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Before the bell, Ameren Corporation (AEE - Analyst Report) reported its fourth quarter and fiscal 2011 results. In the reported quarter, the company with core earnings of 14 cents a share missed the Zacks Consensus Estimate of 15 cents by a penny. The company’s results also came way below the year-ago quarterly earnings of 22 cents. Performance in the reported quarter was affected by warmer winter temperatures as well as a scheduled nuclear refueling and maintenance outage at the Callaway Energy Center.

On a reported basis, the company clocked earnings of 10 cents per share in the fourth quarter versus 21 cents in the year-ago period. The difference of 4 cents between the reported and core earnings per share in the quarter was due to employee separation charges (7 cents) partially offset by a gain from net unrealized mark-to-market activity (3 cents).

Fiscal 2011 core earnings came in at $2.56 per share, a penny more than the Zacks Consensus Estimate of $2.55. However, this came below fiscal 2010 earnings of $2.75 per share.

Ameren’s earning per share for fiscal 2011 on a reported basis came in at $2.15 versus 58 cents in fiscal 2010. The variance of 41 cents per share in fiscal 2011 between reported and core earnings came from goodwill, impairment and other charges (32 cents); employee separation charges (7 cents); and net loss from unrealized mark-to-market activity (2 cents).

Operational Performance

Net revenues in the quarter fell 7.5% from the year-ago quarter to $1.58 billion, along the way beating the Zacks Consensus Estimate of $1.57 billion. In the reported quarter Electricity revenue fell 5.3% to $1.31 billion. Gas revenue also fell 16.9% to $270 million.

Fiscal 2011 revenue was $7.53 billion versus the Zacks Consensus Estimate of $7.61 billion. Full year revenue also came below the $7.64 billion generated in fiscal 2010.

Fiscal 2011 Segment Performance

Ameren Missouri Segment: Segmental core earnings for 2011 were $359 million, compared with $367 million in 2010. The decrease in core earnings reflects a 2.6% decrease in electric sales to native load customers due, in part, to cooler summer and warmer winter temperatures. In addition, capitalized financing expenses were lower and depreciation expense was higher primarily due to the completion of scrubbers at the Sioux Energy Center in late 2010. Lastly, storm-related expenses were higher in 2011 than in 2010 and 2011 earnings included a charge resulting from a Missouri Public Service Commission requirement that certain revenues be flowed through the fuel adjustment clause. The effects of these factors were partially offset by increased electric rates and lower non-fuel operations and maintenance expenses.

Ameren Illinois Segment: Segmental core earnings for 2011 were $193 million, compared with $208 million in 2010. The decrease in earnings reflects a 1.1% decrease in electric sales to native load customers due primarily to cooler summer and warmer winter temperatures. In addition, storm-related and depreciation expenses were higher in 2011 than in 2010. The effects of these factors were partially offset by increased electric rates and reduced interest expense.

Merchant Generation Segment: Segmental earnings were $72 million, compared with $108 million in 2010. The decline in earnings reflects lower margins due to lower realized power prices and higher fuel and transportation-related expenses. This margin decline was partially offset by reduced interest expense.

Financial Condition

Ameren reported cash and cash equivalents of $255 million at fiscal-end 2011, compared with $545 million at fiscal-end 2010. Long-term debt decreased slightly to $6.68 billion versus $6.85 billion at fiscal-end 2010. The company generated cash of approximately $1.88 billion from operating activities compared with approximately $1.82 billion generated in fiscal 2010.

Outlook

St. Louis based Ameren Corporation is a holding company which operates in the generation and distribution of electricity and natural gas to residential, commercial, industrial and wholesale end markets in Missouri and Illinois. Through its utility subsidiaries the company distributes electricity to 2.4 million customers and natural gas to approximately 1 million customers in Missouri and Illinois. Ameren operates in three segments: Missouri Regulated, Illinois Regulated and Non-rate-regulated Generation.

Ameren expects its fiscal 2012 earnings per share to be in the range of $2.20–$2.50. Of this, regulated utility earnings are expected to be in the range $2.20–$2.40. Merchant Generation’s contribution is expected to range between break even and 10 cents.

Our bullish outlook for Ameren is supported by consistent performances across its solid base of stable utility operations in the Midwestern market, as well as its focus on cost minimization, the strong balance sheet, its above-industry average dividend yield and relatively cheap earnings-based valuation.

However, valuation continues to be restrained by merchant generation, its predominantly coal-based generation assets and pending regulatory cases. Ameren currently retains a short-term Zacks #3 Rank (Hold rating) on the stock, along with a longer-term Neutral recommendation. Thus in the near term we would advise investors to accumulate its Zacks #1 Rank (Strong Buy rating) peers like Pike Electric Corporation (PIKE - Snapshot Report) and Huaneng Power International Inc. (HNP - Snapshot Report).

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