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Hawaiian Electric Industries Inc. (HE - Analyst Report) announced first-quarter 2012 operating earnings of 40 cents per share, beating both the Zacks Consensus Estimate of 36 cents and year-ago earnings of 30 cents per share.

Operating Statistics

Total revenue of the company at the end of the reported quarter was $814.9 million versus $710.6 million in the year-ago quarter, reflecting growth of 14.7%. Reported results also came in higher than the Zacks Consensus Estimate of $802 million. Hawaiian Electric’s reported net income of $38.3 million compared favorably with $28.5 million in the year-ago quarter.

Segment Net Income

Electric Utility: Segment net income rose to $27.3 million in the reported quarter from $19.2 million in the year-ago quarter. The main driver of the improvement was the regulatory approval for recovery of costs for reliability and clean energy investments in Oahu. Earlier, in 2011, the utility’s performance was affected by a ramp-up of its clean energy and reliability initiatives. This put pressure on first half 2011 earnings until the Oahu utility was allowed to start the recovery of these costs in July 2011. Operations and maintenance (O&M) expenses were $1 million lower for the first quarter of 2012 compared to the first quarter of the prior year.

Banking: Hawaiian Electric’s Banking segment recorded a net income of $15.9 million in the reported quarter, compared with a net income of $13.9 million in the year-ago quarter. The increase resulted from lower provision for loan losses as consumer credit quality improved with Hawaii’s gradual economic recovery and higher non-interest income from higher gains on sales of very low fixed rate residential mortgages. Overall, the segment achieved strong profitability in the quarter with a return on average equity of 12.9% and a return on average assets of 1.29%.

Other Loss from this segment was $4.9 million in the reported quarter compared with a net loss of $4.6 million in the year-ago quarter.

Financial Update

Total cash and cash equivalents as of March 31, 2012, were $236.3 million versus $270.3 million as of December 31, 2011. Cash used in operations in the reported period totaled $15.7 million versus cash used in operations of $13.2 million in the year-ago period. Long-term debt remained flat at $1.3 billion compared with fiscal 2011 end.

Our View

Based in Honolulu, Hawaii, Hawaiian Electric, through its subsidiaries, primarily engages in electric utility and banking businesses primarily in the state of Hawaii.

Performance in the reported quarter was driven by all round stable results. The company continued to reinvest earnings into its Hawaii-based businesses. Its three utilities, Hawaiian Electric, Maui Electric and Hawaii Electric Light Company, invested over $40 million for developing the electric grid incorporating significant amounts of renewable energy facilities in the process.

Likewise its banking business increased its loan portfolio for the sixth consecutive quarter, adding more than $100 million in loans to customers year over year. The Banking segment performed well in the reported quarter due to lower credit costs and lower operating expenses.

In the near term we retain a short-term Zacks #2 Rank on the stock, which translates into a Buy rating. However, the present weak Hawaiian economy and uncertainty regarding the sustainable strength of the Japanese economy continue to weigh on the stock’s valuation. Thus, over the long term, we maintain our Neutral rating on the stock. This is in line with its peers like CMS Energy Corporation (CMS - Analyst Report) and OGE Energy Corporation (OGE - Analyst Report).

 

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