate by 4 cents. However, earnings came in lower than the year-ago figure of 63 cents.

In the reported quarter, GAAP EPS was 63 cents, up from 44 cents in the year-ago period. The variance between GAAP and operating earnings was due to a gain of 3 cents on a Nuclear Decommissioning Trust (‘’NDT’’) Fund Related Activity and a mark-to-market gain of 1 cent.

Operational Performance

Revenue in the reported quarter was $2.5 billion, up from the year-ago figure of $2.4 billion. The top-line was also $108 million above the Zacks Consensus Estimate.

Public Service Enterprise Group generated operating income of $621 million compared with $431 million in the second quarter of 2010. Net income for the reported quarter however declined to $301 million from $321 million in the year-ago period.

Segment Performance

PSEG Power: Segment operating earnings were $186 million in the quarter versus $229 million in the prior-year period. The results reflect a decline in realized energy and capacity prices, increase in customer migration, higher depreciation expense, and greater operation and maintenance expense. However, this was partially offset by a decline in trading related losses.

PSE&G: The segment generated operating earnings of $105 million versus $75 million in the year-ago quarter driven by rate relief and improved returns on higher levels of capital investment and a decline in operating and maintenance expense. This was, however, partially offset by an increase in depreciation expense.

PSEG Energy Holdings: Segment operating earnings were $5 million compared with $12 million the prior-year period. The downside reflects the absence of tax benefits recognized in the prior-year quarter associated with the start-up of solar projects in Ohio and Florida.

Outlook

Public Service reaffirmed its fiscal 2011 earnings per share guidance range of $2.50–$2.75. However, it increased its capital expenditure plan to $6.9 billion for the period 2011 through 2013 versus its previous expectation of $6.7 billion.

At the Peer

Yesterday, one of PSEG's competitors, FirstEnergy Corp. (FE - Analyst Report) announced second-quarter 2011 operating earnings of 65 cents per share, falling short of the Zacks Consensus Estimate of 74 cents per share and year-ago earnings of 82 cents per share.

Our Take

Public Service Enterprise Group’s investment program and operational excellence position it as a reliable supplier of low-cost, clean energy over the long term. Going forward, the company’s earnings growth will be driven by a low-cost nuclear fleet, assumed rate relief and added generating capacities.

However, the increasing cost of coal, higher pension and financial costs, power-price volatility and challenges from the Internal Revenue Service are areas of concern. Therefore, the company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Public Service Enterprise Group, based in Newark, New Jersey, is a diversified utility holding company. Its operations are mostly located in the Northeastern and Mid-Atlantic parts of the U.S.  Public Service Enterprise principally operates through three key subsidiaries: Public Service Electric and Gas Company (PSE&G), PSEG Power LLC (PSEG Power) and PSEG Energy Holdings LLC (PSEG Energy).

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