WEC Continues to Outperform

Energy utility Wisconsin Energy Corporation's (WEC - Analyst Report) third quarter 2011 operating earnings per share of 55 cents were fairly ahead of the Zacks Consensus Estimate of 49 cents and above the year-ago operating earnings of 47 cents. Wisconsin Energy’s quarterly results mainly benefited from the improved earnings contribution from its ‘Power the Future’ plan, which showed a growth of 3 cents per share.

Power the Future earnings growth stemmed mainly from the company’s investment in the second new generating unit at the Oak Creeksite. The second expansion unit at Oak Creek began commercial service in January 2011.

Total Revenue

Wisconsin Energy's total revenue of $1,052.8 million in the third quarter showed 8.2% growth from $973.2 million in the year-ago comparable period. Quarterly revenue, however, fell short of the Zacks Consensus Estimate of $1,088 million.

Operating Highlights

Wisconsin Energy reported total electricity sales of 8,651.4 thousand megawatt-hour, up 3.1% from the year-ago quarter. Total natural gas sales in the quarter dropped 7.7% to 284.2 million therms.

During the third quarter, Wisconsin Energy recorded a retail electricity sales decline of 0.3%, mainly due to poor electricity consumption by residential customers.

Electricity use by residential customers during the third quarter was down by 2.3% year-over-year due to warmer-than-normal 2011 summer temperatures in the Midwest, which impacted the residential demand for air conditioning compared to last year. This was largely offset by a 0.3% growth in electricity sales to large commercial and industrial customers and a 1.0% rise in electricity sales to small commercial and industrial customers.

Though the retail electric sales were slightly disappointing for the quarter, revenues were boosted by the increase in customer accounts. At the close of the third quarter, Wisconsin Energy had 2,114 more electric customers and 4,170 more natural gas customers than last year.

Total operating expenses of Wisconsin Energy increased marginally to $828.5 million mainly due to a rise in the cost of gas sold, fuel and purchased costs as well as depreciation and amortization expenses, which were more than offset by a decline in other operation and maintenance expenses.

Despite the rise in third quarter operating expenses, the company’s robust revenue growth boosted the operating results. Operating income during the quarter was $224.3 million versus $203.0 million in the year-earlier quarter, reflecting a growth of 10.5%.

Net interest expenses in the quarter were $56.8 million versus $52.5 million in the year-ago quarter, reflecting a growth of 8.2%.

Financials

Cash and cash equivalents at Wisconsin Energy as of September 30, 2011 were $15.1 million compared with $24.5 million as of December 31, 2010. Long-term debt rose from the year-end 2010 level of $3,932.0 million to $4,618.9 million as of September 30, 2011.

Cash from operating activities at the end of the third quarter was $827.6 million versus $653.7 million in the year-ago quarter. The company spent about $612.2 million toward capital expenditure through the nine months ended September 30, 2011, reflecting an increase of 12.2% from $545.6 million spent in the year-ago comparable period.

Peer Comparison

Wisconsin Energy’s closest peer Xcel Energy Inc. (XEL - Analyst Report) also reported its third quarter earnings results today. Xcel Energy’s operating earnings of 62 cents per share missed the  Zacks Consensus Estimate of 65 cents by 3 cents but were above the year-ago numbers by 7 cents.

The year-over-year increase in third quarter earnings was primarily related to higher electric margins as a result of warmer-than-normal weather across the company’s service territories and interim rates in Minnesota and North Dakota. This was partially offset by an increase in operating and maintenance expenses, depreciation expense and property taxes, partly because of the new generation plant investment.

Conclusion

Based in Milwaukee, Wisconsin, Wisconsin Energy along with its subsidiaries generates and distributes electricity in Southeastern, East Central, and Northern Wisconsin, as well as in the Upper Peninsula of Michigan. The company also distributes natural gas.

Wisconsin Energy currently retains a Zacks #3 Rank (short-term Hold rating). We maintain a long-term Neutral rating on the stock.

Read the full analyst report on WEC

Read the full analyst report on XEL