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DTE Energy Beats, Maintains View

CNP DTE

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Before the opening bell today, DTE Energy Company (DTE - Analyst Report) reported second quarter 2012 results. During the quarter, the company’s operating earnings per share of 86 cents easily beat the Zacks Consensus Estimate of 69 cents per share and the year-ago figure of 65 cents per share. The upside reflects significant demand for electricity due to record-high temperatures so far this season.

GAAP and operating earnings in the quarter were same due to the absence of any one-time items. However, GAAP EPS in the second quarter of 2011 was $1.19 that included a tax benefit of 52 cents per share and a gain of 2 cents in the electric utility segment related to the Fermi 1 asset retirement obligation.

Operating Statistics

Total revenue of DTE Energy in the first quarter of 2012 was $2,025 million versus $2,028 million in the year-ago period, a marginal decline of 0.14%. Reported quarter revenue, however, was above the Zacks Consensus Estimate by $35 million.

Fuel, purchased power and gas expenses were $697 million, down 9.6% year over year whereas operation and maintenance expenses were up 9.4% year over year. The marginal decline in revenue and increase in operation and maintenance expenses resulted in operating income of $1,731 million, down 0.5% year over year.

Segment Update

Electric Utility: Segment earnings during the reported quarter were $127 million or 74 cents per share, up from $100 million or 59 cents in the prior-year quarter.

Gas Utility: Segment profit in the quarter under review was $4 million or 2 cents per share versus a loss of $3 million or approximately 2 cents per share a year ago.

Non-utility Operations

Gas Storage and Pipelines: The segment generated profit of $17 million or 10 cents per share versus $14 million or 9 cents per share in the year-ago period.

Unconventional Gas Production: Segment loss was $2 million or 1 cent per share versus a loss of $1 million or approximately 1 cent per share in the year-ago quarter.

Power and Industrial Projects:The segment posted a profit of $10 million or 6 cents per share, up from $5 million or 3 cents per share in the year-ago period.

Energy Trading: The segment posted a profit of $4 million or 2 cent per share versus $12 million or 7 cent per share in the second quarter of 2011.

Corporate and Other: Loss in the quarter was $14 million or 7 cents per share compared with a loss of $16 million or 10 cents per share in the prior-year quarter.

Financial Update

As of June 30, 2012, cash and cash equivalents were $185 million, up from $61 million at the end of June 30, 2011. At the end of the quarter, long-term debt, net of current portion, was $7,212 million versus $7,507 million at the end of the year-ago quarter.

Guidance

The company maintained its earnings guidance in the range of $3.65 to $3.95 per share for fiscal 2012.

Our Take

DTE Energy easily surpassed our expectations. The company is on track to meet its goals based on its investments in renewable energy, environmental controls and utility infrastructure improvements. Over the next five years, the company is expected to invest $1.4 billion for increasing the reliability of the distribution system.

Going forward, stable and growing utilities and its complementary non-utility businesses, higher authorized rates for its regulated business, and growth opportunities in its un-regulated businesses will continue to be growth drivers for the company. However, we remain concerned about the present unfavorable macro backdrop, lower demand for electricity, the dismal economy in Michigan state and pending regulatory cases of the company.

Like its peer, CenterPoint Energy, Inc. (CNP - Analyst Report), the company presently retains a short-term Zacks #2 Rank (Buy). We have a long-term Neutral recommendation on the stock.

Detroit, Michigan-based DTE Energy Company is a holding company with subsidiaries engaged in regulated and unregulated energy businesses. Detroit Edison Company and Michigan Consolidated Gas Company are its largest regulated subsidiaries. DTE Energy also has four non-utility segments engaged in a variety of energy-related businesses.

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