TECO Energy Beats EPS, Misses Sales

Energy utility TECO Energy Inc. (TE - Analyst Report) announced third-quarter 2011 operating earnings of 42 cents per share, 2 cents higher than the Zacks Consensus Estimate and 8 cents above the year-ago figure.

GAAP and operating earnings in the reported quarter remained the same with no one-time items at play.

Total Revenue

Total revenue at TECO Energy at the end of the third quarter was $911.4 million versus $901.8 million in the year-ago period, reflecting a growth of 1.1%. The year-over-year upside mainly emanated from a higher contribution from Unregulated revenue, while Regulated Electric and Gas revenues declined from year-ago levels.

The top line missed the Zacks Consensus Estimate of $946 million.

Quarterly Highlights

The company saw a 2.7% year-over-year decrease in total expenses during the quarter, which was primarily due to a 28.9% decline in purchased power and a 31.9% fall in the cost of natural gas sold.

The year-over-year revenue growth as well as reduction in total expenses benefited the operating results of the company. Income from operations during the reported quarter increased by 18.6% to $189.4 million from $159.7 million in the year-ago quarter.

Interest charges decreased by 11.7% to $50.7 million from $57.4 million in the year-ago quarter.

Financial Update

The company continues to have a strong cash balance. Cash and cash equivalents of the company as of September 30, 2011, were $165.8 million, up from $67.5 million as of December 30, 2010.

Capital expenditure of the company in the reported quarter was $98.1 million, marginally lower than $99.8 million spent in the third quarter of 2010.

The company has lowered its long-term debt over the first nine months of fiscal 2011. Long-term debt of the company as of September 30, 2011 was $2,690 million versus $3,148.1 million as of December 31, 2010.

Guidance

TECO Energy tightened its earnings per share expectation for 2011 to a range of $1.25 to $1.35, down from the earlier forecast of $1.25 to $1.40. The reduction of 5 cents from the top end of the guidance was due to milder than normal weather, which affected sales at Tampa Electric.

Tampa Electric and Peoples Gas expect to earn their respective allowed returns on equity (ROE) authorized in their 2009 base rate proceedings.

The company's coal production wing, TECO Coal, expects to sell 8.2 to 8.5 million tons of coal in 2011 at an average price of $88 per ton. The cost of production per ton of coal is expected to be about $79 per ton higher than the prior expected range of $74 and $78.

In 2012, the company expects Tampa Electric and Peoples Gas to continue to earn their respective allowed ROE in the range of 10.25% to 12.25% and 9.75% to 11.75%, respectively.

TECO Coal sales in 2012 are expected to remain at par with 2011 levels. The company expects the product mix to be 45% to 50% of specialty coal, which includes stoker, metallurgical and PCI coals, and the remainder utility steam coal.

At the Peer

NextEra Energy Inc.(NEE - Analyst Report), which competes with TECO Energy, expects to announce its third quarter operating earnings on November 4, 2011. In the sequentially preceding quarter NextEra’s earnings surpassed both the year-ago results and the Zacks Consensus Estimate. The Zacks Consensus Estimate for the third quarter 2011 is $1.42 per share.

Our View

We believe the increase in the average customer count at both Tampa Electric and People Gas is a positive sign for the company. Tampa Electric and People Gas recorded customer growth of a respective 0.8% and 0.9% year over year.

The company is expected to start preliminary engineering work at Tampa Electric in 2012. The company has plans to increase generating capacity and convert the peaking units at the Polk Power Station to combined cycle units, making it ready for in-service in early 2017. The measures taken by the company to meet accelerated future demand is appreciable.

TECO Energy currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

Based in Tampa, Florida, TECO Energy is involved in the generation, purchase, transmission, distribution, and sale of electricity in Florida.

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